Economic Stagnation in Japan
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Economic Stagnation in Japan

Exploring the Causes and Remedies of Japanization

Edited by Dongchul Cho, Takatoshi Ito and Andrew Mason

Japan’s dramatic transformation from economic success to economic stagnation offers important policy lessons to advanced countries everywhere that are struggling with stagnation. The term ‘Japanization’ is often used by economists to describe long-term stagnation and deflation. Symptoms include high unemployment, weak economic activity, interest rates near zero, quantitative easing, and population aging. In the global context, what can governments do to mitigate the downward trends experienced by Japan? This judiciously timed book investigates in depth the causes of Japan’s ‘lost decades’ versus the real recovery achieved by the United States, and the lessons that can be learned.
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Chapter 3: GDP growth from the perspective of demographic change: will aging Korea become another Japan?

Kyooho Kwon

Abstract

Kyooho Kwon examines how Korea’s demographic structure resembles Japan’s, with a 20-year lag, and how productivity growth and solving structural problems are key to maintaining dynamism in the Korean economy. Japan’s “lost decades” and lethargy in Korea’s economy lead some Korean economists to worry that Korea may follow in the footsteps of Japan, with its declining growth rate. Japan’s stagnant total factor productivity growth depressed the demand for labor and capital; and the slower growth rate of the working-age population imposed a constraint on labor supply. These factors together caused the marginal product of capital to fall, dampening the demand for additional capital stock and impeding GDP growth potential. Korea’s demographic structure is evolving in a pattern similar to demographic change and unprecedented aging in Japan and is already playing a role in economic slowdown.

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