Japan's Quest for Growth: Exploring the Role of Capital and innovation

Murtaza H. Syed, Jinsook Lee
2010 IMF Working Papers  
This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. As labor input in Japan shrinks with population aging, capital accumulation and productivity gains will drive growth over the medium-term. At the same time, a
more » ... e same time, a changing global landscape calls for a shift in export-oriented investment toward new markets and a new generation of products, as well as increased investment by domestically-oriented firms. What policies could be adopted to help firms adjust to the imperatives of the post-crisis global economy and boost medium-term growth? Using disaggregated data, this paper investigates the determinants of investment and R&D spending by Japanese firms. The results suggest that policies could usefully focus on four areas. First, raising the return on investment, including through reforms to the tax code. Second, decreasing uncertainty through improved risk management by firms and by bolstering the business climate. Third, improving SME access to finance, notably by encouraging venture capital investment in innovative areas and more risk-based lending. And fourth, reducing excess leverage and supporting corporate restructuring to enable new investments to flourish. JEL Classification Numbers: E22, E61
doi:10.5089/9781455211753.001 fatcat:4pqru4of4rapphdgfk73kkdjna