Industrial policy cuts two ways: Evidence from cotton-spinning firms in Japan, 1956-1964

Kozo Kiyota, Tetsuji Okazaki

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

A number of studies have revealed a negative effect of industrial policy on productivity growth. Is this because industrial policy fails to control the activities of firms or because it can effectively control them? This paper attempts to answer these questions, using firm-level data from the cotton-spinning industry in Japan for the period 1956-64. We determine that industrial policy cut two ways during this period. Industrial policy effectively controlled the output of cotton-spinning firms, which contributed to the establishment of a stable market structure during the period. On the flip side, such policy constrained the reallocation of resources from less productive large firms to more productive small firms. Combined with the negative productivity growth in large firms during this period, industrial policy resulted in negative productivity growth in the industry.

Original languageEnglish
Pages (from-to)587-609
Number of pages23
JournalJournal of Law and Economics
Volume53
Issue number3
DOIs
Publication statusPublished - 2010 Aug

ASJC Scopus subject areas

  • Economics and Econometrics
  • Law

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