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Resource Reallocation and Zombie Lending in Japan in the '90s

Hyeog Ug Kwon (), Futoshi Narita () and Machiko Narita ()

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

Abstract: We investigate the efficiency of resource reallocation in Japan during the 1990s, a decade of economic recession, by measuring aggregate productivity growth (APG) using a plant-level data set of manufacturers from 1981-2000. We find that resource reallocation contributed negatively to APG, mainly due to inefficient labor reallocation. A possible reason for the inefficient labor reallocation is misdirected bank lending or "zombie lending" to otherwise defunct plants. To quantify its impact, we develop a model with plant-level heterogeneity, calibrate it based on the results of plant-level productivity estimation, and conduct a counterfactual exercise. The results show that 37% of the actual decline in APG due to inefficient labor reallocation in Japan in the '90s is attributable to "zombie lending."

Pages: 49 pages
Date: 2009-10
New Economics Papers: this item is included in nep-ban
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