Sources and Consequences of Productivity Growth Dynamics: Is Japan Suffering from Baumol's Diseases?

This study examines the sources and consequences of labour productivity growth dynamics in Japan (1970-2011) to investigate the extent to which Japanese economic performance has been affected by Baumol's growth and cost diseases. We find that although it is not as apparent in actual aggregate labour productivity dynamics, Baumol's growth disease lies behind the Japanese economy. In regard to Baumol's cost disease, the Japanese economy has undergone a change from productivity growth rate differential inflation to productivity growth rate differential deflation since the end of the 1990s. In other words, Baumol's cost disease appears atypically as deflation in the recent performance of the Japanese economy.