Product Switching and Firm Performance in Japan - Empirical Analysis Based on the Census of Manufacturers

Following Bernard, Redding and Schott (2010), we have constructed product and firm level data on Japanese manufacturing firms using the Census of Manufacturers. Our empirical analysis based on the constructed data shows that multiple-product firms perform better than single-product firms and their labor productivity growth rates are higher. Empirical studies at the industry level show that an unregulated, competitive environment stimulates product switching. At the firm level, product switching behavior improves firm performance, including employment, while the firms that reduce the number of their products see a decline in labor productivity, due to output reduction exceeding the magnitude of the reduction in employment.