Working Paper: NBER ID: w1849
Authors: Melvyn Fuss; Leonard Waverman
Abstract: In this paper we present for the first time estimates of cost and efficiency differences between U.S. and Japanese producers based on an econometric cost function methodology rather than the accounting frameworks previously used. We demonstrate that the cost difference estimates for 1979 which were influential in the debate that resulted in the Voluntary Restraints Agreements of 1981-85 were substantial over estimates of the Japanese advantage. While our estimate of the Japanese cost advantage for 1980 is similar to previous estimates, we attribute most of this advantage to short-run phenomena -underutilization of U.S. production capacity and an undervalued yen. In a previous paper we have shown that the Japanese TFP growth rate was much faster than the U.S. rate during the 1970's. However we estimate the long-run underlying Japanese efficiency advantage as of 1980 to have been only 1-2%, much less than previously estimated. This results from the fact that Japan began the 1970's with a long-run efficiency disadvantage of over 20%, and the decade of the 1970's represented a catch-up period for Japanese producers.
Keywords: automobile production; cost efficiency; US-Japan comparison
JEL Codes: L62; D24; D43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| short-run phenomena (underutilization of US production capacity, undervalued yen) (F31) | cost difference estimates for Japanese advantage in 1979 (F11) |
| US production capacity utilization (E23) | Japanese cost advantage in 1980 (F14) |
| Japanese efficiency advantage in 1980 (L23) | normal capacity utilization in the US (D24) |
| short-run phenomena (capacity utilization and exchange rate fluctuations) (E32) | Japanese cost advantage in 1979 and 344 in 1980 (F14) |
| US producers' long-run efficiency advantage in the early 1970s (D24) | disadvantage of 14 by 1980 due to Japanese producers' catch-up (F14) |
| variations in capacity utilization and exchange rate fluctuations (F31) | deterioration in US cost efficiency (D61) |