Effects of Industrial Policy on Productivity: The Case of Import Quota Removal during Postwar Japan

This paper attempts to provide a systematic analysis on the effects of industrial policy in postwar Japan. Among the various types of Japanese industrial policy, this paper focuses on the removal of de facto import quotas through the foreign exchange allocation system. Analyzing a panel of 100 Japanese manufacturing industries in the 1960s, we find that the effects of the quota removal on productivity were limited: the effects were significantly positive but it took time before they appeared. On the other hand, the effects of tariffs on labor productivity were negative although these were insignificant. One possible reason for this is that the Japanese government increased tariff rates before removing the import quotas, and maintained high tariff rates afterward. As a result, the effects of the Japanese industrial policy in the 1960s might be smaller than widely believed in the Japanese economic history literature.