Economy-wide Learning: A Comparative Study of Manufacturing and Non-manufacturing Sectors in Japan

In knowledge economies, building technological capability is a continuous process and unarguably
key to industrial policy development. Learning [by-doing in the industry] has been linked to a reduction
in unit labor cost and overall production cost of goods and services. In this study, we comparatively
studied the learning pattern of the Japanese manufacturing and service sector using industrial-leveldata.
This study is perhaps the first attempt to comparatively study the productivity of the Japanese
industry using the learning curve at the aggregate level. Looking back to almost 4 decade-long (1980-
2017) of financial input-output data, we estimated the trend in technological learning using various
learning models, calculated the annual progress ratios (via production function imputed in log-linear &
cubic model) and revealed the dynamic technological learning across the two sectors at the aggregate
level. This enabled us to identify years with good learning rates which are synonymous with costsaving
across the two sectors of the economy. The results show that, while learning was restored and
sustained in the services sector of the economy in the last decade, the same cannot be said about the
manufacturing sector where learning (cost-saving ability) was completely lost. We conclude that (1) as
typical of advance economy, Japan is now a service-oriented economy with manufacturing playing a
complementary role, (2) the service sector may have benefited from advances in technologies and
innovations from the manufacturing to achieve higher productivity at a lower cost.