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The Extent and Sources of Cost and Efficiency Differences Between U.S. and Japanese Automobile Producers

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  • Melvyn A. Fuss
  • Leonard Waverman

Abstract

In this paper we present for the first time estimates of cost and efficiency differences between U.S. and Japanese producers based on an econometric cost function methodology rather than the accounting frameworks previously used. We demonstrate that the cost difference estimates for 1979 which were influential in the debate that resulted in the Voluntary Restraints Agreements of 1981-85 were substantial over estimates of the Japanese advantage. While our estimate of the Japanese cost advantage for 1980 is similar to previous estimates, we attribute most of this advantage to short-run phenomena -underutilization of U.S. production capacity and an undervalued yen. In a previous paper we have shown that the Japanese TFP growth rate was much faster than the U.S. rate during the 1970's. However we estimate the long-run underlying Japanese efficiency advantage as of 1980 to have been only 1-2%, much less than previously estimated. This results from the fact that Japan began the 1970's with a long-run efficiency disadvantage of over 20%, and the decade of the 1970's represented a catch-up period for Japanese producers.

Suggested Citation

  • Melvyn A. Fuss & Leonard Waverman, 1986. "The Extent and Sources of Cost and Efficiency Differences Between U.S. and Japanese Automobile Producers," NBER Working Papers 1849, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1849
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    References listed on IDEAS

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    1. McFadden, Daniel, 1978. "Cost, Revenue, and Profit Functions," Histoy of Economic Thought Chapters, in: Fuss, Melvyn & McFadden, Daniel (ed.),Production Economics: A Dual Approach to Theory and Applications, volume 1, chapter 1, McMaster University Archive for the History of Economic Thought.
    2. M. Denny & M. Fuss & J. D. May, 1981. "Intertemporal Changes in Regional Productivity in Canadian Manufacturing," Canadian Journal of Economics, Canadian Economics Association, vol. 14(3), pages 390-408, August.
    3. Michael Denny & M. Fuss & C. Everson & L. Waverman, 1981. "Estimating the Effects of Diffusion of Technological Innovations in Telecommunications: The Production Structure of Bell Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 14(1), pages 24-43, February.
    4. Fuss, Melvyn & McFadden, Daniel (ed.), 1978. "Production Economics: A Dual Approach to Theory and Applications," Elsevier Monographs, Elsevier, edition 1, number 9780444850133.
    5. Fuss, Melvyn & McFadden, Daniel, 1978. "Production Economics: A Dual Approach to Theory and Applications (I): The Theory of Production," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 1, number fuss1978.
    6. Norsworthy, J R & Malmquist, David H, 1983. "Input Measurement and Productivity Growth in Japanese and U.S. Manufacturing," American Economic Review, American Economic Association, vol. 73(5), pages 947-967, December.
    7. Fuss, Melvyn & McFadden, Daniel, 1978. "Production Economics: A Dual Approach to Theory and Applications (II): Applications of the Theory of Production," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 2, number fuss1978a.
    8. Gomez-Ibanez, Jose A & Harrison, David, Jr, 1982. "Imports and the Future of the U.S. Automobile Industry," American Economic Review, American Economic Association, vol. 72(2), pages 319-323, May.
    9. Denny, Michael & Fuss, Melvyn, 1983. "A general approach to intertemporal and interspatial productivity comparisons," Journal of Econometrics, Elsevier, vol. 23(3), pages 315-330, December.
    10. Berndt, Ernst R. & Fuss, Melvyn A., 1986. "Productivity measurement with adjustments for variations in capacity utilization and other forms of temporary equilibrium," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 7-29.
    11. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    12. Kim, Moshe, 1984. "The Beneficiaries of Trucking Regulation, Revisited," Journal of Law and Economics, University of Chicago Press, vol. 27(1), pages 227-241, April.
    13. Denny, Michael & Fuss, Melvyn A, 1977. "The Use of Approximation Analysis to Test for Separability and the Existence of Consistent Aggregates," American Economic Review, American Economic Association, vol. 67(3), pages 404-418, June.
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    Cited by:

    1. Catherine J. Morrison, 1989. "Unraveling the Productivity Growth Slowdown in the U.S., Canada and Japan: The Effects of Subequilibrium, Scale Economies and Markup," NBER Working Papers 2993, National Bureau of Economic Research, Inc.
    2. Marques, Rui Cunha & da Cruz, Nuno Ferreira & Carvalho, Pedro, 2012. "Assessing and exploring (in)efficiency in Portuguese recycling systems using non-parametric methods," Resources, Conservation & Recycling, Elsevier, vol. 67(C), pages 34-43.
    3. Yi-Cheng Liu & Ying-Hsiu Chen, 2016. "Which One is More Efficient? German or Japanese Automobile Industry: A Meta-frontier with Technology Gap Comparison," International Business Research, Canadian Center of Science and Education, vol. 9(10), pages 13-24, October.
    4. Melvyn Fuss & Leonard Waverman, 1986. "The Canada-U.S. Auto Pact of 1965: An Experiment in Selective Trade Liberalization," NBER Working Papers 1953, National Bureau of Economic Research, Inc.
    5. Berndt, Ernst R. & Fuss, Melvyn A., 1989. "Economic capacity utilization and productivity measurement for multiproduct firms with multiple quasi-fixed inputs," Working papers 3001-89., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    6. Aklilu Zegeye & Larry Rosenblum, 2000. "Measuring productivity in an imperfect world," Applied Economics, Taylor & Francis Journals, vol. 32(1), pages 91-104.
    7. Catherine J. Morrison, 1989. "Markup Behavior in Durable and Nondurable Manufacturing: A production Theory Approach," NBER Working Papers 2941, National Bureau of Economic Research, Inc.
    8. Ernst R. Berndt & Melvyn A. Fuss, 1989. "Economic Capacity Utilization and Productivity Measurement for Multi-product firms with multiple quasi-fixed inputs," NBER Working Papers 2932, National Bureau of Economic Research, Inc.
    9. Ernst R. Berndt & Ann F. Friedlaender & Judy Shaw-Er Wang Chiang, 1990. "Interdependent Pricing and Markup Behavior: An Empirical Analysis of GM, Ford and Chrysler," NBER Working Papers 3396, National Bureau of Economic Research, Inc.

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