Competition Effects and Industrial Productivity:  Lessons from Japanese Industry^*

This study mainly investigates the causal relation between the degree of competition, which is measured by the Lerner index, and the total factor productivity (TFP) growth rate on the basis of the Japanese industry-level panel data from 1980 to 2008. While the main finding uncovers a positive effect of competition on the TFP growth rate in manufacturing industries throughout the sample period, 1980–2008, the observed effect for non-manufacturing industries at this time is slightly negative. This unique finding of a negative competition effect suggests that the Schumpeterian hypothesis may be applicable in non-manufacturing industries.