The Structural Causes of Japan's "Two Lost Decades"

Author Name YoungGak KIM  (Senshu University) /FUKAO Kyoji  (Faculty Fellow, RIETI) /MAKINO Tatsuji  (Research Assistant, RIETI)
Creation Date/NO. June 2010 10-P-004
Research Project Productivity of Industries and Firms and Japanese Economic Growth
Download / Links


Although by the early 2000s, Japan had largely overcome its non-performing loan problems, economic growth hardly accelerated, resulting in what now are "two lost decades." This paper examines the underlying reasons from a long-term and structural perspective. Major issues examined include the chronic lack of domestic demand since the mid-1970s, caused by a long-run decline in capital formation through a slowdown in the growth of the working age population and resulting in a current account surplus and yen appreciation, and supply-side issues such as stagnant TFP growth caused by Japan’s low economic metabolism. A key finding is that whereas large firms since the mid-1990s have achieved greater increases in TFP than in the 1980s through R&D and internationalization, the TFP of small firms has stagnated.