Interactions between Development
Economics and the Japanese Economy:
Retrospect and Prospect

February 10, 2012 at GSID, Nagoya Univ.
Hiroshi Osada1

Contents
Introduction
Retrospect
1. Historical development (data)
2. Initial period (from 1950s to mid 1970s)
3. Good old days (till Plaza Accord in 1985)
4. Exciting days for Asia (till Asian Crisis in 1997)
5. Volatile period without clear exit (till now)
Prospect
1. 3.11 and aging Japan
2. Application of development economics to Japan2

Introduction (1)I used to study both the Japanese economyand Asian development in the following areawide framework.

JapanUSAAsia
3

Introduction (2) Today I will look back the interactions between
Japan and Asia from the following three angles:
Angle 1. Economic interdependence (realeconomy)
Angle 2. Economic development theory andapplicability of the lessons from Japan’sexperience
Angle 3. Entry of Japanese economists withvarious modern economic disciplines in thestudy of Asian economic development.
4

Introduction (3)These three dimensional interactions between Japan andAsia have greatly changed overtime. My focus of study moved
back and forth between Japan and Asia reflecting the changeof these interactions.
After 3.11 Great Eastern Japan Earthquake , my concern on
the Japanese economy has somehow grown rapidly, not only
because of the earthquake damage but also because of theunbelievably slow progress in solving structural problems of
the Japanese economy (pension systems, aging economy,budget deficit, etc.).
At the same time, I came to think that there is some bright
future in the application of development economics to theaging Japanese economy .
5

Retrospect
1. Historical development (data)
2. Initial period (from 1950s to mid 1970s)Japan catches up US economy

3. Good old days (till Plaza Accord in 1985)
Gradual growth in Japan and Asia

4. Exciting days for Asia (till Asian Crisis in 1997)
Adjustment in Japan and FDI boom in ASEAN and China

5. Volatile period without clear exit (till now)
Primary commodity boom(shock), financial crisis, and emergence of BRICs

6

1.Historical development (data) (1)
1955
Japan
Population(millon)
Ratio of aged population(%)
GDP (current bil.$)
Excahnge rate(per US$)per capita income(current $)Export to Asia(bil. $)Import from Asia(bil. $)Export to USA(bil. $)Import from USA(bil. $)USAPopulation(millon)
GDP (current bil. $)per capita income(current $)

1960

1970

90
94
8.7
8.9
24
44
360
360
267
473
-1.67(1962)- 1.6(1962)- 1.4(1962)- 1.8(1962)

105
10.3
204
360
1940
6
5.6
5.9
5.6

166
415
2498

181
526
2908

1980

1990

2000

2010

Note

117
123
126
128
13.5
17.3
25.5
36.5 65+/(15to 64)
992
2867
4745
5875
242
150
106
82
8483 23308 37660 45901
4694
211461 China2010: 160
80
94
211
336 China2010: 164
29
87
145
127
23
51
73
72
(2009)
205
227
250
282
307
1038
2788
5801
9952 14,1195065 12282 23202 35289 45990

7

1.Historical development (data) (2)Japan
Ratio of aged population(%)
GDP (current bil.$)per capita income(current $)Export to Asia(bil. $)Import from Asia(bil. $)China
Population(millon)
GDP (current bil. $)per capita income(current $)Thailand
Population(millon)
GDP (current bil. $)per capita income(current $)Indonesia
Population(millon)
GDP (current bil. $)per capita income(current $)

Note

1980

1990

2000

2010

13.59928483
4680

17.3
2867
23308
94
94

25.5
4745
37660
211
211

36.5 65+/(15to 64)
5875
45901
461 China2010: 160
336 China2010: 164

987
298
302

1143
370
324

1267
1198
946

1340
5878
4387

47
32
692

56
86
1527

62
123
1972

67
319
4737

147
72

179
106

205.8
165

234.2
338

493

593

802

1441

8

2. Initial period (from 1950s to mid 1970s)
Angle 1(Economy)• Japanese economy: Catch up the US economy
and enter the high-income country groupthrough trade liberalization in 1960, industrial
policy in the 1960s, emergence of middle classunder doubling income policy.
• Asian economy: early stage of development• Japan- US economic relation was more
important than Japan – Asia economic
relations for Japan.
92. Initial period (from 1950s to mid 1970s)
Angle 2 (Lessons from Japan to Asia)

1) Although this is well before 1950s, Japan’s experience inthe late Edo and Meiji periods presents a good example ofnation building and overall development . This example
fits well into the framework of Rostow’s stage of “preconditions for economic take off”. Japan’s experience ofnation building became a good lesson to Asian countries
in the 1960s at their early stage of development.
See W. W. Rostow (1971), Stages of Economic Growth,second edition,Cambridge university Press
Please see the Next Chart which I made for GSID’s “Japan’ s Development
Experience” class.

10Meiji government; Strongly centralized system

Laws,

Rich country, strong country

Institution
Building

Newtechnology

Land tax

Quick Infrastructure
Investment；railroad, postal
service, telecom; SOE

Agricul-Labor

ture

Manufactu

with

ring:

surplusMarketAgro-baseforand ISI

manuf. goods

Re-investment

Entrepreneur

Banking

Educationalsystem,

systempostalsavingJapanEXPORTIMPORT

Tea, Copper, Silk

Textile→Cotton→Textile

Machinery

Payment by goldTechnologyWorld11

2. Initial period (from 1950s to mid 1970s)
Angle 2 (Lessons from Japan to Asia)

2) Industrial Policy from mid 1950s through 1960s• The policy was studied by Japanese leading economists(neoclassical economists) in the 1980s. They found more
problems (market distortion & less competition) thanadvantage in this policy.
• Japanese bureaucrats considered that it contains a lot oflessons to Asia (mobilization of scarce resource to potential
leading sectors).
• I said that the problems were minimized when theindustrial policy was implemented under the large scaletrade liberalization at the beginning of 1960s. The intense
exchange of information has lowered coordination cost.
See Osada (2012) “Industrial and Trade Policy” in Toyoda, Nishikawa and Sato(eds.) Economic Policy Lessons from Japan to Developing Countries, Palgrave
Macmillan.
122. Initial period (from 1950s to mid 1970s)
Angle 3 (Entry of Japanese economist in Asian study)• Area study approach was popular (multidisciplinary
approach with one relatively strong discipline)• In Japan, international economics was the discipline
which deals with the matter of international trade andother economies. So, economic development strategy
were mainly discussed in the The Japan Society ofInternational Economics.
• And, my major was international economics (tradetheory + development theory) .
• Development economics was not yet an independent
discipline in Japan.
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3. Good old days (till Plaza Accord in 1985)
Angle 1(Economy)• Entering 1980s, Japan became one of thethree poles of the world economy. Years ofcatch-up ended.
• Asian NIEs and ASEAN began to show good
growth performance among diversified
developing world.
• Japan – Asia economic interdependence
became deeper gradually .
• Stable growth with bright future in this region.
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3. Good old days (till Plaza Accord in 1985)
Angle 2 (Lessons from Japan+Korea to Asia)
Reexamination of “ ISI vs. EOI” discussion.
Japanese international trade scholars found that:• Japan’s experience showed that a manufacturing sector became an export
sector after the period of proper import substitution.
• In Korea and Taiwan in 1970s, while light manufacturing sectors led export,
heavy manufacturing was established and practiced import substitution.
The foreign exchange earnings by light manufacturing was used for thedevelopment of heavy manufacturing. IDE scholars found the coexistenceof ISI and EOI in Korea and taiwan, and named it “Double trackindustrialization =複線型工業化” .

• I also felt that it is almost impossible to export from the beginning, if theindustry is not an FDI industry. The idea of EOI is based on theperformance of NICs and did not have much theory in it. Correct
implementation (=scheduled reduction of tariff protection) of ISI will leadto the birth of an export sector. (Famous discussion between Prof.
Murakami and Prof. Ikemoto on the Journal of Kobe University around1970.)
15

3. Good old days (till Plaza Accord in 1985)
Angle 3 (Entry of Japanese economist in Asian study)

Scholars in various discipline of economics began toenter the study of Asian economies. The reasonsare:
1. Growth of Asian economies has widened the room for theapplication of standard (=developed country type) economic theory .
Also, stabilization of political and institutional system have made it
possible to regard political and institutional factors as given conditionsin economic analyses.
2. Development of statistical system and increased availability of datafor quantitative analysis. For example, compilation of Input-Output
Tables in Asia.
3. More interest in Asian economies due to increasing economic
interdependence.

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4. Exciting days for Asia (till Asian Crisis in 1997)
Angle 1(Economy)• Plaza Accord (1985.9.22 and exchange rate alignment(¥235/$¥150 /$ one year later)• Japan now being caught up by Asian NIEs.
• FDI boom to ASEAN from Japan after 1985 and from Korea
and Taiwan after 1990. ASEAN’s economic liberalization andFDI driven growth.
• Waking up China.
• Regional economic cooperation for further growth:Establishment of APEC in 1989.
• Bubbling economies Asian Financial Crisis• Silly IMF conditionality worsened the situation.
financial crisis economic crisis
17

4. Exciting days for Asia (till Asian Crisis in 1997)
Angle 2 (Lessons from Japan+ANIEs to Asia)

World Bank (1993), The East Asian Miracle–Economic Growth and Public Policy• Background discussions between neoclassicaleconomists in the WB and JBIC economists: theapplicability of the East Asian experience ofgovernment interventions in economic development .
• Conclusion: applicable only if the government is wisewith capable bureaucrats.
• When the Asian Financial Crisis happened, “Miracle”
has burst together with the authoritarian development
government. Market is so wise?
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4. Exciting days for Asia (till Asian Crisis in 1997)
Angle 3 (Entry of Japanese economist in Asian study)• Not only economist but also scholars of various discipline continued
to enter the Asian study. Two reasons behind this move are:1) Deepening economic interdependence.
2) Japan became the No.1 ODA supplier in 1991.
• The second reason increased the needs for the aid-related country
study and professional practitioners.
• Establishment of new education system for International
Development (GSID in 1991 as the first national school)• Establishment of The Japan Society for International Developmentin 1990 (Academics=Government=Private)• 1990s were bad days for economists. The titles of World
Development Report covered many non-economic factors.
Moreover, “Poverty” issue came to the forefront (Title for WDR
1991 was “Poverty” and the one for WDR 2000-2001 was again“Attacking Poverty”. What does it mean?)195. Volatile period without clear exit (till now)
Angle 1(Economy)• Stagnant and slowly-responding Japanese economy toexternal shocks .
• Accumulation of budget deficits and foreseen
deterioration of various economic infrastructures .
• Emerging middle-class economy in Asia.
• Unsound world financial systems, recurrent crises, highcommodity prices due to oversupply of money.
• Everything is partly good and partly bad. Difficult tocapture the trend if we use the traditional analyticalframework.
• Continued Globalization (or Regionalization).
205. Volatile period without clear exit (till now)
Angle 2 (Lessons from Japan to Asia)• No more lessons as a good example. Asia might beable to know what will be the future problems,
learning from the Japanese experience.
• China will face aging population problem in the nearfuture.
• However, Japan’s experience does not become alesson without the clear structural analysis of theproblem and effective remedies.

21

5. Volatile period without clear exit (till now)
Angle 3 (Entry of Japanese economist in Asian study)• Due to the increasing importance of growing
Asia, more Japanese economists began towork on Asia.
• More Asian scholars come to work in Japanand engage in the analyses of Japanese
economy in connection with their homecountry in Asia.

22

Prospect
1. 3.11 and aging Japan
2. Application of development economics toJapan

23

1.

3.11 and aging Japan (1)• 3.11 has convinced us that nothing is eternal.
It is already long since the Japanese economic
system which supported Japan after 1945
faced the turning point.
• The core of the change is :Expansion

Contraction

24

1.

3.11 and aging Japan (2)Expected long-run problems: Decreasing and aging population.
 Aging infrastructure built in the 1960s in the
expanded life space.
 Decreasing national savings due to dis-savings ofthe senior citizens and the increasing public debt .
 Concern on the sustainability of national pension
scheme and medical insurance scheme.
 Etc.
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2. Application of development economics
to Japan (1)“Economic development” deals withexpansion of an economy with structural,institutional, social and political shifts.
It is too much to say that Japan is facing thereverse-development, but many economic,structural and institutional factors are showing
the reverse (decresing) trend. For example,population, labor force, monetary assets,infrastructure, welfare system, and so forth.
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2. Application of development
economics to Japan (2)Development economists are moreaccustomed to the handling of variables which
are usually considered “given” in the standard
economics.
So, scholars working on development
economics have chances to analyze and solve
the issue of aging Japanese economy more
appropriately than scholars working on theJapanese economy.
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2. Application of development
economics to Japan (3)I hope that development economists in Japan
will spend some of their time for the analyses
of Japanese economy. It will contribute to themutual prosperity of Asia and Japan.
It is time to reverse the flow of economists
from the situation of “Flow from Japanesestudy to Asian study” to the situation of“Flow from Asian study to Japanese study”.
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ご静聴ありがとうございました。

Thank you very much .
長田博29