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12 - The Japanese Macroeconomic Mystery
- from PART 2 - COUNTRY STUDIES
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- By W. Max Corden, University of Melbourne, Sisira Jayasuriya, Monash University, Melbourne
- Edited by Hal Hill, Jayant Menon
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- Book:
- Managing Globalization in the Asian Century
- Published by:
- ISEAS–Yusof Ishak Institute
- Published online:
- 22 July 2017
- Print publication:
- 16 November 2016, pp 297-332
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Summary
This chapter, written in honour of our old friend Prema-Chandra Athukorala, is designed to unravel a set of complications and mysteries concerned with the Japanese macroeconomy for the last twenty years, or even longer. This is the period of Japan's two lost decades, beginning around 1995. We draw on a huge and highly sophisticated, even brilliant, literature on this, written principally by Japanese economists (and also some Americans). Fortunately for us, much of it is written, or translated into, English, and we have tried to understand it. Our aim is to make the complex issues and possible solutions simple enough for non-specialists to understand. We also wish to see whether there are some lessons for other countries.
What are these mysteries? Well, the single most interesting one is this. For about twenty years, the Japanese government has run significant and deliberate budget deficits that have been motivated by the Keynesian objective of stimulating the economy. Plenty of countries have run budget deficits for long periods, usually because of political difficulties in raising taxes or cutting spending. But this is different because the explicit Keynesian “fiscal stimulus” motive for maintaining aggregate employment or the growth rate is usually only short term, whereas the Japanese case is unique because it has gone on for more than two decades. But this does not mean that it is interesting only as a historical curiosity. Since the global financial crisis (GFC) of 2008, prolonged application of stimulus policies has become increasingly common as many major economies struggle to restore growth, and the Japanese experience is likely to hold lessons of wider contemporary relevance.
THE BUBBLE AND AFTER
The economic recovery of Japan after the war was impressive. It was indeed a boom, especially a boom in manufactured exports. The main problems came from two sharp world oil price rises. Details of this post-war period go beyond this chapter. The economic situation of Japan was dramatically transformed in a short period of five years — from 1985 to 1990 — by “The Bubble”. Indeed, this surprising episode was the bridge between the remarkably successful post-war years (lasting about thirty years) and the later long unfortunate period of stagnation or recession — described as the two lost decades — with which this chapter is mainly concerned.
3 - The revival of protectionism in developed countries
- Edited by Dominick Salvatore, Fordham University, New York
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- Book:
- Protectionism and World Welfare
- Published online:
- 18 September 2009
- Print publication:
- 23 September 1993, pp 54-79
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Summary
There is evidence of the revival of protectionist attitudes in developed countries, notably the United States and Western Europe. This chapter reviews some aspects of this protectionist renaissance, focusing particularly on the relationship between protection and macroeconomic events and policies.
Protection and macroeconomic policies
Recessions bring protection
From 1980 to 1982 the developed world passed through a major recession created essentially by tight monetary policies designed to squeeze inflation out of the system. During this period protectionist pressures increased, and there were also some increases in actual protection. The issue arose again in the United States in 1991; as a result of the recession of that year, there was a powerful revival of protectionist attitudes directed particularly against Japan. This experience raises the important issue of the connection between two sets of government policies – protection policies and macroeconomic policies. One has to consider the case where macroeconomic policies may have induced a recession or may have failed to prevent a recession caused by other factors and where the recession in turn has induced pressures to increase protection.
Policies of monetary tightness squeeze profitability and reduce employment, one aim – perhaps the primary one – being to moderate wage increases. If the moderation in wages anticipated the monetary squeeze, or at least followed it very closely, then profitability and employment would not need to fall, and the desired decline in the rate of inflation could be brought about without cost.
Round Table Discussion
- Edited by Jaime De Melo, Université de Genève, Arvind Panagariya, The World Bank
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- Book:
- New Dimensions in Regional Integration
- Published online:
- 04 May 2010
- Print publication:
- 29 July 1993, pp 453-463
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Summary
Larry Summers is said to have said that he favours all of the ‘laterals’ – unilateral, bilateral, plurilateral, multilateral. I associate myself with that position, provided it leads to more liberal trade.
Jacob Viner's celebrated distinction over forty years ago between trade creation and trade diversion has been mentioned several times in this volume. What has not been mentioned is the motivation that led Viner to that distinction – namely his puzzlement, in the age-old debate between free trade and protectionism, that both adversaries could agree on the desirability of customs unions (CUs) or free-trade areas (FTAs). How can that be? Two groups who seemed to disagree on everything concerning trade policy agreed on this point. Out of that conundrum came Viner's distinction between trade diversion and trade creation, and his conclusion that the two groups had different emphases in mind in favouring CUs. The point is that motivation and details are all important.
Thus the key question is not multilateralism versus regionalism, but what is the motivation underlying the particular proposal at hand, and what are the all-important details. There is plenty of room for regionalism in a framework that requires the right details. The multilateral framework that we have, which it seems to me is a reasonably good one, sets the ground rules under which bilateral or trilateral or regional arrangements can go forward consistently with the multilateral orientation of the general framework.