| Abstract: |
This paper analyzes changes in the weight of small establishments in the
overall industrial structure and the factors behind them in view of the size
distribution of firms using data on domestic and overseas manufacturing
establishments. The international comparison of long time series shows that
the proportion of small establishments has generally been in decline in Japan
while those of other advanced countries shifted to an upward trend in and
around the 1970s. This difference was caused by changes in the industrial
composition and a decrease in the proportion of small establishments within
respective industries, as confirmed by the decomposition analysis of
contributing factors with an eye on changes in the industrial structure. A key
factor contributing to the changes in the industrial composition is the
decline of industries that tend to have a large proportion of small firms,
such as the textile industry. Regarding the decrease in the proportion of
small-sized firms across industries, very small firms with four to nine
employees have shown a particularly sharp decline. Analyzing this phenomenon
by focusing on the dynamics of firm evolution, i.e., the entry, growth, and
exit of firms, we find that the number of entries has mostly decreased
compared with that of exits over the past few decades. During the same period
of time, firm growth—another factor contributing to changes in firm size
distribution—has worked to shift the size distribution toward smaller firms,
which is contradictory to the findings in preceding studies on other
countries. While the changes in industrial composition that have worked to
lower the proportion of small establishments in the overall industrial
structure can be understood as a response to various changes in the business
environment, the low number of new entries is a disturbing factor that may
undermine the industrial vitality of Japan. The implementation of government
policy for small and medium-sized firms needs to be underpinned firmly by the
thorough understanding of factors contributing to changes in the weight of
small-sized firms in the overall industrial structure. |