The Productivity J-curve from an International Perspective: Is the U.S. a unique case?

Many economists have argued that progress in digitalization contradicts the productivity slowdown in advanced countries in the 2010s. Among these discussions, Brynjolfsson, Rock and Syverson (2021) showed that although large associated costs for investment booms for new technology decrease productivity growth in the current statistics, this TFP growth is underestimated when these costs are recognized as intangible investment. They call the gap between the standard measure of TFP growth and the revised measure of TFP growth the ‘productivity J-curve’. Following their article, we measure the productivity J-curves in five advanced countries (France, Germany, Japan, the UK and the US). Before we measured the productivity J-curves, we estimate firm value function with multiple assets where estimated coefficients of assets show associated costs with capital formation of these assets. Using the estimated results of all assets, we find the productivity J-curves in the 2010s. Our finding shows that the productivity slowdown in the 2010s in these advanced countries is overstated. Next, we focus on the productivity J-curves in each asset, following Brynjolfsson, Rock and Syverson (2021). Our measurement of productivity J-curve shows that in Europe and Japan in the late 2010s, we do not find large underestimations of TFP growth caused by intangibles associated with capital formation in R&D, software and organizational capital. However, we still find a large underestimation of TFP growth rate in the US due to the large costs associated with investment booms for software generated by the rapid digitalization that was undertaken. This implies that the productivity gap, when accounting for the adjustment costs of investment between the US and other advanced countries, is larger than that measured using standard statistics. To conduct innovative activities in the area of digitalization, European countries and Japan should focus on the associated costs of innovative capital formation targets such as training skilled workers and changes in their overly conservative management behavior.