DOES THE CAPITAL INTENSITY MATTER? EVIDENCE FROM THE POSTWAR JAPANESE ECONOMY AND OTHER OECD COUNTRIES

Abstract

The capital intensity takes an important role in two-sector and multisector growth models. Surprisingly very few empirical studies have been conducted so far except by Kuga (1967). This fact implies that few people have ever tried to perform any empirical research to study whether the two-sector and multisector optimal growth models could explain the economic development properly based on the empirical data. Although we witnessed fairly active theoretical research on two-sector and multisector growth models in the 1990s and recent years, R. M. Solow has thrown doubt on the capital intensities [in Philippe Aghion and Steven Durlauf (eds.),Handbook of Economic Growth, Vol. 1A (2005, pp. 3–10)]. Our purpose is to measure the capital intensities of the consumption good and the investment good sectors mainly in the postwar Japanese economy, and also in other OECD countries. By so doing, we will demonstrate that the capital intensity does matter and our empirical evidence will strongly support the common assumption that the consumption goods sector is more capital-intensive than the capital goods sector.