Structural Change in Japanese-American Interdependence: a Total Factor Productivity Analysis in an International Input-Output Framework.

Abstract

This study proposed a new measure of Total Factor Productivity (TFP), which takes into account how direct and indirect input requirements per unit of output change (direct and indirect TFP). Direct TFP measures how production and cost functions of each industry shift, while direct and indirect TFP measures how the production costs of an industry are affected directly by a shift of the cost function of the own industry and indirectly by the shift of cost functions of other industries which supply intermediate inputs to the industry concerned. Using input-output analysis, an empirical investigation of the Japanese and U.S. economies during the period 1963-70 verified the importance of the new method of measuring TFP. When indirect input requirements are taken into account, TFP becomes more than twice as large as direct TFP. TFP becomes still larger when the effects on the production costs of Japanese (U.S.) industries of TFP in the U.S. (Japanese) industries are taken into account. This study further confirmed the findings that Japanese TFP is much greater than U.S. TFP. Further findings are that TFP improvements are closely related to slower increase in output prices, and that labor productivity contributes most to TFP increase, while capital productivity tends to decline.