Monday, 28 April 2014

Japan's economic growth since 1990

In a previous post, I noted that the Japanese economic growth since 1990--the starting point of the putative "lost decade"--looks considerably better when considered in real terms. However, as the final chart in that post demonstrates, even real GDP per capita increased more slowly after 1990 than it did before 1990. Why should we be interested in the recent performance of the Japanese economy? Japan is widely held to be in a so-called deflation trap. The Economist, Martin Wolf at the Financial Times, and Paul Krugman at the New York Times have all made reference to the experience of Japan in arguing for higher inflation. (In another previous post, I questioned the theoretical basis for deflationary spirals, asking why the same reasoning shouldn't lead us to also expect inflationary spirals.)

Here I provide some evidence that Japan's economy has actually fared quite well since 1990, using data on population and real GDP from the World Bank. The first chart (below) plots Japan's working-age and dependent populations between 1980 and 2010. The working-age population comprises individuals aged 16-64; the dependent population comprises those aged 0-15 and those aged 65+. Beginning in the mid-1990s, the working-age population began to shrink, while the dependent population began to expand. This means that, since about 1994, each successive year's output has been produced by a smaller number of workers, yet the overall population has not been in decline.

The second chart (below) plots Japan's real GDP per working-age person and real GDP per person over the same time period. Since 1990, the increase in real GDP per working-age person has been considerably larger than the increase in real GDP per person, which suggests that the apparent stagnation of the Japanese economy owes more to changing demographics than to deflationary trends. Indeed, Daniel Gros argues in The Guardian that, once changes in countries' workforces are taken into account, Japan has actually performed better than many European economies over the last decade. Eamonn Fingleton makes a similarly revisionist argument in Forbes.

No comments:

Post a Comment