Re-Examining the Productivity of Research and Development in the Japanese Manufacturing Industry

ABSTRACT

In recent Japanese law on special measures for industrial revitalization, technology policy isexpected to fill the large role to improve industry's productivity. To appreciate whether thepolicy is really effective or not, we need to know what extent R&D investment, which is themajor input to technological development, improves the productivity of industry. But, there isonly a little studies that estimate the productivity of R&D in Japanese industry, and moreover,little studies using the data of 90's, that is after the bubble burst.

This paper estimates the productivity of R&D econometrically using 2-digit Japanesemanufacturing industries panel data. The result of estimation of Cobb-Douglas typeproduction function shows that the rate of return of intra-industry's R&D is very high althoughthe estimation includes 90's data.

In addition, this paper evaluates inter-industry R&D spillover effect, government and universityR&D spillover effect on manufacturing industries, and industry's basic research premium.The result shows the possibility that these factors have no effect on the return in manufacturingindustries.

From these results, technology policies that stimulate industry's R&D investment arerecommended to maximize the return in manufacturing industries. But in Japan, such a policyas tax deduction on research expenditures has not worked enough because of its inconvenience.To enhance industry's R&D, drastic reform in technology policy is urgent.

Introduction