ESRI Discussion Paper Series No.41
Does IT investment revitalize the Japanese economy?
-International comparison and empirical analysis using the JIP database-

June, 2003
Tsutomu Miyagawa
(Visiting Fellow, Economic and Social Research Institute, Cabinet Office,
and Professor, Gakushuin University)
Sumio Hamagata
(Graduate School of Policy and Planning Sciences, Tsukuba University)
Kazuyoshi Nakata
(Economic and Social Research Institute, Cabinet Office)
Naoki Okumura
(Economic and Social Research Institute, Cabinet Office)

The full text is written in Japanese.

(Abstract)

Though the Japanese government has established several economic policies concerning the promotion of IT investment (including investment tax credit (ITC) from 2003 FY), there are few academic papers on IT investment in Japan. It is thus important to analyze empirically which factors affect IT investment and how ITC increases IT investment.

Using the JIP (Japan Industry Productivity) database made by the project team on potential growth at ESRI (Economic and Social Research Institute), our paper investigates several phases of IT investment in Japan. Trends on IT investment in Japan and other OECD countries are examined and IT investment functions are estimated by using panel data model and the instrumental variable method.

The amount of IT investment in Japan is not so low when we compare it with that in the United States and other OECD countries. However, especially in the communications industry, the amount of IT investment in Japan is much less than that in the U.S. As for software investment in Japan, in-house software has stagnated since the first half of 1990 due to downsizing and outsourcing.

The estimation results on investment function show that:
  • (1) Coefficient on cost of capital is significantly negative, which means ITC is effective.
  • (2) Coefficient on spillover effect is significantly positive, which means that an increase in IT investment in a specific industry stimulates IT investment in other industries.
  • (3) Estimated increment on IT investment via ITC in 2003 is about 1 to 2 trillion yen.

The results show that tax reduction, a demand-stimulating policy, increases IT investment via the decline of the cost of capital. However, in the long run, it is also important to determine whether IT investment contributes to increased productivity and growth of the economy. Both a demand-side and a supply-side analysis should be carried out to clarify the full significance of IT investment.

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