Impact of Backward Linkages and Domestic Contents of Exports on Labor Productivity and Employment: Evidence from Japanese Industrial Data

Abstract

This study examines how backward linkages (foreign value added [FVA] exports) and domestic value-added (DVA) exports impact industry-level labor productivity and employment in Japan by estimating a static and dynamic panel model using data drawn from the World Input-Output Dataset and Socio-Economic Accounts. We find that the domestic content of trade is a key driver of productivity and employment in Japan for all industries, while backward linkages lead to declining productivity and foster labor displacement. A sectoral analysis reveals that productivity benefits most of the backward linkages and domestic value-added exports in the manufacturing industry but weakens as the backward linkages increase in the service industry. We find that the DVA exports variable promotes employment, whereas the FVA variable displaces it.