Has the Japanese Economy Turned the Corner?: An International Comparative Perspective on Japan's Productivity Revival

The slight improvement in productivity performance of the Japanese economy cannot yet be interpreted as a major turn-around compared with its dismal performance during the 1990s. Despite recent improvements, most labor productivity growth since 1995 is driven by capital deepening, both in information and communication technology (ICT) and non-ICT. However, total factor productivity (TFP) growth—in particular outside ICT production—remains weak. A sector breakdown of productivity growth shows some strength in ICT-production, but the contribution of other goods-producing industries and market services halved. The article concludes that better use of ICT and innovations in combination with continued reforms in product and labor markets are important drivers of future growth of the Japanese economy.