Features of Japanese Internationalized Firms: Findings Based on Firm-Level Data

Abstract

By using firm-level data on the Japanese manufacturing industry, we examine and compare the characteristics of internationalized Japanese firms, namely firms that engage in exports and/or foreign direct investment (FDI), with those from selected European countries. We find that the productivity of internationalized firms is higher than that of domestic firms, thus confirming the findings of previous studies on Japan and other countries. In addition, we show that the productivity differences between domestic firms, exporters, and FDI firms are substantially smaller in Japan than they are in European countries. This finding suggests that productivity differences alone cannot determine the export or FDI behavior of Japanese firms.

Appendix: Data Sources and Variable Construction

1.1 Firm-Level Data

The data on firms’ exports and FDI activities as well as the variables used for the calculation of TFP at the firm-level in Sects. 2, 3, and 5 were derived from Kigyo Katsudo Kihon Chosa (KKKC) for 1997–2005. This annual national survey conducted by the METI in Japan, which is mandatory for all firms that have 50 or more employees and whose paid-up capital is over 30 million yen, covers the mining, manufacturing, wholesale, retail, and food and beverage industries. We transformed nominal values into real values using appropriate deflators from the Japan Industry Productivity (JIP) Database 2008, which provides comprehensive data at the three-digit industry level for Japan for 1970–2005. We used KKKC with legal permission, while the JIP database 2008 is downloadable from RIETI (http://www.rieti.go.jp/en/).

1.2 Labor Input

Labor input is defined as the total number of employees of all kinds, including full-time employees, part-time employees, and temporarily dispatched workers. We did not adjust the number of employees on the basis of work hours or education level since these data were unavailable.

1.3 Value Added

We calculated value added as total sales minus intermediate inputs, that is, the sum of the cost of goods sold and general and administrative expenses minus wages, rental costs, depreciation, and taxes. Total sales and intermediate inputs were deflated using the output and input deflators of the JIP Database 2008, respectively. Since wage payments to temporary workers received from recruitment companies are recorded under outsourcing expenses, which are part of the cost of sales, we defined payments to temporary workers as the average ratio of payments to non-regular employees over regular employees in Japanese manufacturing industries (0.578) multiplied by both the number of temporary workers and the average payments to the regular employees of each firm.

1.4 Capital Stock

Real capital stock was calculated by using the perpetual inventory method. While firms report the book values of fixed tangible assets, this is transformed into real values using the ratio of the real values of fixed tangible assets to their book values at the three-digit industry level provided by Tokui et~al. (2007). The investment goods deflator used for deflating the value of investment flows and the depreciation rate were also taken from the JIP Database 2008.

1.5 TFP

We estimated TFP for each sampled firm by using firm-level data from 1997 to 2005. The direct calculation of TFP using the estimated coefficients of capital stock and labor in the Cobb–Douglas function form suffers from endogeneity. As the benchmark of TFP, the estimated labor and capital proportions are 0.78 and 0.18, respectively, when estimating the Olley–Pakes production function using investment as a proxy for productivity shocks. We also used an alternative method by employing intermediate inputs or the purchase of inputs as a proxy, as proposed by Levinsohn and Petrin (2003); however, since the results changed greatly by this choice of proxy, we relied on the result of the Olley–Pakes procedure.

1.6 Exports and FDI

We used the real value of exports deflated by the output deflator of the JIP Database 2008 and defined exporters as firms that reported positive export values. For FDI firms, we used data from KKKC and defined firms that have at least one subsidiary or affiliate in foreign countries as FDI firms. In the survey, Japanese firms’ subsidiaries in foreign countries are defined as overseas firms in which the Japanese parent holds an equity stake of over 50 %, while foreign affiliates are overseas firms in which the Japanese parent holds between 20 and 50 % of the equity. Hence, FDI firms in this study are firms that hold 20 % or more of the equity of an overseas firm.

1.7 Sources and Data Construction for Sect. 4

Firm-level variables were derived from the Kaigai Jigyo Katsudo Kihon Chosa, an annual survey conducted by the Ministry of Economics and International Trade.¹⁴ The dataset used was a panel and the number of observations was 65,430 affiliate-years (cumulative total from 1995 to 2004).¹⁵

Country-level variables such as real GDP and exchange rates were derived from the Penn World Tables (PWT6.2). Distance data were taken from Haveman’s International Trade Data.¹⁶ Data on WTO membership were constructed based on information provided on the WTO’s website.¹⁷

Sales of FDI firms were constructed as follows. We summed the sales of foreign affiliates recorded in the panel by parent firm and country. Thus, for example, the number of firms operating in country i is the number of parent firms that have foreign affiliates in country i rather than the number of foreign affiliates in country i. Average sales were derived by dividing total sales in country i by the number of parent firms.¹⁸