Foreign exchange allocation and productivity growth in post-war Japan: a case of the wool industry

This paper examines functions of the foreign exchange allocation system whi ch was employed in Japan until early 1960s, focusing on the case of the woo l industry. Through analysis of historical documents, we make clear that th e MITI utilized this system for such policy goals as export promotion, mana gement of investment and production capacity etc. Using micro-data analysis , we confirm that allocation of foreign currency was based on clear and obj ective criteria, that generated rents actually promoted export and investme nt, and that its essential roles could be found in efficient use of foreign currency and mitigation of productivity differences between firms. (C) 199 9 Elsevier Science B.V. All rights reserved.