Did divine wind rescue Japan out of the lost decade?

Strong external demand and micro-level productivity-enhancing efforts are key determinants of export. This study gives empirical evidence on the relative importance of these two factors in generating exports. Specifically we investigate Japanese export growth in the 2000s that helped Japan exit the severe decade-long stagnation known as the lost decade. Estimating the firm-level export function, we uncover quantitatively the source of the export surge during this period. Evidence shows that firms’ efforts to enhance productivity were more important than the so-called “divine wind” or exogenous external demand.