Japan Stagnation Myth?

December 28, 2011

(This article was first published on Christopher Gandrud, and kindly contributed to R-bloggers)

I came across this piece on The Atlantic website by Eamonn Fingleton arguing that Japan's two decade long stagnation is largely a myth. I'm not willing, just yet, to completely go along with his thesis that this myth has been stoked by the Japanese Government to ease political pressure on their export-oriented economic model. (It would certainly be interesting if it were true. It is definitely the case that Japanese companies have become adept at dealing with potential US political pressure, e.g. assembling cars in the US.)

However, as a semi-regular visitor to Japan I do find it hard to completely believe the stagnation story. The place just seems so clean and vibrant. If Japan is stagnating, then American cities like Detroit would do well to 'stagnate' also.

Anyways, beyond the interesting stats on Japanese trade growth and the improvement in living standards since the 1980s in Eamonn's piece, I've been sceptical of the stagnation story based on official GDP numbers (he actually thinks these are underestimates, but let's leave that issue aside for the moment). If we control for stagnate Japanese population growth by looking at GDP growth per capita as opposed to overall GDP growth we can see that Japan's growth numbers aren't that different from the US's (the usual country comparison in the stagnation stories).

Look at this graph using data from the World Bank:

It shows the difference between Japanese and US annual overall GDP growth and per capita growth. Negative number indicate that the US grew more than Japan and vice versa. 0 means that GDP growth is the same for both countries.

The key stagnation period to look at is from around 2000 to the present. Japan was supposedly stagnating while the US was booming. If we just look at overall GDP growth Japan did grow more slowly than the US. But if we look at growth on a per capita basis, there is basically no difference. Apart from 2009, Japan has basically done at least as well as the US since the end of the Asian financial crisis.

Here is the R code to reproduce the graph:

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