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

• Main Authors: Alvaro Domínguez, Carlos Mendez
• Format: Article
• Language: English
• Published: MDPI AG 2019-05-01
• Series: Economies
• Subjects: communities; input-output networks; productivity; convergence analysis
• Online Access: https://www.mdpi.com/2227-7099/7/2/52

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.