Foreign exchange allocation and productivity growth in post-war Japan: a case of the wool industry

Abstract

This paper examines functions of the foreign exchange allocation system which was employed in Japan until early 1960s, focusing on the case of the wool industry. Through analysis of historical documents, we make clear that the MITI utilized this system for such policy goals as export promotion, management of investment and production capacity etc. Using micro-data analysis, we confirm that allocation of foreign currency was based on clear and objective criteria, that generated rents actually promoted export and investment, and that its essential roles could be found in efficient use of foreign currency and mitigation of productivity differences between firms.