japan ’ s high growth era prof. michael smitka fall 2000 washington and lee university
TRANSCRIPT
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Japan’s High Growth Era
Prof. Michael Smitka
Fall 2000
Washington and Lee University
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Growth Accounting Framework
• Underlying this approach is a production function for the macroeconomy
• Furthermore, as a growth model Say’s Law holds: supply creates its own demand– This is a wholly supply-side model
– In the long run all capacity is utilized – or disappears!
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Production Function
• Y = f (K, L, tech, etc)= AKL
• Hence in growth terms:
• gY = gA + gK + ()gL
• To implement we just need to know– past or likely future growth rates or values of:
• Inputs
• factor shares • productivity growth gA
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Growth Accounting
• Contributions, 1961-71
• 1.78 Labor• +0.11 Hours • +1.09 Workers • +0.58 Educ etc
• 2.57 Capital
• 2.43 Knowledge• 2.78 Structural
(agri, EOS, trade)
• 9.56 Total
• Contributions, 1970s
• 0.68 Labor• -0.15 Hours • +0.68 Workers • +0.50 Educ etc
• 0.86 Capital
• 1.28 Knowledge• 0.42 Structural
(agri, EOS, trade)
• 3.24 Total
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• Sources, 1961-71
• 1.78 Labor• Hours +0.11
• Workers +1.09
• Educ etc +0.58
• 2.57 Capital
• 2.43
Knowledge
• 2.78 Structural
(agri, EOS,
trade)
• 9.56 Total
• Sources, 1970s
• 0.68 Labor• Hours -0.15
• Workers +0.68
• Educ etc +0.50
• 0.86 Capital
• 1.28
Knowledge
• 0.42 Structural
(agri, EOS,
trade)
• 3.24 Total
Growth Accounting Applied
• Sources, 2000s
• -0.20 Labor• Hours -0.20
• Workers -0.10
• Educ etc +0.10
• -0.10 Capital
• 1.20
Knowledge
• -0.20 Structural
(services,
trade)
• 0.70 Total
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Supply-side Issues
• In these models labor-force growth is exogenous.
• Likewise, productivity growth (technical change)
looms large but is hard to analyze.
• Savings is the other element, and we will try to
make it at least endogenous in our thinking.
• Remember our implicit assumption of Say’s Law.
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Savings
• What determines savings?
• Motives– Present vs future consumption
• But no specific reason to believe we really trade off consumption today against more goodies tomorrow
• Need more precise motives!
– Precautionary motive• Rainy day needs are constant? Surely not huge!
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Present vs. Future Consumption
• We trade off in financial markets– S today becomes (1+i)S tomorrow (i=interest)– When “i” rises real wealth rises: we can consume the
same amount today and more tomorrow!
• From micro theory:– A change in “i” has an income effect: we don’t need to
save as much to make (say) a downpayment– It also has a substitution effect: the better “price” makes
us save more.
• Empirically they cancel: “i” doesn’t affect S
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Motives again
• The terms of the tradeoff between “today” and “tomorrow” doesn’t matter much.
• In effect, if we want a “price” that affects savings, then the return on savings isn’t it!
• So what motives underlie our savings?
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“Sticky Behavior”
• Savings isn’t a deliberate choice -- it just happens.• How do we plan our consumption behavior?
– Look at those around us… Hence we look backward
• or
– Project current income into the future… Hence we look backward
• A rise in income thus tends to be saved.• In particular, growth raises savings rates
Due to Nobel laureate Franco Modigliani
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Lifetime or Permanent Income
• The above model assumes we can’t see what’s happening around us, and that non-precautionary savings is unplanned
• Alternatively, we deliberately choose to save using (rational) expectations about the future– If we want steady consumption over our lifetime
– But income is low when young and old, then:• We dissave when (i) young or (ii) retired• We save otherwise.
Due to Nobel laureate Milton Friedman
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Income vs. Consumption
20 80(death!)
5060 704030
Income(rises then falls)
Consumption (steady)
Savings
DissavingsDissavings
Retirement...
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Implications
• When implemented empirically, both models may generate the same equation!
• Savings rise:– When the core savings age bracket is rising as a
share of the population– When unexpected increases in income arise– When (expected) longevity increases
• Private savings fall with “social security”
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Other interpretations
• Another approach is to posit target consumption over the course of a lifetime
• These might include:– Buying a house– Funding children’s education– Paying for their wedding– Retirement
• In effect, a variation of the “lifetime” model
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Advantages of a “target”
• Individual targets can shift independent of other movements (income, etc)
• It helps in particular to model the impact of changes in asset prices– A rise in housing prices boosts savings– A fall in the stock market boosts savings
• It also seems to fit better surveys of how people actually plan their future
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Japan• These various approaches successfully predict
Japan’s rising savings rate during the high growth era of 1955-1973
• The “target” approach helps us understand why savings didn’t fall in 1973-74: inflation eroded assets
• The “target” approach helps us understand the 1990s, too...
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Next: Sources of Growth
• Was growth export-led?
• Did the government do it?
• How about investment?
• How about demand?