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Class 11 and class 12 (extra) japan’s economic development 2018

Class 11 and Class 12 (Extra)
Japan’s Economic Development
Table of Contents

I.
II.

Pre-conditions for Modern Economic Development in Japan
Long-term Historic View of Japan’s Economic Development

  1. Long-term Economic Growth ~A Comparative View~
  2. Cyclical Economic Growth Swings vis-à-vis Economic Events
Before WWII : 1885~96 Upswing, 1897~1903 Downswing, 1904~18 Upswing, 1919~28 Downswing and 1929~36
Upswing
After WWII : 1945~56 Downswing, 1957~69 Upswing, 1970~75 Downswing and 1976~87 Upswing

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Class 11 and Class 12 (Extra)
Japan’s Economic Development
III. Post-war Economic Recovery and Accelerated Growth (1945~69):
A Closer Look at Its Specific Causes
  1. Specific Causes of Economic Recovery and Accelerated Growth
  ➢ 7 Causes
IV. Japan’s Economic Development and Contributive Factors ~Implication
   for Developing Countries~
  1. Ad Hoc/Transient Factors
 ➢ 14 Factors
  2. Basic Factors ~Factors of “Social Absorptive Capacity”~
 ➢ 8 Factors

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I. Pre-conditions for Modern Economic Development
in Japan

State of Affairs before 1886

• Political and Economic Institutions
The class system dissolved in 1869. Introduction of modern taxation from “rice paid as tax” to “money paid as tax”. The cen
tral bank: namely, Bank of Japan was established in 1885 by Meiji Government.

• Human Resources
The literacy rate was 45% for male and 15% for female in 1868.The public education started in 1872 and the enrollment rati
o was as high as in UK by 1900. High moral human resources as corruption-free political leaders and entrepreneurs.

• Social/Economic Indirect Capital
The road network between Edo (Tokyo) and 200 regions (local clans) was developed, the sea transportation networks of Japa
n Sea coast and Pacific Ocean coast as well. The rice irrigation system covered all over Japan. Telecommunication services s
tarted in 1870, postal services in 1871, and railway services in 1872.

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I. Pre-conditions for Modern Economic Development
in Japan

State of Affairs before 1886

• Agriculture Sector
Agri-sector occupied 72% of total population → Supply sources of labor to modern industrial sector. The domestic agri-techn
ologies developed. The average annual growth rate was 1.7% from 1878 to 1885. 20% of agri-products were traded in the m
arket→ Development of merchandizing and distribution. The class system dissolution (1869) and liberalization of land trade
(1872) → Free movement of farmers (labor forces)

• Manufacturing Sector
The textile industries (cotton and silk production) emerged with domestic technological improvement of European technolog
ies→ e. x. Tomioka silk filature factory. Nationalization of machinery and metal industries, then their privatization. The gro
wth rate of the sector 3% on an average from 1878 through 1885.

• Commerce and Finance Sector
The commercial sector was fairly developed during Edo period → Merchants and bankers/brokers in 200 clan states. Bank o
f Japan (1885)’s positive impact on finance and commerce. Introduction of modern company systems; e. x. “limited compan
y system” in 1899.
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II. Long-term Historic View of Japan’s Economic
Development

1. Long-term Economic Growth ~A Comparative View~



Average growth rate of national income and Per Capita Income were 3.6% and 2.5%, respectively. The highest growth rat
e among the then developed countries. (see Table 1 next slide)

• The Japan’s Per Capita Income in 1886 was 60% of UK or 29% of USA in 1886. But in 1999, it jumped up to $35,715, w
hile USA $34,049 and UK $24,548.

➢ Why the Japanese economic performance was that remarkable? It is said that the “Late-comer’s Advantage” as well as sati
sfactory pre-conditions for modern economic development, which are closely related to “Social Absorptive Capacity” worke
d well for Japan’s successful economic performance.

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II. Long-term Historic View of Japan’s Economic
Development

2. Cyclical Economic Growth Swings vis-à-vis Economic Events
Before WW II (Figure 1 and Table 2)

• 1885-96 Upswing Period in Growth Rates
• 1897-1903 Downswing Period in Growth Rates
• 1904-18 Upswing Period in Growth Rates
• 1919-28 Downswing Period in Growth Rates
• 1929-36 Upswing Period in Growth Rates
➢ Economic events during each period above should be referred to the main text handout.

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Figure 1 Japan’s Long-term Economic Growth

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II. Long-term Historic View of Japan’s Economic
Development

2. Cyclical Economic Growth Swings vis-à-vis Economic Events
After WW II (Figure 1 and Table 2 )

• 1945~1956 Downswing Period in Growth Rates ~Post-war Recovery Period~
▻ The expansionary policy employed to reconstruct the war-torn country: “Priority Production System (1946)”, “Reconst
ruction Finance Bank (1947)” As a result, inflationary trend emerged.
▻ Dodge’s Line (Fiscal Retrenchment Policy & Tight Money Policy) → Inflation was controlled, yet production dropped
and unemployment surged.
▻ Korean War (6/1950~6/1951): War demand saved Dodge’s Line problems.
▻ LARA, UNICEF, CARE, GARIOA/EROA and World Bank assistance.
▻ Economic Planning Agency was established (1955). “Five Year Economic Self-support Plan (1956-60)” in 1955, “New
Long-range Economic Plan (1958-62)” in 1957. (Appendix: Japan’s Economic Dev. Plans after W.W.II)

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Table 3 Japan as Recipient ~Foreign Assistance to Japan~

 

Contents of Aid

1
LARA Aid

2
UNICEF Aid

3
CARE Aid

GARIOA

EROA

4

5

World Bank

1
2
3
4
5

Foods, clothes, textile, medicine, choes, soap, cotton and so

Period of Aid

Total Amount of Aid in US$ (and J\)

In terms of Today's Price of Total Amount of Aid in US$ (and
J\): An Estimate

1945 - 1956

$1.1 billion

(J\40.0 billion)

$22 billion

Skim milk, raw coton and so on

1949 - 1964

$18 million

(J\6.5 billion)

$360 million (J\130 billion)

Foods, clothes, the necessaries of life, medicine and so on

1948 - 1955

$50 million

(J\18 billion)

$1.0 billion

1946 -1951

$1.6 billion (J\567.9 billion)

$32 billion (J\11.36 trillion)

1946 -1951

$286 million (J\102.8 billion)

$5.7 billion (J\2.1 trillion)

1953 - 1966

$862.9 million (J\311 billion)

$17.3 billion (J\6.2 trillion)

on

The necessaries of life such as foods, fertilizer, medicine
and so on

Industrial raw materials and capital goods such as
machines and equipment

31 loan agreements for 34 infrastructural and industrial
projects

(J\800 billion)

(J\360 billion)

LARA stands for Licensed Agencies for Relief of Asia
UICEF stants for United Nations International Children's Emergency Fund
CARE stands for Cooperative for American Relief Everywhere
GARIOA stands for Government Aid and Relief in Occupied Areas
EROA stands for Economic Rehabilitation in Occupied Areas

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II. Long-term Historic View of Japan’s Economic
Development

• 1957~69 Upswing Period in Growth Rates ~Accelerated Growth Period~
▻ Some 10% of annual growth rate throughout the period due to high investment ratio of 30% with imported technologies
and equipment.
▻ Industrial promotion policy, import liberalization policy and export promotion policy resulted in export increase.
▻ Slow capital liberalization policy lasted from 1950 to 1964; concerns over foreign capital invasion (FDI).
▻ JETRO was established in 1954 and exchange rate was kept at \360/$.
▻ Government administrative guidance on promotion of basic industries, realignment of excessive competition among fir
ms and so on.
▻ “Income Doubling Plan (1961-70)” was formulated in 1960.
▻ Acute labor shortage problem and inflationary trend sneaked in.

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II. Long-term Historic View of Japan’s Economic
Development

• 1970~75 Downswing Period in Growth Rates
▻ In 1970, US B/P situation was worsened and IMF system was collapsed. “Fixed exchange regime” was replaced by “Flo
ating exchange regime”.
▻ Japanese Yen was devalued from \360/$ to \308/$ in 1971.
▻ Japanese government employed the easy money policy to avoid recession.
▻ Japanese exports did not drop and excessive liquidity problem together with strong inflationary pressure surged.
▻ The (first) oil crisis (1973) caused hyper-inflation in 1973-74. The tight money policy was exercised and inflation cease
d, yet the economic activities slowed down, which in turn solved labor shortage problem.

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II. Long-term Historic View of Japan’s Economic
Development

• 1976~87 Upswing Period in Growth Rates ~Steady Growth Period~
▻ The tight money policy ended in 1975 and the expansionary fiscal policy was introduced in 1977.
▻ Exports did not drop. The economy experienced steady growth rate of 3% to 5% with stable prices and low unemploym
ent rates.
▻ In 1976, the current account of B/P turned into surplus and since then the surplus expanded. Foreign exchange reserves i
ncreased.
▻ The second Oil Crisis (1978/79) did not affect the above trend.
▻ In 1985, “The Plaza Accord” was reached, which resulted in \150/$.
▻ Government did not raise the Official Bank Rate at 2.5%, which lead to the entrance of “Bubble Economy”.

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III. Post-war Economic Recovery (1945~56) and
Accelerated Growth (1957-69): A Closer Look at
Its Specific Causes
1. Specific Causes of Economic Recovery and Accelerated Growth
(1) Recovery Demand from War Damages
(2) Korean War Demand (1950 ~ 51)
(3) Post-war Democratization
(4) Expansionary Economic Policies
(5) Decrease in Defense Expenditure
(6) Imported New/Advanced Technologies and Equipment
(7) Full Employment Policy Pursued by Developed Countries
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IV. Japan’s Economic Development and Contributive
Factors ~Implications for Developing Countries~

1.

Ad Hoc/Transient Factors

(1) Priority Production System, (2) Reconstruction Finance Bank, (3) Fiscal Retrenchment
Policy and Tight Money Policy, (4) Expansionary Economic Policies (after Dodge’s Line),
(5) Korean War’s Special Demand, (6) Foreign Assistance (from Emergency Assistance to
Reconstruction Assistance), (7) Establishment of Economic Planning Agency and Three
Development Plans, (8) Strategic Industries’ Promotion Policy, and Imports of Western
Technologies and Equipment, (9) Industrial Protection Policy, (10) Import Liberalization
Policy, (11) Foreign Capital Liberalization Policy, (12) Export Promotion Policy vis-à-vis
Full Employment Policy by the West, (13) Japanese Government Administrative Guidance
and (14) Democratization of Economic and Social Institutions.

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IV. Japan’s Economic Development and Contributive
Factors ~Implications for Developing Countries~

2. Basic Factors ~ Factors of “Social Absorptive Capacity” ~
(1) Disciplined Political Leaders
(2) Efficient and Effective Government Administration
(3) Entrepreneurs’ Positive Attitude toward Technologies & Equipment
(4) Quality Engineers
(5) Hard-working Laborers
(6) Fairly-developed Social/Economic Infrastructure
(7) Fairly-developed Financial System
(8) Fairly-developed Distribution System
These factors had been consolidated over a long period of time since 1886.
                                       

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Appendix: Japan’s Economic Development Plans after World War II
Plan and (Result)

Name of Plan

Planning Period (FY)

Objectives

Growth Rate in % (annual average)

Unemployment Rate in % (annual
average)

Inflation Rate in % (annual average)

External Balance (Current Accounts) in the Final Year (US$
100 million)

Five Year Plan for Economic Self-Support

1956-60

Self-support of the economy and full employment

4.9 (8.8)

1.0 (1.5)

n.a (1.8)

0 (-0.1)

New Long-Range Economic Plan

1958-62

Maximizationof growth, improvement of national living, and full employment

6.5 (9.7)

n.a (1.3)

n.a (3.6)

1.5 (-0.1)

Doubling National Income Plan

1961-70

Maximizationof growth, improvement of national living, and full employment

7.8 (10.0)

n.a (1.2)

n.a. (5.8)

1.8 (23.5)

Medium-Term Economic Plan

1964-68

Rectifying imbalances

8.1 (10.1)

n.a. (1.1)

2.5 (5.0)

0 (14.7)

Economic and Social Development Plan

1967-71

Balanced and steady economic development

8.2 (9.8)

n.a. (1.3)

3.0 (5.7)

14.5 (63.2)

New Economic and Social Development Plan

1970-75

Construction of admirable society through balanced economic growth

10.6 (5.1)

n.a. (1.9)

4.4 (10.9)

35 (1.3)

Basic Economic and Social Plan

1973-77

Promotion of national welfare, and promotion of international cooperation

9.4 (3.5)

n.a. (2.1)

4.0 (12.8)

59 (140.0)

Economic Plan for the Second Half of the 1970s

1976-80

Realization of a richer national life and stable development of Japan's economy

6.0 (4.5)

1.3 (2.1)

6.0 (6.4)

40 (-70.1)

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New Economic and Social Seven-Year Plan

Outlook and Guidelines of Economy and Society in
the 1980s

1979-85

1983-90

Shift to a satable growth path, enrichment of quality of life, contribution to the development of
the international economic community

Formation of peaceful and stable international relations, forming an economy and society full of
vitality, ensuring a secure and affluent people's life

5.7 (3.9)

1.7 (2.6)

5.0 (3.6)

Roughly bsalanced basic accounts (550)

4.0 (4.5)

2.0 (2,1)

3.0 (1.6)

Internationally harmonious balance (337)

3.75 (4.0)

2.5 (2.2)

1.5 (2.2)

internationally harmoneous levels by the end of the plan

Reducing the massive external imbalance and contributing to a better world, creating diverse
Economic Management within a Global Context

1988-92

lifestyles and better quality of life, promationg balanced economic and social development

The ratio current account surplus to GNP shall reach

nationwide

Five-Year Economic Plan -Sharing a Better Quality
of Life around the Globe-

Social and Economic Plan for Structural Reforms
-Towards a Vital Economy and Secure Life-

1992-96

period (1,259)

Reforms towards a better quality of life, co-existing with the global community, establishing the
foundation for development

3.5 (1.0)

2.25 (3.2)

2.0 (0.8)

Internationally harmonious balance (1,250 in FY 1994)

3 (n.a.)

2.75 (n.a.)

0.75 (n.a.)

Sufficiently significant contraction (n.a.)

Creation ofa a free and enegetic society and economy, creation of a prosperous economy and
1995-2000

society in which people can feel secure and pursue fuller lives, participation in the management
of the global community

Source: (Former) Economic Planning Agency of Japanese Government

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