Industrial Productivity Divergence and Input-Output Network Structures: Evidence from Japan 1973–2012

Abstract

Since the early 1990s, there have been larger and increasing labor productivity differences across industries in Japan. More specifically, a clear pattern of sigma and beta divergence across industries is observed. To shed light on these stylized facts, we first evaluate the input–output structure of Japan through the lens of a community-detection algorithm from network theory. Results from this analysis suggest the existence of two input–output network structures: a densely-connected group of industries (a stationary community), whose members remain in it throughout the period; and a group of industries (a transitional community) whose members do not belong to this first group. Next, we re-evaluate the industrial divergence pattern of Japan in the context of each network structure. Results suggest that divergence is mostly driven by the transitional community. Interestingly, since 2007, a pattern of sigma convergence started to re-appear only in the stationary community. We conclude suggesting that industrial divergence and instability in community membership are not necessarily indicative of low productivity performance.

Carlos Mendez

Associate Professor of Development Economics

My research interests focus on the integration of development economics, spatial data science, and econometrics to understand and inform the process of sustainable development across regions.