Going Soft: How the Rise of Software-Based Innovation Led to the Decline of Japan's IT Industry and the Resurgence of Silicon Valley

Ashish Arora; Lee G. Branstetter; Matej Drev

doi:10.1162/rest_a_00286

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Going Soft: How the Rise of Software-Based Innovation Led to the Decline of Japan's IT Industry and the Resurgence of Silicon Valley

Ashish Arora¹; Lee G. Branstetter²; Matej Drev²

¹ Duke University · ² Carnegie Mellon University

The Review of Economics and Statistics 2013

This paper documents a systematic shift in the nature of innovation in information technology (IT) toward increasing dependence on software. Using a broad panel of U.S. and Japanese publicly listed IT firms in the period 1983 to 2004, we show that this change in the nature of IT innovation had differential effects on the performance of the IT industries in the United States and Japan, resulting in U.S. firms increasingly outperforming their Japanese counterparts, particularly in more software-intensive sectors. We provide suggestive evidence that human resource constraints played a role in preventing Japanese firms from adapting to the documented shift in IT innovation.

DOI: 10.1162/rest_a_00286
Volume: 95 (3)
Pages: 757-775
Language: en
Export: BibTeX
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