RIETI Report November 2015

How will the TPP Change the Japanese Economy?

With a broad agreement finally reached on the Trans-Pacific Partnership (TPP), can we expect it to accelerate Japan's economic growth? Faculty Fellow Yasuyuki Todo's forecast is for the TPP to enable Japan to easily meet the Shinzo Abe administration's nominal gross domestic product goal of 600 trillion yen. In the November issue of the RIETI Report, we present his column "How Will the TPP Change the Japanese Economy?"

In addition to deregulation of trade in goods, Todo believes the prominent growth effect of the TPP will be in the deregulation of trade in services and foreign investment. Moreover, further economic integration will bring more direct communication across borders, and perpetual economic growth will occur by promoting innovation through fully utilizing outsiders' knowledge. However, to achieve this, additional policies are necessary, for example, those regarding small and medium enterprises and increasing foreign direct investment. Finally, Todo stresses that protectionist policies for agriculture and other domestic industries are counterproductive and will lead to lost innovation, thus actively collaborating with private sectors and universities and keeping close linkages with overseas to bring innovation and improve production efficiency are vital for Japan's agriculture to become more competitive. The government should support agriculture, forestry and fishery, as well as manufacturing and service sectors, to utilize such linkages, thereby maximizing the effect of the TPP.

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This month's featured article

How will the TPP Change the Japanese Economy?

TODO YasuyukiFaculty Fellow, RIETI

Now that a broad agreement has finally been reached on the Trans-Pacific Partnership (TPP), can we expect it to accelerate Japan's economic growth? In March 2013, I wrote an article "Estimating the TPP's Expected Growth Effects" for the RIETI website. In it, I argued that the TPP would raise Japan's per capita gross domestic product (GDP) growth rate by about 1.5 percentage points. This estimate was rather high compared to the government's preliminary calculations in 2013, but if my forecast is correct, the enactment of the TPP would enable Japan to easily meet the Shinzo Abe administration's nominal GDP goal of 600 trillion yen.

The reason we can expect such a prominent growth effect from the TPP is that, in addition to deregulation of trade in goods, the deregulation of trade in services (retail, finance, intellectual property, etc.) and foreign investment will have a major impact on the economy. Moreover, the further economic integration will bring more face-to-face communication across borders. Therefore, the TPP will be to contribute to perpetual economic growth by promoting innovation through fully utilizing outsiders' knowledge (refer to the link above for details).

To read the full text
http://www.rieti.go.jp/en/columns/s15_0012.html

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