Japan’s Lost Decade Revisited: Total Factor Productivity and Economic Growth

Abstract

This paper examines the decade-long economic slump in Japan during the 1990s. In the

neoclassical growth framework, a fall in total factor productivity growth is expected to slow down the

economy’s long-term growth. This paper’s findings based on the Malmquist index show that Japan’s

productivity growth rate in the 1990s is not only historically low but also lags considerably behind the

contemporaneous growth rates in other OECD nations. Building upon the Japanese experience, this

paper considers policy responses to the current global financial crisis.