CAPITAL ACCUMULATION, VINTAGE AND PRODUCTIVITY: THE JAPANESE EXPERIENCE

We empirically examine the relationship between capital accumulation, vintage and productivity of industries in Japan using firm-level microdata. Our analyses confirm that vintage significantly influenced productivity during the period of economic expansion. The effect was particularly notable during the upturn that started in 2000, when most examined industries displayed strong vintage effects. The rejuvenation of capital equipment during this period clearly resulted from a strong productivity effect. During the economic bubble of the late 1980s, by contrast, vintage exerted no observable effects on productivity despite significant increase in investment. This finding shows that an increase in capital stock during this period was not necessarily productive and likely produced a merely temporary boom. We reconfirm that the relation between vintage and productivity changed in subtle ways in response to the phases of business cycles.