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 5: Product market efficiencies and TFP: a comparative study of Japanese and Korean firms

Keiko Ito and YoungGak Kim


Ito and Kim use a large-scale dataset to examine differences in allocative efficiency between Japanese and Korean firms from 1995 to 2008. They measure the firm-level distortions in terms of total factor productivity, output and capital, employing the Hsieh and Klenow approach. They find that distortion measures are more dispersed in Korea than in Japan. As a result, neither economy has improved allocative efficiency, which is lower for Korea than for Japan. Low productivity firms in both economies tend to overproduce, suggesting that resources are not moved from low productivity firms to high productivity firms. Improvement in resource allocation is an urgent policy issue for both countries in order to realize the efficient level of output, given that both countries are highly likely to face serious labor shortages in the near future due to population decline and aging.

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