Tuesday, 23 July 2013

How much can the Japanese economy be expected to grow in coming decades?

In a previous post, I presented a chart showing that real GDP/capita in Japan has continued to increase since 1990, contrary to the idea that the country "lost a decade". Japan has been in the news again recently; this time, in the context of Shinzo Abe's economic reforms, which are designed to spur economic growth. However, in the absence of large changes in fertility or migration, Japan's population is projected to decrease over the next few decades. Therefore, by how much can we actually expect it's total economy to grow? Here, I attempt to answer this question using population projections from the UN. (The GDP data up to 2010 are from the World Bank.)

The first chart shows the projected increase in real GDP required to achieve different rates of increase in real GDP/capita under two UN fertility scenarios: the high fertility scenario, and the low fertility scenario. The second chart shows--for the next two decades--the projected real GDP growth rate corresponding to each of these trajectories. Under the high fertility scenario, total population levels off, meaning that GDP growth of around 2.5% is needed to achieve per capita growth at the same rate. Under the low fertility scenario, total population falls, meaning that GDP growth of around 2% is needed to achieve per capita growth of 2.5%. The GDP growth rates required for 1.5% per capita growth under the two fertility scenarios are around 1.5% and 1%, respectively.

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