Japan’s Economic Growth and the Role of Government

Abstract

This chapter discusses the different possible roles played by the Japanese government to enhance the total factor productivity (TFP) growth rate during the “growth miracle period” (1955–1973) as well as the “two lost decades” (1990–2009). The growth accounting exercise conducted in this chapter using the Japanese data shows that TFP was not only the driving force for the rapid economic growth of the growth miracle period but also a decline in the TFP growth rate was responsible for the sluggish economies, particularly in the 1990s. High net technology imports were demonstrated to have likely played an important role in the TFP’s rapid rise during the growth miracle period. However, possible causes behind the TFP’s slower growth rate during the “two lost decades” remains actively debated in literature. Caballero et al. (Am Econ Rev 98(5):1943–1977, 2008) offers the possible explanation of zombie firms, i.e., unproductive firms that should exit the market but survive because of support from banks or the government. If “zombie lending” is a major cause of slower TFP growth rate, opening the markets and letting firms compete through deregulation would be one promising policy the Japanese government could enact in order to boost the TFP growth rate.