Template-Type: ReDIF-Paper 1.0
Author-Name: Dany Bahar
Author-Workplace-Name: Center for International Development at Harvard University
Author-Person: pba1149
Author-Name: Shreyas Gadgin Matha
Author-Name: Ricardo Hausmann
Author-Email: ricardo_hausmann@harvard.edu
Author-Workplace-Name: Harvard's Growth Lab
Author-Person: pha552
Author-Name: Santiago Segovia
Author-Workplace-Name: Harvard's Growth Lab
Title: Japan’s Innovation Challenge: Escaping the Middle-Technology Trap
Abstract: Japan remains one of the world’s most technologically sophisticated economies, yet its labor productivity has been stagnant for more than two decades. This paper investigates the apparent contradiction between Japan’s high R&D intensity and its weak productivity performance by examining the allocation, composition, and effectiveness of innovation across industries. Using industry-level data from the OECD, patent-level data linked across technology and industry classifications, and a set of nine technological taxonomies, we document that Japan disproportionately concentrates R&D in mid-technology manufacturing sectors—such as motor vehicles, electrical equipment, and chemicals—that generate relatively low productivity spillovers. High-technology sectors, including ICT, pharmaceuticals, scientific R&D, and advanced digital services, receive a significantly smaller share of investment and exhibit much higher productivity contributions in other countries. We further show that Japan’s indirect, tax-based system of R&D support reinforces this equilibrium by favoring large incumbents and under-supporting SMEs. We conclude by assessing the potential of Japan’s new 17-sector strategy to reorient the innovation system toward frontier technologies.
Creation-Date: 2026-05
Keywords: Japan, innovation, industrial policy
Number: 269
Handle: RePEc:glh:wpfacu:269
File-Url: https://growthlab.hks.harvard.edu/wp-content/uploads/2026/05/2026-05-GLWP-269-japan-innovation-challenge.pdf
File-Format: application/pdf