How Inclusive Is Abenomics?; by Chie Aoyagi, Giovanni Ganelli, and Kentaro Murayama; imf working Paper No. 15/54; March 1, 2015

 15 

Variable 

Measurement 

Inflation rate 

5-year average, % 

Ratio of new job openings for part-time to full-time labor 

5-year average, % 

Female labor force participation ratio 

5-year average, % 

Growth of labor input in man-hours 

5-year  average, % 

GDP per capita 

Initial value at the 5 year periods 

Elderly index 

5-year average, index 

 

V.   R

ESULTS

 

Income distribution data at the prefectural level are available for all households and for 

working-age households. The first table below shows the results for all households while the 

second table shows the results from the sub-sample of working-age households. For each 

table, in the first column (1) the dependent variable is inclusive growth, while in the second 

(2) and the third (3) columns the dependent variable is average income growth and the equity 

index growth respectively.  

To determine the model specification regarding the type of unobserved individual specific 

effects, we conducted a Hausman error component specification test for each regression 

(Hausman, 1978), and the null hypothesis was rejected for every equation; in addition, we 

also conducted a significance test of individual specific effects for each regression (Honda, 

1985) and the null hypothesis was rejected for every equation. Therefore, we control for 

prefectural fixed effects. Following the convention (Baltagi, 2013), the explanatory power of 

such fixed effect is not included when computing the goodness-of-fit. Heteroskedasticity 

robust standard errors (White or “sandwich” estimators) are reported in parentheses. 

 

 

 

 

 

 

 

 

 

---

 16 

 

Table 1. Results for All Households

Dependent variable: 

 

Inclusive

Growth

Average 

Income Growth

Equity Index

Growth 

(1) 

(2) 

(3) 

Inflation (%) 

1.586

***

1.598

***

 

0.032 

(0.197)

(0.174) 

(0.069) 

Inflation, squared 

-0.353

***

-0.331

***

 

-0.020 

(0.041)

(0.037) 

(0.015) 

Part- to Full-time  

-0.028 

-0.033

*

 

0.005 

    job openings (%) 

(0.020)

(0.018) 

(0.007) 

Female labor force  

0.165

*

 

0.125

*

 

0.040 

   participation (%) 

(0.084)

(0.074) 

(0.029) 

Labor input growth (%) 0.524

***

0.489

***

 

0.029 

(0.165)

(0.146) 

(0.058) 

Initial GDP per capita  -1.564

**

-0.985 

-0.600

**

 

(0.762)

(0.672) 

(0.267) 

Elderly index 

0.057 

0.052 

0.004 

(0.037)

(0.033) 

(0.013) 

Observations 

235 

235 

235 

R

2

 

0.660 

0.714 

0.112 

Adjusted R

2

 

0.509 

0.550 

0.086 

F Statistic (df = 7; 181) 50.250

***

64.430

***

 

3.260

***

 

Not

e: 

*

p<0.1; 

**

p<0.05; 

***

p<0.01 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

---

 17 

 

Table 2. Results for Working-age Households

Dependent variable: 

 

Inclusive

Growth

Average 

Income Growth

Equity Index

Growth 

(1) 

(2) 

(3) 

Inflation (%) 

1.514

***

1.512

***

 

-0.008 

(0.197)

(0.174) 

(0.075) 

Inflation, squared 

-0.279

***

-0.264

***

 

-0.015 

(0.041)

(0.037) 

(0.016) 

Part- to Full-time  

-0.039

*

-0.040

**

 

0.001 

   job openings (%) 

(0.020)

(0.018) 

(0.008) 

Female labor force  

0.225

***

0.155

**

 

0.070

**

 

   participation (%) 

(0.084)

(0.074) 

(0.032) 

Labor input growth (%) 0.384

**

0.358

**

 

0.023 

(0.166)

(0.146) 

(0.063) 

Initial GDP per capita 

-0.487 

0.036 

-0.539

*

 

(0.764)

(0.673) 

(0.291) 

Elderly index 

0.068

*

 

0.057

*

 

0.011 

(0.037)

(0.033) 

(0.014) 

Observations 

240 

240 

240 

R

2

 

0.627 

0.677 

0.065 

Adjusted R

2

 

0.484 

0.522 

0.050 

F Statistic (df = 7; 185) 44.510

***

55.440

***

 

1.831

*

 

Not

e: 

*

p<0.1; 

**

p<0.05; 

***

p<0.01 

 

Inflation is modeled in a quadratic form, and the coefficients in the first and second columns 

are indicative of a positive and initially increasing, but then falling effect of inflation on 

inclusive growth as the inflation rate goes up. Furthermore, the inflation coefficients are 

significant for the overall inclusive growth measure and for the growth in average income. 

Our results imply that the maximum effect on the dependent variable is reached at around 2 

percent inflation rate, which is consistent with the existing literature about inflation-growth 

thresholds (for instance, see Khan and Senhadji, 2000). This means that moving towards the 

2 percent BoJ inflation goals, one of the main objectives of Abenomics, will promote 

growth

5

, while there will be a diminishing (yet still positive for a certain range) impact on 

growth if inflation should become permanently higher than 2 percent. The impact of inflation 

                                                 

5

 On the causality between growth and inflation, at the technical level, we check it with a pseudo-Granger test 

and with IVs in the Appendix D, and we find causality from inflation to growth. At an economic and intuitive 

level, we are taking the position that exiting from deflation is equivalent, to some extent, to a structural reform, 

because it changes economic agents’ behavior and incentives, and can therefore result in higher growth. 

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