Introduction the Japanese Economy
Ryoichi Imai
International Student Center, Kyushu University
October 2, 2003
Contents
The course explores the fundamental issues of the Japanese economy.
Japan achieved the outstanding economic performances among advanced countries until 1990. After the crash of the 'bubble economy' in late 1980s, Japan dove into the economic slump that has continued for more than ten years.
What is the engine that dragged the economy down for such a long time? Some people say that Japan simply suffers from the low demand. On the contrary, others argue that the inefficiency of the supply side lowers the future prospects of the economy. Which one is the correct assessment?
The course is not intended to provide any direct answer to the question. Instead, it provides basic analytical tools and viewpoints that are crucial to the current debates of the Japanese economy, to students with various backgrounds.
Organization, Attendance, and Other Requirements
This course consists of one 90-minute session over the course of 15 weeks. The course begins with the instructor's lecture. As the course goes on, each participant is required to make at least one presentation in English. The last several sessions before the final exam are saved for the participants' presentation of one of the reading materials listed below, or their original work. The detailed schedule is to be specified.
Satisfactory class attendance is essential. The minimum attendance requirement is to be specified.
The participants are required to be accustomed to construct their own arguments on the logically consistent ways of thinking. So it is crucial to fully understand the basics of the standard economics (microeconomics and macroeconomics), although the participants are not expected to posses any knowledge about the course materials before the class starts.
None.
Class Discussion 20%
Presentation 40%
Written Final Examination or Essay 40%
1.What is GDP?
Before getting into the details of the Japanese economy, you have ｔｏ know one thing. What is an appropriate measure to evaluate a country's economic performance? It is the GDP, the gross domestic product, which is a sum of added values produced by all the sectors of a country.
2. The Growth Accounting and The Neoclassical Growth Theory
The GDP is a measure of economic performance of a country in a single period, for example, in the year of 2003. However, it is more important for us to focus on the change of an economy across periods. The growth accounting is a very strong approach to understand the engines of a country's economic growth.
3. The Structural Change of Industries
The World War II totally destructed the Japanese economy. How did the country re-construct the economy? What change occurred to its industrial structure?
4. The Japanese Yen
The currency of Japan, Yen, has experienced tremendous fluctuations after the War. It had been fixed at $1=\360 until President Nixon announced the suspension of the convertability of the US dollar with gold in 1971. Since then, the Yen has continued to appreciate against all the currencies of the world. What fundamental events have occured behind the everlasting appreciation of the Yen.
5. The Government
The government of Japan plays a very important role in the performances of the economy. It provides many essential public services which are not supplied by private sectors by financing them through taxation and bond-issuing. However, the government debts piled up to an amount as much as the country's GDP. Is this a good thing or bad one?
6. Saving and Investment
Japan is famous (or notorious) for its high saving rate, which is explained by the households' extreme preference toward future consumption. This is an important reason why Japan has achieved a "growth miracle" in the past, and now suffers from a severe economic slump. The difference between the savings and the domestic investments is exported to foreign countries and is financing their economic growth. Why the Japanese people do not use their money to make them happy?
7. The Financial System
It is widely argued that the Japanese people do not care so much about risky projects with high returns, and they hold most of their financial assets as bank deposits which are relatively secure but yield only very low returns. The ratio of corporate shares held by households is much lower in Japan than in the United States. It is also remarkable that many government-sponsored financial institutions, such as the Postal Saving, play very important roles in the financial market.
8. The Corporate Governance
The Japanese firms has been notorious for their close and tight relationships with banks. This "clone" structure is called the "main bank system. The system had been efficient in the sense that the banks encouraged firms' investments and growth until the asset bubble crashed in the early 1990s.
9, Aging Population
The decline of birth rates and the delayed marriage of younger generations are threatening the sustainability of the pension system, which runs on the basis of the pay-as-you-go mechanism. The reduction in the working population is one of the remarkable factors to account for the recent decline of economic growth rates of Japan.
Core Readings
Hsu, Robert C. [1999], The MIT Encyclopedia of the Japanese Economy, 2nd edition, MIT Press.
Imai, Ryoichi [2002], Lecture Notes, to be uploaded on the Homepage
Ito, Takatoshi [1992], The Japanese Economy, MIT Press.
Yoshikawa, Hiroshi [2001], Japan's Lost Decade, International House of Japan.
Additional Readings
Cargill, Hutchison, and Ito [1997], The Political Economy of Japanese Monetary Policy, MIT Press.
Dore, Ronald [2000], Stock Market Capitalism: Welfare Capitalism : Japan and Germany versus the Anglo-Saxons, Oxford University Press
Dornbusch, Rudiger [2000a], Keys to Prosperity, MIT Press.
Dornbusch, Rudiger [2000b], Fewer Monies, Better Monies on his Homepage.
Feldstein, Martin [1997], Japan's Folly Drags Asia Down, Wall Street Journal, November 25, 1997
Flath, David [2000], The Japanese Economy, Oxford University Press.
Gordon, Robert [2000], "Does the 'New Economy' Measure Up to the Great Inventions of the Past ?," Journal of Economic Perspectives, vol. 14 no. 4
Hoshi, Takeo and K. Kashyap [2001], Corporate Financing and Governance in Japan, MIT Press.
Krugman, Paul [1998], Pop Internationalism. MIT Press.
Krugman, Paul [1999], The Return of Depression Economics, Norton.
McKinnon, Ronald I., and Kenichi Ohno [1997], Dollar and Yen, MIT Press.
Porter, Michael E. and Hirotaka Takeuchi [1999], "Fixing What Really Ails Japan," Foreign Affairs, May/June 1999.
Roubini, Nouriel [2002], Global Macroeconomic and Financial Policy Site
Additional readings to be added.