The Role of Intangible Assets on the Economic Performances in Japan and Korea

Though the economies of both Japan and Korea suffered during the 1997-1998 financial crisis, economic performances in both countries have diverged somewhat after the financial crisis. The Korean economy recovered swiftly and has maintained an economic growth rate of 4%, but Japan's economic growth rate has remained low.

Following the McGrattan and Prescott model, which includes intangible assets in the standard real business cycle (RBC) model, we explain the differences in the economic performances of Japan and Korea. According to our simulation results, the shares of intangible assets in Japan and Korea are 10% and 7%, respectively. Growth accounting (using the simulation results) shows that the accumulation of intangible assets and higher total factor productivity (TFP) contributed to the economic growth recorded in Korea, while the low accumulation of both tangible and intangible assets in Japan contributed to its low economic growth.