RIETI Report July 2014

RIETI World KLEMS Symposium "Growth Strategy after the World Financial Crisis"

The World KLEMS is a global undertaking to build an international database to compare productivity internationally by comparing inputs of capital, labor, energy, materials, and services, and how they interact with the outputs of all of the commodities that constitute a modern economy to produce economic growth. Productivity is a key source of economic growth, and, particularly for the economy of Japan, productivity improvement is a crucial economic policy issue. In the July issue of the RIETI Report, we present the RIETI World KLEMS Symposium "Growth Strategy after the World Financial Crisis" where discussions on the theme of a growth strategy after the world financial crisis were made from a broad perspective. Numerous scholars and academics in the field of economics from both within Japan and abroad gave presentations and discussed this theme.

The conference commenced with opening remarks by RIETI Chairman Atsushi Nakajima, followed by two keynote speeches. The first speech was "The World KLEMS Initiative" by Dale W. Jorgenson, Samuel W. Morris University Professor, Harvard University. Professor Jorgenson discussed the practical issues of how economic policy should be focused in the aftermath of the world financial crisis, including that growth strategy is something that has to be formulated at a fairly abstract level and understanding economic growth and the role of productivity is crucial for considering the choices faced by policy makers. Professor Jorgenson talked about the background of the KLEMS project, its successful utilization in Europe, and how this could be very important lessons to apply to Japan. The second keynote speech, "Evolving Spatial Economy of Asia-Pacific and the Growth Strategy," was given by Masahisa Fujita, President of RIETI. His speech focused on spatial economics in Asia and Japan. He discussed topics such as the transformation of the global spatial economy due to rapid progress in IT and transportation technology and the promotion of free trade through diverse mechanisms and the reduction of transportation costs across the world, resulting in globalization in production, trade, investment, and finance. Furthermore, Professor Fujita looked at intermediate goods passing through the East Asia region, the future of Asia, and how to approach the third arrow of Abenomics.

We also had the pleasure of listening to five presentations made by leading academics and scholars. The first presentation was "Lessons from Japan's Secular Stagnation" by Kyoji Fukao, Program Director and Faculty Fellow, RIETI / Director, Institute of Economic Research, Hitotsubashi University. Professor Fukao revealed five lessons to be learned from Japan's secular stagnation, including that low real interest rates will not sufficiently solve fundamental problems and productivity growth slowdown is caused by structural factors of the economy. The second presentation was "The Prospects for East Asian and Chinese Economics" by Lawrence J. Lau, Ralph and Claire Landau Professor of Economics, The Chinese University of Hong Kong. Professor Lau sees advantages for East Asian economies such as a high saving rate and that future sources of economic growth are intangible inputs, as well as the unlikelihood of a hard landing in China. The third presentation was "Growth Strategy after the World Financial Crisis" by Nobuhiro Kiyotaki, Professor, Princeton University. Professor Kiyotaki talked about financial frictions and economic growth, and he further delved into the long term consequences of the financial crisis including public debt becoming unsustainable and leading to further financial crises, and reduced investment in intangible capital leading to slower growth and long recession periods following a financial crisis. The fourth presentation was "Competitiveness Today: a New View" by Marcel Timmer, Professor of Economic Growth and Development, University of Groningen. Professor Timmer's premise was that a new way of looking at trade and competition is required, and, rather than focus on the gross output value of products, we should look at the value added which is taking place in various regions in the world. Finally, the fifth presentation was "Strategies to Revive Global Growth: A Scenario Analysis" by Bart van Ark, Executive Vice President and Chief Economist, The Conference Board. Professor van Ark talks about the major trends in the important strategies that are needed henceforth to revive global growth.

The conference concluded with a discussion session moderated by Tsutomu Miyagawa, Faculty Fellow, RIETI / Professor, Gakushuin University, with the presenters on their respective topics, as well as a Q&A session with further insights into their thoughts. The long term view is that human resources and innovation must be stimulated globally. In the case of Japan, policies and fundamental structures of business and government will have to be restructured and adapted in line with this changing world.

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