Technology, Productivity and the Competitiveness of U.S. and Japanese Industries
DALE W. JORGENSON AND MASAHIRO KURODA1
INTRODUCTION
In the early 1980s the U.S. current account balance with the rest of the world shifted from surplus to deficit, falling to almost 4 percent of the U.S. gross national product (GNP) by 1987. During this same period the Japanese current account balance moved from deficit to surplus, rising to more than 4 percent of the Japanese GNP in 1986. These developments have led to a vigorous debate on both sides of the Pacific over the competitiveness of the Japanese and U.S. economies. Did the sharp fluctuations in the Japanese and U.S. current account balances reflect a deterioration in the competitiveness of U.S. industries relative to Japanese industries? Are these fluctuations linked to a change in the relative technological performance of the two economies?2
Satisfactory answers to these questions require a detailed analysis of the international competitiveness of Japanese and U.S. industries. In this
paper we consider the competitiveness of 29 industries that make up the Japanese and U.S. economies. Our study begins with the 10 years preceding the Smithsonian agreements of 1970. In these Agreements the United States and its major trading partners, including Japan, abandoned the fixed exchange rates that had prevailed since the end of the Second World War. The dollar depreciated rapidly, from 360 yen to the dollar in 1970 to 203 yen per dollar in 1980. After a brief resurgence in the early 1980s the dollar resumed its fall after the Plaza Accord of 1985 and reached a level of less than 130 yen per dollar by the end of 1991.
We examine the relative competitiveness of U.S. and Japanese industries throughout a quarter century, 1960–1985, considering determinants of the competitive position of each industry. Our study encompasses the period of growing trade imbalances between Japan and the United States in the early 1980s. It also includes the period of the slowdown in economic growth that accompanied the energy crisis of the 1970s. We begin by comparing the relative position of U.S. and Japanese industries in 1970, on the eve of the Smithsonian Agreements. We find that almost all Japanese industries were more competitive internationally than their U.S. counterparts. By this we mean that Japanese industries could provide products to the international marketplace at prices below those available from their U.S. competitors.
The competitive strength of Japanese industries in 1970 was due almost entirely to an enormous labor cost advantage. Standardizing for important differences in education levels and taking differences in the age and sex composition of the Japanese and U.S. labor forces into account, the cost of an hour worked in Japan in 1970 was less than one-quarter the cost of an hour worked in the United States. This labor cost advantage enabled Japanese industries to overcome the formidable disadvantages of higher capital and energy costs and lower productivity. As a consequence of the dramatic appreciation of the yen after the Smithsonian Agreements of 1970, most Japanese industries lost their competitive advantage over U.S. industries by 1973. The rapid appreciation of the yen between 1970 and 1985 reduced but did not eliminate the Japanese labor cost advantage.
For the period 1960–1973, Jorgenson et al. (1987) have shown that productivity growth in Japan exceeded that in the United States for almost all industries.3 After the energy crisis of 1973, productivity growth slowed
drastically in both countries. Most important, significant differences between growth rates of productivity in Japanese and U.S. industries disappeared. In this paper we extend these observations through 1985. We find that the slowdown in productivity growth in Japan and the United States after 1973 has become permanent. On average, productivity levels in Japanese industries had reached 87 percent of U.S. levels by 1980, but more recent trends reveal no further gains in relative productivity for either the Japanese or the U.S. economy. Technological competition between the two countries, as mirrored in these trends, achieved a measure of stability as much as a decade ago.
International competitiveness between Japan and the United States since 1970 has been driven almost entirely by dramatic and continuing depreciation of the dollar. Krugman has shown that trade imbalances in both countries in the early 1980s have now receded, following an adjustment process that has resulted in stunning increases in U.S. exports relative to Japanese exports.4 In fact, since 1985 exports of the United States have grown much more rapidly than exports from any other industrialized country, reflecting the sharply rising competitive advantage of U.S. industries. This is a consequence of the falling exchange rate of the dollar vis-à-vis foreign currencies, including the yen, resulting from the Plaza Accord in 1985.
We conclude that the sharp fluctuations in Japanese and U.S. current account balances during the 1980s do not reflect changes in the relative technological performance of the two economies. While relative productivity levels for individual industries after 1980 show wide variations, there is almost no difference on average. This flies directly in the face of much conventional wisdom about the growing technological sophistication of Japanese industries and the alleged technological deficiencies of their U.S. competitors. The error in the conventional view is not in its sanguine appraisal of fast maturing Japanese technological capabilities, but in its gross underestimation of the U.S. competition.
We conclude that relative technological performance is only one determinant of international competitiveness of Japanese and U.S. industries. During the period of our study, changes in relative technological perfor-
mance are relatively insignificant by comparison with drastic changes in such determinants as the yen-dollar exchange rate and relative labor costs. These other determinants have moved dramatically in favor of the United States since the Smithsonian Agreements of 1970 and, especially, since the Plaza Accord of 1985. Attempts to trace the trade imbalances of the 1980s to relative deterioration in the technological capabilities of U.S. industries vis-à-vis their Japanese counterparts are totally misleading as a basis for policy recommendations. Attempts to deal with trade imbalances should focus on macroeconomic policy and not on technology or trade policies.
To assess the international competitiveness of Japanese and U.S. industries, we first compare prices of inputs and outputs in the two countries at the industry level in the second section. Our second step in accounting for international competitiveness between Japanese and U.S. industries is to measure relative levels of productivity for all industries. We present comparisons of productivity levels between the United States and Japan by industry in the third section. Finally, we employ changes in relative productivity levels, relative prices of inputs, and exchange rates in accounting for changes in international competitiveness between Japanese and U.S. industries over the period 1960–1985. The final section provides a summary and conclusion.
PURCHASING POWER PARITIES
In order to construct relative prices for outputs of Japanese and U.S. industries in a common currency, we first require estimates of the purchasing power parities for the outputs of all industries. These are relative prices expressed in terms of the currencies of each country. We convert purchasing power parities into a common currency by means of the yen-dollar exchange rate. We have developed purchasing power parities for industry outputs based on the estimates of Kravis et al.5 They have provided purchasing power parities between the yen and the dollar for 153 commodity groups for the year 1970. These commodity groups are components of the gross domestic product of each country, corresponding to deliveries to final demand at purchasers' prices.
For international comparisons we have aggregated industries in Japan and the United States into the 29 sectors given in Table 1. We estimate purchasing power parities for industry outputs, energy inputs, and other intermediate inputs by mapping the 153 commodity groups employed by Kravis et al.6 into the industry classification system shown in Table 1. To
TABLE 1 Industry Classification
No. |
Industries |
Abbreviation |
1 |
Agriculture, forestry, fisheries |
Agric. |
2 |
Mining |
Mining |
3 |
Construction |
Construct. |
4 |
Food and kindred products |
Foods |
5 |
Textile mill products |
Textiles |
6 |
Apparel and other fabricated textile |
Apparels |
7 |
Lumber and wood products except furniture |
Lumber |
8 |
Furniture and fixtures |
Furniture |
9 |
Paper and allied products |
Paper |
10 |
Printing, publishing, and allied products |
Printing |
11 |
Chemical and allied products |
Chemical |
12 |
Petroleum refinery and coal products |
Petroleum |
13 |
Rubber and miscellaneous plastic products |
Rubber |
14 |
Leather and leather products |
Leather |
15 |
Stone, clay, and glass products |
Stone |
16 |
Primary metal products |
Prim. metal |
17 |
Fabricated metal products |
Fab. metal |
18 |
Machinery |
Machinery |
19 |
Electric machinery |
Elec. mach. |
20 |
Motor vehicles and equipment |
Mot. veh. |
21 |
Transportation equipment except motor |
Trsp. eqpt. |
22 |
Precision instruments |
Prec. inst. |
23 |
Miscellaneous manufacturing |
Mfg. misc. |
24 |
Transportation and communication |
Trsp. comm. |
25 |
Electric utility and gas supply |
Utilities |
26 |
Wholesale and retail trade |
Trade |
27 |
Finance, insurance, and real estate |
Finance |
28 |
Other service |
Service |
29 |
Government services |
Gov. service |
obtain purchasing power parities for industry outputs in producer's prices, we adjust the price indices for commodity groups in Japan and the United States by ''peeling off'' indirect taxes and trade and transportation margins. We estimate these margins from the interindustry transactions tables for 1970 for both countries.
We can account for movements in the relative prices of industry outputs in Japan and the United States by changes in relative input prices and changes in relative productivity levels. To obtain purchasing power parities for components of intermediate input in each industry, we aggregate purchasing power parities in 1970 for goods and services delivered to that industry from other industries. To obtain the purchasing power parity for capital input, we multiply the purchasing power parity for investment goods by the ratio of the price of capital services to the price of capital goods for
Japan relative to the United States. Finally, we construct purchasing power parities for labor input on the basis of relative wage levels for each component of labor input in each industry.
Purchasing power parities (PPP) for industry output, capital, labor, energy, and other intermediate inputs in 1970 are shown in Table 2. According to our purchasing power parities for industry output in 1970, prices in Japan were higher than those in United States in only six sectors—agriculture-forestry-fisheries; construction; food and kindred products; petroleum refinery and coal products; rubber products; and finance, insurance, and real estate. The purchasing power parities for labor input in 1970 represent substantially lower costs of labor input in Japan relative to the United States.
TABLE 2 The Japanese Price Index Transformed by the PPP Index at 1970 (U.S. price = 1.0)
Industry |
Output Price |
Capital Price |
Labor Price |
Energy Price |
Material Price |
1 Agric. |
1.02227 |
3.87150 |
0.21352 |
1.43929 |
0.94440 |
2 Mining |
0.77726 |
2.87497 |
0.21263 |
1.30837 |
0.80470 |
3 Construct. |
1.03629 |
1.62274 |
0.18607 |
1.47174 |
0.74581 |
4 Foods |
1.02708 |
2.43016 |
0.21894 |
1.18676 |
0.92246 |
5 Textiles |
0.78272 |
1.26204 |
0.24099 |
1.12231 |
0.80857 |
6 Apparels |
0.77554 |
1.13210 |
0.18975 |
1.16632 |
0.77818 |
7 Lumber |
0.79291 |
0.83225 |
0.22805 |
1.23132 |
0.85381 |
8 Furniture |
0.68460 |
1.63768 |
0.22952 |
1.16280 |
0.78011 |
9 Paper |
0.59568 |
1.28008 |
0.22170 |
1.16325 |
0.66974 |
10 Printing |
0.79904 |
1.14215 |
0.21251 |
1.12034 |
0.69357 |
11 Chemical |
0.67636 |
1.10984 |
0.25039 |
1.21555 |
0.74098 |
12 Petroleum |
1.36638 |
2.87106 |
0.21846 |
1.44058 |
0.83670 |
13 Rubber |
1.06884 |
2.06931 |
0.24042 |
1.15463 |
0.77965 |
14 Leather |
0.72536 |
0.63057 |
0.23569 |
1.21586 |
0.81384 |
15 Stone |
0.72066 |
1.44996 |
0.23083 |
1.19543 |
0.72436 |
16 Prim. Metal |
0.82182 |
2.44286 |
0.25200 |
1.21269 |
0.78967 |
17 Fab. Metal |
0.80966 |
1.97526 |
0.21072 |
1.21038 |
0.79221 |
18 Machinery |
0.62454 |
1.52710 |
0.22564 |
1.22988 |
0.72346 |
19 Elec. Mach. |
0.67590 |
2.53075 |
0.22308 |
1.17320 |
0.74262 |
20 Mot. Veh. |
0.80744 |
6.48334 |
0.18581 |
1.14790 |
0.77968 |
21 Trsp. Eqpt. |
0.91458 |
1.20783 |
0.21944 |
1.19623 |
0.78940 |
22 Prec. Inst. |
0.71036 |
1.45034 |
0.23150 |
1.18503 |
0.75505 |
23 Mfg. Misc. |
0.71569 |
1.25035 |
0.22549 |
1.22913 |
0.76822 |
24 Trsp. Comm. |
0.48741 |
1.46822 |
0.22713 |
1.44717 |
0.69668 |
25 Utilities |
0.99570 |
1.64236 |
0.26605 |
1.26884 |
0.81400 |
26 Trade |
0.74680 |
1.43256 |
0.26889 |
1.25899 |
0.83417 |
27 Finance |
1.04615 |
0.43883 |
0.30796 |
1.14881 |
0.90131 |
28 Service |
0.87582 |
1.03805 |
0.30796 |
1.18170 |
0.79488 |
29 Gov. Service |
0.30935 |
1.00000 |
0.19482 |
1.14261 |
0.81841 |
In that year hourly wages in Japan were 30 percent or less of U.S. hourly wages. By contrast the cost of capital in Japan averaged 30 percent higher than that in the United States in 1970. The cost of intermediate inputs in Japan, other than energy, was between 60 and 90 percent of the cost in the United States in 1970, but the cost of energy was higher in Japan.
Table 3 presents time series for price indices of aggregate value-added
TABLE 3 Aggregate Price Index Denominated by PPP Index in Japan and the United States: Value-Added Deflator, Capital Input Price, and Labor Input Price
|
(1) |
(2) |
(3) |
(4) |
(5) |
(6) |
(7) |
|
|
Value-Added |
|
Capital Input |
|
Labor Input |
|
Year |
Exchange Rate |
Japan |
U.S. |
Japan |
U.S. |
Japan |
U.S. |
1960 |
360.0 |
0.52555 |
0.78125 |
0.78566 |
0.80598 |
0.07276 |
0.61019 |
1961 |
360.0 |
0.56383 |
0.79141 |
0.87689 |
0.80344 |
0.08303 |
0.64323 |
1962 |
360.0 |
0.58677 |
0.80059 |
0.85419 |
0.87231 |
0.09436 |
0.65512 |
1963 |
360.0 |
0.61243 |
0.80446 |
0.85692 |
0.91738 |
0.10715 |
0.67076 |
1964 |
360.0 |
0.63366 |
0.81399 |
0.94763 |
0.96885 |
0.11454 |
0.69379 |
1965 |
360.0 |
0.66004 |
0.82973 |
0.96229 |
1.05680 |
0.13142 |
0.71378 |
1966 |
360.0 |
0.69136 |
0.86130 |
1.00588 |
1.08708 |
0.14518 |
0.75560 |
1967 |
360.0 |
0.72035 |
0.88085 |
1.10655 |
1.05501 |
0.16044 |
0.79646 |
1968 |
360.0 |
0.74335 |
0.91004 |
1.18636 |
1.07169 |
0.18585 |
0.85988 |
1969 |
360.0 |
0.77353 |
0.95530 |
1.25112 |
1.08284 |
0.21037 |
0.91525 |
1970 |
360.0 |
0.81298 |
1.00000 |
1.31401 |
1.00000 |
0.24265 |
1.00000 |
1971 |
348.0 |
0.86750 |
1.04681 |
1.23991 |
1.08036 |
0.28735 |
1.07331 |
1972 |
303.1 |
1.04070 |
1.09264 |
1.46593 |
1.17862 |
0.37146 |
1.14591 |
1973 |
271.7 |
1.32003 |
1.16598 |
1.78810 |
1.25925 |
0.52775 |
1.23109 |
1974 |
292.1 |
1.60104 |
1.28333 |
1.71761 |
1.21411 |
0.60654 |
1.35414 |
1975 |
296.8 |
1.64616 |
1.41369 |
1.61942 |
1.35635 |
0.70573 |
1.47582 |
1976 |
296.5 |
1.76077 |
1.48549 |
1.72552 |
1.49660 |
0.76615 |
1.60441 |
1977 |
268.3 |
2.03232 |
1.58890 |
2.02031 |
1.70887 |
0.92403 |
1.71226 |
1978 |
210.1 |
2.79563 |
1.71605 |
2.81199 |
1.87654 |
1.22518 |
1.83214 |
1979 |
219.5 |
2.67617 |
1.86824 |
2.72534 |
1.94851 |
1.22708 |
1.98734 |
1980 |
203.0 |
3.04545 |
2.04895 |
3.04414 |
1.95128 |
1.42033 |
2.20601 |
1981 |
219.9 |
2.89294 |
2.22929 |
2.82067 |
2.21169 |
1.38586 |
2.38345 |
1982 |
235.0 |
2.77932 |
2.36468 |
2.57607 |
2.18761 |
1.35692 |
2.53247 |
1983 |
232.3 |
2.86020 |
2.44372 |
2.56220 |
2.38257 |
1.37437 |
2.63474 |
1984 |
251.1 |
2.67425 |
2.52821 |
2.44013 |
2.66081 |
1.29651 |
2.73714 |
1985 |
224.1 |
3.02171 |
2.59609 |
2.80872 |
2.67648 |
1.52330 |
2.85215 |
NOTE: (1) Observed exchange rate (yen/dollar). (2) Value-added deflator denominated by PPP index in Japan. (3) Value-added deflator in the United States. (4) Capital input price denominated by PPP index in Japan. (5) Capital input price in the United States. (6) Labor input price denominated by PPP index in Japan. (7) Labor input price in the United States. |
and capital and labor inputs for the period 1960–1985 in Japan and the United States in terms of dollars. The first column in the table is the yen-dollar exchange rate. The second and third columns represent price indices for value-added for Japan and the United States. The second column is the Japanese price index with base equal to the purchasing power parity in 1970, divided by an index of the yen-dollar exchange rate equal to one in 1970. The third column gives the corresponding price index for the United States with base equal to one in 1970. Similarly, the fourth and fifth columns provide price indices for capital inputs in Japan and the United States in terms of dollars, and the sixth and seventh columns represent price indices for labor inputs.
Our international comparisons of relative prices of aggregate output and inputs show, first, that the Japanese economy was more competitive than the U.S. economy throughout the period 1960–1972. Japan's competitiveness deteriorated substantially after 1973 but recovered gradually due to the appreciation of the dollar in the 1980s. Second, lower wage rates have contributed to Japan's international competitiveness throughout the period, especially before the energy crisis in 1973. Lower cost of capital in the United States has contributed to the U.S. international competitiveness for most of the period, with important exceptions in 1960, 1962–1966 and 1984.
We turn next to international competitiveness of Japanese and U.S. industries. Exchange rates play the same role in relative price comparisons at the industry level as at the aggregate level. However, industry inputs include energy and other intermediate goods as well as the primary factors of production—capital and labor inputs. Table 4 gives average annual growth rates of input prices in Japan and the United States in the 1960s, 1970s, and 1980s at the industry level. The growth rates of the cost of capital in Japan were almost double those of the United States in the 1960s. Since 1970, average rates of growth in the United States have been considerably higher. The rates of growth of wage rates in Japan were substantially higher than those in the United States throughout the 1960s and 1970s. During the 1980s, however, annual rates of growth of wages in the United States exceeded those in Japan by about 1.5 percent per year.
The movements of energy input prices were similar in the two countries in the 1960s. Rates of growth of energy prices in the United States during the 1980s were about 3 percent per year higher than those in Japan. This implies that differences between energy prices in the two countries have been decreasing since 1980, in spite of the relatively high level of energy prices in Japan. The growth rates of other intermediate input prices in the United States were also higher than those in Japan after 1980. The higher growth rates of input prices in the United States since 1980—including capital, labor, energy, and other intermediate inputs—have resulted in a
TABLE 4 Annual Growth Rate of Factor Prices
substantial deterioration of international competitiveness of U.S. industries relative to their Japanese counterparts.
RELATIVE PRODUCTIVITY LEVELS
In this section we estimate relative levels of productivity in Japan and the United States for each of the 29 industries included in our study. Jorgenson et al. (1987) have reported relative productivity levels for the two countries for the period 1960–1979. All Japanese industries had lower levels of productivity than their U.S. counterparts in 1960. In order to compare our new results with those in our earlier paper with Nishimizu, we
must note a number of revisions of our methodology. First, we have constructed intermediate input measures for the United States from a time series of interindustry transactions tables for the period 1947–1985.7 Second, the purchasing parity index for capital input has been revised to take account of differences in rates of return on capital. Third, we were able to obtain more detailed information on wage differentials between full-time employees and other workers in Japan.
Revisions in our data base have resulted in several substantial changes in the taxonomy of industries presented for the period 1960–1979 in Jorgenson et al.8 Since it is difficult to compare our new results with the previous ones directly due to revisions in our data base, we have presented a new taxonomy for the year 1980 in Table 5. It is difficult to assess the validity of our industrial taxonomy by using the added observations for the period 1980–1985, due to fluctuations of productivity growth by industry. As an illustration, according to the new evidence on the productivity gap between Japan and the United States in the motor vehicles industry during the period 1980–1985, the gap had closed by 1979. After 1983, however, the gap increased again due to rapid productivity growth in the U.S. industry.
The index of productivity in motor vehicles in Japan and the United States during the period 1979–1985 was as follows:
Year |
Japan |
United States |
1979 |
1.00896 |
1.06235 |
1980 |
1.05427 |
1.00609 |
1981 |
1.04083 |
1.00706 |
1982 |
1.00539 |
0.99941 |
1983 |
0.99767 |
1.02872 |
1984 |
1.00147 |
1.06479 |
1985 |
1.00019 |
1.05392 |
On the basis of productivity trends before 1980 it was impossible to anticipate the rapid recovery of U.S. productivity and the deterioration of productivity in Japan in the motor vehicles industry during the 1980s. In
evaluating the usefulness of the industrial taxonomy for 1980, we find several industries in which we were unable to project the trend of productivity gaps by simple extrapolation of trends through 1980. We can say, however, that trends of these gaps between Japan and the United States through 1980 have mostly continued through 1985.
To summarize the trend of productivity differences between Japan and the United States, we have estimated the mean and variance of the proportional gaps in the productivity between Japan and the United States by industry during the period 1960–1985. The results are shown in Table 6. The mean of proportional gap in productivity between the two countries gradually increased during the period until 1980. This movement peaked in 1982. By contrast, the variance of the relative productivity levels was fairly stable until the oil crisis in 1973 and has expanded rapidly since that time.
CONCLUSION
During the period 1960–1973, productivity growth in Japan exceeded that in the United States for almost all industries. After the energy crisis in 1973, there were very few significant differences between growth rates of productivity in Japanese and U.S. industries. However, productivity growth deteriorated substantially in both Japan and the United States. An important issue is whether the productivity slowdown is a permanent feature of both economies. To resolve this issue we can consider average productivity growth rates in Japanese and U.S. industries over the period 1960–1985:
|
Japan (%) |
United States (%) |
1960–1965 |
3.269 |
2.709 |
1965–1970 |
4.977 |
0.005 |
1970–1973 |
2.077 |
2.033 |
1973–1975 |
-5.086 |
-2.123 |
1975–1980 |
1.111 |
0.004 |
1980–1985 |
0.003 |
0.008 |
We conclude that productivity growth in Japan and the United States has revived slightly since 1975. However the growth rates for the period 1980–1985 are well below those for the period 1960–1973, especially in Japan.
A second issue is whether productivity levels in Japan and the United States have tended to converge. While the mean of relative productivity levels between Japan and the United States has been stable since 1980, the variance has increased rapidly. This implies that convergence of Japanese and U.S. levels of productivity during the 1960s had given way to sharply divergent trends in relative productivity by industry during the 1970s and, especially, during the 1980s.
TABLE 5 An Industrial Taxonomy in Terms of Differences in Technology
|
Rates of Differences 1960 |
Average Annual Rates of Growth 1960–1970 |
Rates of Differences 1970 |
Average Annual Rates of Growth 1970–1980 |
Rates of Differences 1980 |
Average Annual Rates of Growth 1980–1985 |
Rates of Differences 1985 |
|||
Sector |
|
Japan |
U.S. |
|
Japan |
U.S. |
|
Japan |
U.S. |
|
Type I |
||||||||||
1) Agriculture |
6.899 |
-0.615 |
0.895 |
-8.205 |
-1,346 |
0.508 |
-26.748 |
-0.031 |
4.935 |
-51.577 |
12) Petroleum |
4.724 |
-1.840 |
1.625 |
-29.923 |
-6.077 |
-2.903 |
-61.663 |
-1.328 |
4.068 |
-88.646 |
Type II and Type V |
||||||||||
6) Apparels |
-52.543 |
2.712 |
0.991 |
-36.333 |
1.680 |
1.693 |
-36.466 |
0.269 |
0.706 |
38.652 |
8) Furniture |
-20.675 |
1.145 |
0.544 |
-14.663 |
0.285 |
1.126 |
-23.079 |
0.572 |
0.237 |
-21.402 |
9) Paper |
-7.598 |
1.778 |
1.018 |
0.007 |
-0.377 |
0.162 |
-5.390 |
1.849 |
1.151 |
-1.900 |
10) Printing |
-61.847 |
1.260 |
-0.254 |
-46.702 |
-2.305 |
0.183 |
-71.583 |
0.070 |
-0.669 |
-67.885 |
13) Rubber |
-66.106 |
2.637 |
1.851 |
-58.239 |
-2.719 |
0.043 |
-61.385 |
2.656 |
1.570 |
-55.957 |
14) Leather |
-24.489 |
0.753 |
0.483 |
-21.787 |
-0.313 |
-0.150 |
-23.419 |
0.338 |
-0.593 |
-18.765 |
15) Stone |
-29.719 |
1.945 |
0.761 |
-17.911 |
-1.091 |
0.200 |
-30.825 |
0.373 |
1.480 |
-36.361 |
18) Machinery |
-13.970 |
1.851 |
0.982 |
-5.279 |
0.675 |
1.534 |
-13.905 |
-0.958 |
2.129 |
-29.340 |
24) Trsp. comm. |
-12.339 |
3.191 |
1.419 |
5.380 |
0.866 |
1.862 |
-4.576 |
1.115 |
-0.717 |
4.580 |
28) Service |
-46.846 |
1.186 |
0.439 |
-39.372 |
-1.323 |
0.510 |
-57.694 |
-1.161 |
-1.330 |
-56.849 |
Type III, Type IV. and Type VI |
||||||||||
3) Construct. |
-53.684 |
-0.973 |
-0.068 |
-62.729 |
-0.682 |
-0.983 |
-59.724 |
-1.647 |
-0.062 |
-67.651 |
4) Foods |
-21.625 |
1.030 |
0.609 |
-17.409 |
0.777 |
0.224 |
-11.870 |
-0.793 |
0.423 |
-17.957 |
5) Textiles |
-15.657 |
1.619 |
1.393 |
-13.339 |
0.981 |
0.781 |
-11.398 |
0.607 |
0.762 |
-12.127 |
7) Lumber |
-29.293 |
1.773 |
1.236 |
-23.919 |
1.463 |
-0.615 |
-3.136 |
4.064 |
1.108 |
11.648 |
16) Prim. metal |
-10.759 |
0.642 |
0.269 |
-7.033 |
1.135 |
0.452 |
-0.199 |
0.271 |
0.843 |
-3.061 |
17) Fab. metal |
-48.592 |
2.491 |
0.689 |
-30.573 |
0.564 |
0.428 |
-29.211 |
-0.121 |
0.318 |
-31.405 |
21) Trsp. eqpt. |
-81.014 |
4.393 |
1.231 |
-49.394 |
-0.655 |
-0.717 |
-48.733 |
1.671 |
0.632 |
-43.579 |
22) Prec. inst. |
-31.873 |
2.110 |
1.215 |
-22.928 |
3.325 |
1.184 |
-1.522 |
1.451 |
2.329 |
-5.907 |
TABLE 6 Mean and Variance of the Proportional Gap of Technology by Industry During the Period 1960–1985
Year |
Mean |
Variance |
Year |
Mean |
Variance |
1960 |
0.7577 |
0.0372 |
1973 |
0.8357 |
0.0378 |
1961 |
0.7676 |
0.0386 |
1974 |
0.8331 |
0.0426 |
1962 |
0.7643 |
0.0364 |
1975 |
0.8391 |
0.0500 |
1963 |
0.7642 |
0.0360 |
1976 |
0.8352 |
0.0512 |
1964 |
0.7723 |
0.0363 |
1977 |
0.8446 |
0.0623 |
1965 |
0.7717 |
0.0366 |
1978 |
0.8442 |
0.0847 |
1966 |
0.7871 |
0.0382 |
1979 |
0.8575 |
0.1017 |
1967 |
0.7975 |
0.0336 |
1980 |
0.8701 |
0.1256 |
1968 |
0.8063 |
0.0317 |
1981 |
0.8785 |
0.1483 |
1969 |
0.8214 |
0.0341 |
1982 |
0.8835 |
0.1688 |
1970 |
0.8359 |
0.0337 |
1983 |
0.8778 |
0.1768 |
1971 |
0.8269 |
0.0351 |
1984 |
0.8652 |
0.1716 |
1972 |
0.8221 |
0.0332 |
1985 |
0.8713 |
0.1492 |
While the United States retains a very substantial advantage over Japan in relative productivity levels, there is a small number of industries in which Japan has gained an advantage and seems likely to increase it. Perhaps equally important, the increase in the variance of relative productivity levels among industries has created opportunities for both countries to benefit from the great expansion in Japan-U.S. trade that has taken place. However, this increase is also an important source of "trade frictions" and will require continuing efforts at coordination of trade policies in the two countries.
Attempts to link trade imbalances in Japan and the United States to relative technological performance are inconsistent with the implications of the extensive body of empirical evidence we have assembled. The sharp deterioration in the U.S. current account balance and the corresponding improvement in the Japanese balance in the early 1980s took place with no changes in the relative technological performance of the two economies. U.S. international competitiveness improved sharply after the Plaza Accord of 1985, as a consequence of appreciation of the yen and other currencies relative to the dollar. This has led to a virtual explosion of U.S. exports after 1985 and a gradual decline in international imbalances in both the United States and Japan.
Removing relative technological performance from the list of explanations of trade imbalances will be a prolonged and painful intellectual process. The beginning of this process must involve relearning the economic definition of international competitiveness. "International competitiveness" is a phrase with many different meanings, so that ordinary discourse will be
plagued by seemingly interminable semantic confusion. By focusing on the simple and intuitive concept of relative prices of outputs, expressed in a common currency, economists can do much to dispel this rhetorical fog. Tracing this notion of international competitiveness to its sources in costs of capital and labor and, most critically, the yen-dollar exchange rate can help illuminate trade policy issues on both sides of the Pacific.