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Why have R&D-intensive industries in Japan experienced a recent decline in performance? Evidence from panel data of listed firms in Japanese R&D-intensive industries

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  • Hirotsugu Sakai

Abstract

Previous studies show that the rate of return on research and development (R&D) capital is high. However, R&D-intensive industries in Japan have recently experienced a decline in performance. This study estimates the rate of return on R&D capital and physical capital as well as total factor productivity (TFP) to solve this puzzle. The rate of return is properly estimated applying the methods, which deal with simultaneity bias issues. After Japan entered the “lost decade”, the rate of return on R&D capital dropped significantly, while the rate on physical capital did not. This trend cannot be found by the methods without considering the issues, typically used in previous studies. The slowdown of TFP growth occurs coincidentally with a declining rate of return on R&D capital, which suggests the importance of innovations that enable effective use of R&D capital. Considering the trends, the declining rate of return on R&D capital along with the slowdown of TFP growth are the main causes of the low performance of recent R&D-intensive industries. The results of this paper also offer suggestions on economic policies and growth strategies.

Suggested Citation

  • Hirotsugu Sakai, 2016. "Why have R&D-intensive industries in Japan experienced a recent decline in performance? Evidence from panel data of listed firms in Japanese R&D-intensive industries," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 17(4), pages 527-545, July.
    • Handle: RePEc:taf:jbemgt:v:17:y:2016:i:4:p:527-545
    DOI: 10.3846/16111699.2016.1200998
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    1. Bronwyn H. Hall & Nathan Rosenberg (ed.), 2010. "Handbook of the Economics of Innovation," Handbook of the Economics of Innovation, Elsevier, edition 1, volume 1, number 1.
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    Cited by:

    1. Lööf, Hans & Perez, Luis & Baum, Christopher F, 2018. "Directed Technical Change in Clean Energy: Evidence from the Solar Industry," Working Paper Series in Economics and Institutions of Innovation 470, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    2. Sakai, Hirotsugu, 2020. "Did financing constraints cause investment stagnation in Japan after the 1990s?," Journal of Corporate Finance, Elsevier, vol. 64(C).

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