Japanese Economic Development: Idiosyncratic or Universal?

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Japanese economic development has been regarded as a ‘miracle’ or an ‘outlier’, which requires an explanation based on something other than mainstream economics. Both non-economic factors, such as culture, religion, and social tradition and economic factors, such as lifetime employment and industrial policy, were discussed as unique, exogenous elements that explained the economic success of Japan. It was implied that those factors were so unique that it could not be repeated elsewhere. However, the view of Japan as an idiosyncratic miracle waned in the 1980s, for two reasons: mainstream economics became more sophisticated so that what were regarded as inexplicable economic institutions in Japan came to be explained with regular economic tools with generalized assumptions, while other East Asian economies, with economic institutions and policies similar to those of Japan, sustained a period of high economic growth, reminiscent of Japan’s ‘miracle’ some decades earlier, appearing to show that Japanese economic development could be replicated. This chapter reviews these two strands of thought: what appears unique in Japanese economic development, from the 1950s to the 1980s, in fact makes economic sense and is replicable by other developing economies given the right initial conditions. The role of industrial policy is examined closely.