Structural Change, Capital Deepening, and TFP Growth in Japan: 1885–1970

Abstract

AbstractAfter the Meiji Restoration of 1868, Japan modernized its institutions and economic growth gradually picked up. Growth accelerated especially during the so-called high-speed growth era from 1955 to 1970, when Japan rapidly caught up with Western economies. The long-term sustained high-speed growth recorded during this period was unprecedented, not only in Japan, but worldwide. Using newly constructed Hitotsubashi estimates of Japan’s historical gross domestic product (GDP) statistics and a growth accounting framework, we analyze the sources of Japan’s economic growth through a historical perspective covering the longer period than other studies and explore why Japan was not able to accomplish such high-speed growth from 1885 to 1955. Since the mid-1960s the primary sector accounted for a large share of economic activity, we use a two-sector model in which the economy overall is divided into the primary sector and the non-primary sector. Our results suggest that TFP growth and capital accumulation in the non-primary sector played a major role in achieving high-speed economic growth. From this perspective, the fact that the capital stock per worker did not grow substantially before World War II is one of the key reasons why Japan did not experience high-speed growth during this period.