Shujiro Urata, Youngmin Baek, 20 May 2022

Participation in global value chains is commonly seen as an important driver of productivity growth. This column uses Japanese firm-level data to estimate the productivity-enhancing impacts of participation. On average, firms that form part of global value chains are found to exhibit higher productivity than non-participating firms. In addition, longer participation strengthens the productivity-enhancing effects. Policymakers should support firms by protecting intellectual property rights, ensuring competition, and lowering costs and risks associated with global value chain participation. 

Ippei Fujiwara, Ryo Kimoto, Shigenori Shiratsuka, Toyoichiro Shirota, 19 May 2022

A large literature explores the implications of the introduction of robots into the workplace for the labour market, yet few studies exist which measure robot quality over time.  This column uses data from the Japan Robot Association and the Bank of Japan to document a significant decline in the improvement in robot quality in Japan in the last decade. The differences in the growth rates of robot quality between the 2000s and 2010s are large, at around -3 percentage points per year.

Youngmin Baek, Kazunobu Hayakawa, 09 May 2022

What can explain the small or even negative effects of regional trade agreements on trade? Using trade data between Japan and other 68 countries from 2002 to 2018, this column argues that RTAs reduce fixed costs for foreign direct investment more than exporters. This could have a negative effect on trade. A simulation exercise indicates that introducing RTA between Japan and China would incentivise Japanese firms to set up production in China and sell locally rather than export from Japan.

Sagiri Kitao, Minamo Mikoshiba, 30 March 2022

Japan ranks 120th among 156 countries in terms of its gender gap, with women earning significantly less than men. This column uses survey data to investigate the employment and earnings dynamics of women in Japan over their life-cycle, and finds that tax exemptions and social insurance benefits for low-income spouses significantly dampen women’s labour supply and earnings. There is a significant room to improve women’s participation and earnings by removing the fiscal policies that disincentivise work and skill accumulation. The policy changes would also mean that the government could raise more tax revenues without causing a welfare loss.

Yasuo Tanabe, 23 January 2022

In July 2021, the EU announced a Carbon Border Adjustment Mechanism aimed at avoiding carbon leakage from the EU and promoting emissions reductions worldwide. This column summarises and reflects on a recent conference on the topic held by the EU-Japan Centre for Industrial Cooperation. It discusses the mechanism’s proposed implementation schedule, consistency with WTO rules, and implications for EU–Japan trade relations. It highlights the important role Japan should play in the decarbonisation effort, especially by harnessing its strengths in technology and innovation.

Cameron LaPoint, Shogo Sakabe, 08 November 2021

Growing spatial inequality has led policymakers to offer firms tax breaks to attract investment and jobs to economically peripheral regions. This column examines a place-based bonus depreciation scheme in Japan which granted high-tech manufacturers immediate cost deductions from their corporate income tax bill. The policy generated big gains in employment and investment in building construction and in machines at pre-existing production sites. This response was driven by firms which rely on costly but long-lived capital inputs like industrial machines. How firms react to spatially targeted tax incentives ultimately depends on their internal network and their composition of intermediate capital inputs. 

Shigeru Fujita, Ippei Fujiwara, 14 October 2021

The Japanese economy has experienced a prolonged slowdown in growth and persistent declines in the real interest rate, while at the same time the country’s labour force has been rapidly ageing. This column explores a novel causal link between the ageing labour force and the low-frequency declining trend in the real interest rate since the 1970s, and suggests that the ageing of the labour force accounts for 40% or more of the declines in the real interest rate observed between the 1980s and 2000s in Japan.

Takahiro Hattori, Norihiro Komura, Takashi Unayama, 28 September 2021

During the rapid spread of COVID-19 in Japan, the Japanese government decided to provide a Special Cash Payment of 100,000 yen per person to all residents as a part of its “Emergency Economic Measures to Cope with COVID-19”. This column uses publicly available survey data to estimate the marginal propensity to consume from the cash transfer in order to assess the impact of the policy. It finds that the payments increased non-negligible consumption mainly due to their size, but the marginal propensity to consume, at around 10 %, is no different from non-pandemic periods. 

Ruo Shangguan, Jed DeVaro, Hideo Owan, 18 September 2021

It has been argued that when workers are already working long weeks, adding more hours can reduce productivity. This column tests this argument using evidence from Japan. The authors find that long working hours of key team members harm team productivity. In contrast, shorter hours cause the opposite effect, perhaps because workers recover from fatigue and arrive for work with increased energy and focus.

Hongyong Zhang, 13 September 2021

COVID-19 has had large impacts on global production and international trade. The column uses quarterly aggregate-level data on foreign affiliates of Japanese multinational corporations to show that multinational production and supply chains were negatively affected by the COVID-19 pandemic, especially in the 2nd quarter of 2020. The sales of Japanese manufacturing affiliates almost recovered in the 4th quarter of 2020, indicating the resilience of global production and multinationals’ supply chains. But there are large variations in recovery across countries.

Kenta Ikeuchi, Kyoji Fukao, Cristiano Perugini, 09 September 2021

In contrast to other comparable developed countries, wage inequality in Japan has remained stable in recent decades. However, this trend belies the substantial variation in wage gaps at the firm level. This column uses detailed worker and firm microdata to study how firm characteristics affect the evolution and variability of Japan’s college wage gap. It finds that larger establishments and those with a larger share of regular workers exhibit higher college wage premiums. These traits likely signify more productive environments with greater capacity to attract and keep highly educated employees with better unobservable characteristics. 

Tsutomu Miyagawa, Takayuki Ishikawa, 27 August 2021

The Japanese economy has seen a decline in the contribution of capital accumulation to economic growth since 2000. This column uses over 30 years of national productivity data to explore this trend. It finds that the fall in tangible capital accumulation has largely been offset by investment into intangible capital. However, the growth in tangible and intangible capital accumulation has been imbalanced, calling for support of both types of asset accumulation. 

Caroline Freund, Aaditya Mattoo, Alen Mulabdic, Michele Ruta, 18 August 2021

The immediate consequences of natural disasters for global value chains are well-documented, but little is known about the longer term. This column examines the long-term impact of the 2011 earthquake in Japan on auto and electronics supply chains using data on imports of Japanese products worldwide. Imports shifted to new suppliers, especially in products where dependence on Japan was greater. The new suppliers tended to be developing and large countries, suggesting cost and scale were important. The observed pattern of switching may be relevant to the COVID-19 pandemic.  

Yoshi Fujiwara, Hiroyasu Inoue, Takayuki Yamaguchi, Hideaki Aoyama, Takuma Tanaka, Kentaro Kikuchi, 09 August 2021

The way money flows among firms can tell us about their economic activities and responses to economic shocks such as the one caused by Covid-19. This column uses data on remittances in a regional bank in Japan to demonstrate how the three parts of the network structure of the flow of money – upstream, downstream, and circulation of flow – reflect characteristics of supplier-customer relationships. As well as helping with the prediction of occurrences following an economic shock, the findings also have implications for banks’ management of credit risk.

Yuhei Miyauchi, Kentaro Nakajima, Stephen Redding, 04 August 2021

Traditional theories emphasise production decisions and the commuting costs of workers in shaping the spatial concentration of economic activity in cities. However, much of urban travel is related to consumption of non-traded services, such as trips to restaurants, shopping centres, and cultural venues. This column looks at commuting and non-commuting trips within the Greater Tokyo metropolitan area to explore how consumption access can explain the observed spatial variation in economic activity. Access to consumption opportunities and to employment opportunities both matter; focusing solely on commuting trips provides a misleading picture of travel patterns.

Takatoshi Ito, Satoshi Koibuchi, Kiyotaka Sato, Junko Shimizu, Taiyo Yoshimi, 23 July 2021

The currency a firm chooses to invoice in reveals lessons on the prominence of that currency in the international sphere. This column presents survey data from Japanese overseas subsidiaries, highlighting how the use of Asian currencies has been growing steadily. The authors show that among Asian local currencies, Chinese renminbi and Thai baht are the most used currencies by Japanese subsidiaries. If these countries become increasingly important destination markets for regional countries, local currencies will be used more as trade invoice currency in Asia.

Hans Koster, Takatoshi Tabuchi, Jacques-François Thisse, 09 May 2021

Modern transportation infrastructure can help foster cheaper travel and a better-connected economy. This column shows that improvements in transportation can affect the location choices of firms in ways that are often beneficial to large regions, but may be detrimental to small intermediate regions through job losses. Using data from Japan’s high speed rail network, the authors confirm that ‘in-between’ municipalities that are connected to the network witness a sizeable decrease in employment.

Kazunobu Hayakawa, Hans Koster, Takatoshi Tabuchi, Jacques-François Thisse, 08 April 2021

The economic and social consequences of investments in transport infrastructure generate heated academic and policy debates because they typically involve costly investments that are supposed to yield high payoffs. Particularly telling examples of large transport infrastructure investments are investments in high-speed rail. This column shows that the Shinkansen has had a substantial effect on Japan’s spatial distribution of employment. The relative position of municipalities within the network and their underlying location fundamentals are essential in understanding why the effects of an extensive infrastructure are positive or negative at the local level.  

Masayuki Morikawa, 12 March 2021

Working from home has become much more prevalent across advanced economies during the Covid-19 pandemic. This column uses survey data from Japan to explore how widely working from home has been adopted across industries and how productive employees are at home. It finds that the overall contribution of working from home to labour input is surprisingly small. Even where firms adopted the practice, many employees did not exploit it; and even those who did work from home did not necessarily do so throughout the week. The firm survey responses suggest that across industries, the average productivity of employees when working from home relative to at the workplace is 68.3%, which is similar to the findings from an employee survey. The results suggest that there is room for improvement to make working from home more feasible.

Gee Hee Hong, Yukiko Saito, 25 February 2021

Firm exits have been at the centre of policy discussions since the start of the Covid-19 pandemic. This column explores Japanese firm exit patterns during severe crises as well as during normal times. Using a dataset that distinguishes firm exit types, the authors find that Japanese firms mainly exit voluntarily, while bankruptcy rates are extremely low. Further, Japanese firms respond to economic shocks mainly through adjustments to output instead of exits – as was seen during the Covid-19 crisis. The ‘cleansing effects’ of firm exits vary by exit type, but appear stable during the current crisis.

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