Growth Factors of Digital Investment ― Addressing the Japan-U.S. productivity gap in the AI era ― (Japanese)

Hiroyuki Oiwa

Discussion Papers (Japanese) from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: This paper quantitatively examines the economic impact of the relative lack of digital investment in Japan as a factor contributing to the productivity gap between Japan and the U.S., which has expanded since the 1990s. Using panel data from 100 industries spanning from 1994 to 2020, the estimated production function confirmed that the marginal effect of software assets on value-added significantly exceeds that of tangible assets. Furthermore, if software assets and intangible assets, which are complementary, were to increase to U.S. levels, approximately half of the productivity gap (38 percentage points) between Japan and the U.S. could be closed. These analytical results suggest the need to shift the focus of policy support from investment in tangible assets to investment in software and intangible assets. Next, this paper estimates the investment function for the determinants of digital investment by eliminating selection bias in control variables using the Post-Double-Selection Lasso method. The analysis reveals that factors such as the quality of workers, software prices, and wages of general workers have statistically significant positive effects on the expansion of digital investment. Improving the levels of each factor by 76% could result in an approximate four-fold increase in the amount of digital investment, raising software assets to the U.S. level. This indicates that supporting the development and recruitment of high-quality workers who can internalize software development, providing support for scaling-up efforts to reduce software prices, and raising wages for workers overall are effective policy measures for enhancing Japan's productivity through digital investment.

Pages: 23 pages
Date: 2025-07
New Economics Papers: this item is included in nep-eff
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Persistent link: https://EconPapers.repec.org/RePEc:eti:rdpsjp:25016

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