JAPAN ECONOMIC DEVELOPMENT

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JAPAN’S ECONOMIC DEVELOPMENT

EFFECTS OF WORLD WAR II

nLOST TERRITORIES (TAIWAN, KOREA…..)

nINDUSTRIAL PRODUCTION LOSSES (70%)

nLOSS of AGRICULTURAL PRODUCTION (60%)

(Main reason: No energy and no raw materials)

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Lost territories

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 Self-sufficiency ratios for certain raw materials
1960-1988 (%)
Year Fishing Rice Wheat Legumes Vegetables Fruit Meat Diary Sugar
1960 93 102 39 44 100 100 93 89 13
1965 85 95 28 25 100 90 92 86 19
1970 81 104 9 13 99 84 89 89 15
1975 78 110 4 9 99 84 76 82 16
1980 70 87 10 9 97 81 80 86 29
1985 75 107 14 8 95 77 81 85 33
1986 74 196 14 8 95 74 78 82 34
1987 71 100 14 9 94 75 76 78 34
1988 70 100 17 8 91 67 73 76 34

RAW Mat
Año Wood Crude Oil Coal Iron Copper Lead Zinc
1960 91 1,9 80 7,9 16 48 59
1965 75 0,9 79 2,8 16 45 37
1970 97 0,4 46 0,8 19 32 39
1975 38 0,3 23 0,4 10 29 35
1980 33 0,2 21 0,4 6 22 37
1985 37 0,3 16 0,3 5 20 37
1986 35 0,4 16 0,3 4 17 34
1987 32 0,4 0,2 3 12 26
1988 31 0,4 0,1 2 10 22

low self sufficiency therefore they have a high

dependence on exports 4
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 GDP growth rates (real terms)

oil crisis
financial crisis
gold crisis

the 60's are the japanese miracle. Form the 60's to the
73, the japanese growth rate was higher than the one
in european countries.
It was this fast because after the WWII the growth was
lower, and as lower the leverl, the higher you will grow
with less resources.

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GROWTH: 50's and 60's
help form americans with technology
n RECONSTRUCTION (1945-1955) bretton woods--> payment in gold or dollars and to
get dollars got had to export

¨ Priority to heavy industry: mining, steel, shipping, petrochemicals

¨ Export promotion
¨ Economic Planning (1949: MITI, 1951: JETRO, Japan Development Bank,
Japan Export-Import Bank) main work was to develop and faciliatate exports
acting as a public trade company. take into account that
they didnt know hpw to do external business, they had
been isolated for about 200yrs.
n JAPANESE MIRACLE they analised, finance and supplied the entreprises for
export. part of the recovery plan.

¨ 1960-1970 GDP: 11% increase annually

catching up with european economies.

n STRUCTURAL CHANGE process of industralization, change in the structure of production--> from heavy
agriculture to heavy industry.

¨ Agriculture goes from 41% to 17% of employment and industry from 23% to
35% of employment
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MAIN FACTORS IN THE JAPANESE MIRACLE

n Korean War (1950-1953) the extraordinary dollar

income (war supplies)
n Low military spending (art. 9 self-defense forces, still
in force) never attack/invade. just self defense. so more money for the economy and less for the army
n Availability of labor inside migration from rural to the city nd also from people laid off from the army.
therfore more people available to work in the industry sector

n Easy access to technology (US) import machinery, tech progress provided by US

n Global growth and world trade (Bretton Woods)
agreement to decide international relations between usa, canada, france, great britain...
growth is going hand by hand with trade. To make the world economic growth to grow again after the WWII they knew that the had to
make trade easier so it was decided to be in dollars as a universal currency for trade internationally

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FAVORABLE TERMS OF TRADE: exports*price of
exports / imports*price of imports

EXPORTS IMPORTS

90% MANUFACTURED 80% RAW MATERIALS,

ENERGY, FOOD
GOODS
20% MACHINERY &
doing right exports and imports in the right time,
MANUFACTURES
for example, machinery and manufactures were expensive to
import but they were importing just a little amount

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 PRODUCTION PATTERN: HIGH EXTERNAL
DEPENDENCE capital(machinery)

PRODUCE®¬INVEST ®¬ IMPORT ®¬ FOREIGN CURRENCY $

(IMS) ®¬ EXPORT in order to invest, they had to import mchinery
and to import they needed the international
currency (dollar) and in order to get dollars they
Business Cycles had to export

japan had a very high dependence on

importations.

SPECIALIZATION

CHEMICALS, IRON AND STEEL, SHIPPING, VEHICLES,

MACHINERY, TEXTILES

LIGHT INDUSTRY: CAMERAS, WATCHES, T.V., RADIOS ....

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 Japanese MIRACLE: Production rates
(1953 =100)
Industria 1953 1961 1966 1971

Iron and Steel 100 337 549 1061

Machinery 100 516 923 2490

Chemistry 100 203 625 1201

Oil and Coal 100 404 841 1927

Rubber 100 316 425 743

Paper and Pulp 100 277 413 665

Textiles 100 211 316 464

Total 100 311 522 1057

Manufacturing
total manufacturing from 1953 to 1971 increases by 10x. The main industry was machinery.

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DETERMINANT FACTOR: IMPORTS OF TECHNOLOGY

n Imports from US and Germany and Great Britain

n Strong control on imports and technology
n Destination: firms and industries are selected
these imports were mainly decided private industrise and ministry of
industry. They deccided which kind of industries Japan needed at the
¨ Energy and raw materials time
n Destination:
¨ Electricity, steel, petrochemicals and shipping
¨ Machinery & machine tools
¨ and Automobiles

n End 60’s: strong and competitive external sector

¨ Electrical appliances, automobiles, steel, heavy industry

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 OTHER DETERMINANTS: LABOR

n Availability of abundant and cheap labor (agriculture)

n Labor market peculiar: lifetime employment,

remuneration according to seniority, in-company
training

n Loyalty, mobility, not conflict

n High productivity (quadrupled, doubled wages)
¨ ­ high profits
high profits because wages were low

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 OTHER DETERMINANTS: CAPITAL

n High savings rate, 34% GDP (Germany 29%, US 19%, UK 17%),

reasons:

n Underdeveloped social security to buy tech of machinery you need money, thats why capital is a main
determinant of economic growth. form the pov of a country, where you
n High-priced housing get the money?
Money come from the savings that people of a country deposit in the
n High education cost banks.
if a country wants to develop by themselves they have to rely on private
n Low public pensions savings, because if they do not have a great gdp and want to take
money form the international market, because a lot of countries will not
agree as they wont trust that you will be able to repay

n The high savings rate + high profits

⏎
n High level of business investment
producivity was really high because of machinery and labor

productivity is GDP/ocupation, so its gdp by worker

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Summary
Imports of technology (high productivity)
+
and low wages (labor available and cheap)
⏎
­ high profits
+
High savings rate (capital available and cheap)
⏎
High level of business investment
⏎

HIGH GROWTH
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OTHER DETERMINANTS: INDUSTRIAL POLICY
OBJECTIVES

n Give support to key industries and sectors,

preferential financing

n To protect national industry (import barriers and FDI

barriers)

n To promote exports: JETRO and Foreign Trade

Companies

n Low currency rate of change, yen

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Japan: Miracle in Asia (1963) -
Rare Video

n https://www.youtube.com/watch?v=i9MX2l0Tt-Q
n (From Min 3,50, about 30’)

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End of caching up: 70’s CRISIS

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caching up

n This narrowing (convergence) of the bilateral income gap

was the result of Japan’s much faster growth
compared with the US.

n Japan was firmly in the highest income group by the

1970s

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70’s crisis: end of Bretton Woods and Oil
shocks
n End of Bretton Woods ® depreciation $ ® apprec. yen
Vietnam war. Direct implication of the US in the country. A lot of
expenditure for the states bc vietnam was far and wars are
¨ 360 ¥/$ (1970) 274 ¥/$ (1973) expensive.
In bretton woods dollars hadn to be back by gold. They satrted to
produce dollars to repay their debts but they didi not have enough
gold to back it up, so people internationally stared to lose

n Rising production costs confidence in the dollar and the currency depreciated.
Tehreofre the international system based in dollar broke, causing
an international crisis.
¨ Energy costs (oil x 4) Then in the 70's the oil crisis started.

¨ Labor costs (labor scarce)

¨ Companies transferred increases of costs to prices

n Inflation (CPI: 1972-5% 1973-16% 1974-21%)

¨ Competition NICs some countries of the south of asia copied the pattern of growth of japan, so in the
70's they started to become big competitors for the country (Korea, Taiwan, Hong
Kong and Shangai).

n Environmental problems (pollution and congestion)

n GDP 1974: -0.5%
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Government Industrial Policies

n ­ Expenditure on R & D less raw material import

less oil import
they focused in the products that need more R&D and less materials,
so new technology intensive focus

n Improved production processes

automation, quality circles, zero defects, just in time .. decreasing stocks and
thefore it's cost the
(productivity) they re more efficient in their processes pioneer is TOYOTA

n Industrial restructuring less oil consuming industries

¯ heavy steel industry I. they offshore to south asian counties bc no strong contamination rules there, tehy
were close to them and richer in raw materals
­ micro-chips (­ public spending in new sectors)

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RESULT: STRUCTURAL TRANSFORMATION
Strong exports:
electrical-electronic and automotive products

Continued trade surplus

n Trade frictions
strong exporte electrical, technology, automobile --> structural transformation not coyuntural

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Current account /GDP in Japan and US
1980-2014 as we can see Japan has a positive CA, high
surplus, more export than import.

japan

USA

In the USA is the opposite,

more imports than exports.
One of the main countries that
they imported from was Japan

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US Trade Frictions history
n In the 1980s, Japan began to record the largest trade
surplus and the US had the largest trade deficit in
the world, year after year.

n The US argued that the Japanese economic system

was inefficient and closed to imports and must be
reformed:
¨ (i) the yen must be appreciated; and (ii) Japan must buy
more from and sell less to the US

n From end 90’s. China replace Japan in the US trade

Friction
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PLAZA Agreement
japan, wanting to protect the national market form competitors, created a lot of barriers (very high and diffciult to accomplish
almost a monopoly in the country). Thefore USA had a lot of trouble to enter the market and be able to export there.
Germany also had surplus, and one of the main buyer of the countr was Japan.
So the USA asked Germay and Japan to reevaluate their currencies.

They knew that the devaluation of the dollar will damage the other 2
countries economies

nIn 1985, the Group of Five (G5)—the US, Japan,

West Germany, France, and the UK—jointly
intervened to lower the overvalued dollar (the
Plaza Agreement).
very valuable currency make imports go up and
exports go down.

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Books & readings
Kenichi Ohno
n The Economic Development of Japan:
The Path Traveled by Japan as a
Developing Country

2006 GRIPS Development Forum

National Graduate Institute for Policy Studies
7-22-1 Roppongi, Minato-ku, Tokyo 106-8677, Japan

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