The Impact of Research and Development Policy on Industry Output: The Case of Japan

Abstract

The goal of this paper is to attempt to find a direct link between broad scope R&D policy and industry output in a country. To that end, a natural experiment is studied using historical data from Japan to gauge the effect of a 1996 R&D policy on value added across some industries. The policy that is studied in the paper is the “The Science and Technology Basic Law” and moreover, its “First Basic Plan” (Cabinet Office, 1995). Industries differ in their relative focus on R&D efforts (High R&D intensity industries should gain more benefit from the policy than low R&D intensity industries) and through an identification strategy based on that, the policy’s effect can be roughly quantified. Two different measures are created for R&D focus, a labour and a capital expenditure measure and both are used in the analysis in the paper. The paper then goes on to look at some intermediate outcomes of the policy for various R&D related statistics, through which the effect on value added presumably occurred.