An empirical analysis of industrial transformation in the Japanese machine tool industry

We attempt to analyze empirically how and when industrial transformation took place in the Japanese machine tool industry. For estimation, the following variables are selected: (a) automobile production; (b) exports; (c) investment; and (d) GDP. Dummy variables are used to indicate the time when industrial transformation is supposed to take place. We then select meaningful variables according to Akaike's information criterion. After this procedure, we use the method of seemingly unrelated regression. By these methods, we can specify the exact demand functions for machine tools. As to determining the time of industrial transformation, we introduce dummy variables representing it, and choose the best one which minimizes the AIC value. It was determined that transformation took place in the second quarter of 1976.