Economic crisis and innovation capacity of Japan: Evidence from cross-country patent citations

By comparing the cross-country citation performance of patents registered in the United States Patent and Trademark Office (USPTO), this paper investigates how the economic crisis that Japan faced in the early 1990s altered the innovation capacity of the nation once regarded as a technological powerhouse. The following main findings are reported based on a difference-in-differences framework. First, overall, Japan performed poorly in terms of citations received for its patents compared to control patents in the post-crisis period. This corroborates with the common finding that Japan suffered a marked decline in research performance compared to international standards in the 1990s and 2000s. Second, the crisis exerted prolonged adverse effects on the citation performance of Japanese patents, even 10 years after the crisis. In particular, it caused a permanent drop in non–US citations of Japanese patents. This reduction in citations offset the superior performance of Japanese patents in the pre-crisis period.