Capital Accumulation, Vintage, and Productivity:The Japanese Experience from 1980 to 2007

In this paper we quantitatively examine the relationships between capital accumulation and vintage, as well as productivity of industries in Japan between 1980 and 2007. We based this analysis on a detailed measurement of capital stock as reported in financial data of firms listed on the Tokyo Stock Exchange and several secondary markets, like Mothers, We measured the vintage index and total factor productivity and carried out preliminary work required during empirical analysis. Subsequently, we conducted different kinds of estimations. Based on the empirical analyses, we confirmed that vintage had an effect on productivity in all industries studied. This effect was notable in the material, general machinery and transport equipment industries. In addition, by observing chronological changes of the vintage effect, we confirmed that vintage exerted a significant influence during the period of economic expansion,.particularly during the economic upturn which started in 2000, where strong vintage effects were generally observed in all the industries. It was clear that the rejuvenation of capital equipments during that period resulted out of the existence of a strong productivity effect. On the other hand, during the bubble period of late 1980s, vintage exerted no observable effects on productivity despite vivacious increases in investment.This shows that investment during this period was not necessarily productive and was likely to produce just a temporary boom. In light of this, we reconfirmed that the relationship between vintage and productivity changed in subtle ways in response to the phases of economic cycles.