The Role of Production Organization, Infrastructure, and R&D in the Catching-up Process of Japanese to German Industries

This paper presents an empirical study of productivity comparison between Japan and Germany with focus on the R&D and infrastructure. By using time-series datasets from auto vehicle industry and electronic engineering industry, the study shows the reversal of productivity advantage from Germany to Japan around 1980. We argue that Japanese productivity gains are from better infrastructure and cost-reducing innovations such as lean production methods. An econometric model determines the causes for the observed differences in the quantities of inputs used. It shows that frequent external procurement among Japanese manufactures has shifted the factor inputs from labor and capital to material, a result which is in line with the philosophy of lean production.