Aggregate implications of changing industrial trends in Japan

This study examines the extent to which the long-term declining trend in Japan's GDP growth rate is attributable to factors common to all the industries or those specific to individual industries. By applying Japan's 1958-2019 data to a multi-industry network model, we obtained the following results. First, common factors explain approximately 60% of the variation in Japan's long-term GDP growth rate. This result contrasts to that in the US: common factors explain only around 20% of the secular trend in US GDP growth. Second, however, the impact of industry-specific factors is non-negligible. In particular, machinery-industry-specific factors explain much of the low growth in the past 20 years. Finally, the spillover effects from individual industries to the aggregate GDP depend on the role of each industry in the production and investment networks, and in Japan, the influence of investment-related industries such as the machinery industries and construction is substantial.