Just to add a few additional points in addition to Nick’s insightful comments–> Given (a) evidence that productivity in Japan is very strongly influenced by investment-specific technology, and (b) evidence that services sectors in the non-IT sector were “left behind” while manufacturing and IT sectors were able to capitalise on the technology boom, it makes sense to focus efforts on structural reform in the services sector.
Still, as Fukao, Miyagawa and Hisa demonstrated in their 2012 paper,increasing intangible capital alone has proven no indicator of rising TFP in the services sector. This may explain why policies designed to promote growth via intangible investment in services sector in the early 2000’s were misplaced.
So what are the policy alternatives? The second TFP paper gives us some key policy ingredients: