Why did technical knowledge fall out of favor during Japan’s Lost Two Decades?

Abstract

This paper investigates why Japanese technical knowledge fell out of favor by estimating stochastic frontier functions using 13 Asian developing countries. We find that the rate of absorption of technical knowledge from imported Japanese products was lower than that of imported US products. Seven countries that imported more from Japan than the US during the period 1994–2011 experienced a decrease in output efficiency, four countries changed their pattern of imports from Japan in favor of the US, and the two countries that retained a high level of US imports attained a high level of efficiency. The countries using US technical knowledge comprise a frontier country and catching-up countries, while the remaining countries using Japanese technical knowledge could not catch up to the frontier country. These findings suggest that during Japan’s Lost Two Decades, Japanese technical knowledge fell out of favor in line with Japanese imports.