Institutions, Industrial Upgrading, and Economic Performance in Japan
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Institutions, Industrial Upgrading, and Economic Performance in Japan

The ‘Flying Geese’ Paradigm of Catch-up Growth

Terutomo Ozawa

Terutomo Ozawa examines Japan’s once celebrated post-war economic success from a new perspective. He applies a ‘flying geese’ model of industrial upgrading in a country that is still catching-up, to explore the rise, fall and rebound of Japanese industry with its evolving institutions and policies.
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Chapter 6: IT-Driven Stage – and Logic – of New Growth

Terutomo Ozawa


6.1. THE IT REVOLUTION The global economy is currently in the grip of the IT revolution, a communicational and organizational revolution that has been unleashed and has so far most successfully taken root in the United States. It is the driving force of the ‘New Economy’. The recent phenomenal rise in US labor productivity (e.g., as high as 9.5 per cent in productivity growth in the third quarter of 2003, though 4.4 per cent for the entire year) can reportedly be ascribed to the application of IT, which makes flows and exchanges of information easier, faster, and cheaper – hence, making the benefits of the division of labor and specialization greater. (The 2003–4 ‘jobless recovery’ of the US economy was blamed in part on such a rapid rise in labor productivity that corporate demand for manpower fell). Indeed, Adam Smith’s famous maxim now can be aptly paraphrased to describe the productivity-boosting effect of the IT revolution: ‘the division of labor is limited by the extent of the IT revolution’. The advent of the IT revolution has driven Japan into the latest phase of growth that intensively employs intellectual capital. As pointed out in Chapter 1, this stage is characterized by production of ‘abstract’ or ‘conceptual’ goods (such as readily accessible information and transactions on the Internet), whereas in the earlier stages of catch-up growth more tangible inputs (e.g., cotton, steel, and chemicals) were intensively employed to produce ‘physical’ goods (e.g., apparel, machinery, cars, and TV sets). This chapter examines how...

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