As the world is moving toward protectionist policies as witnessed by Brexit and Indonesia's export restrictions along with U.S. President-elect Donald Trump's announcement of his intention to withdraw from the Trans-Pacific Partnership agreement, Japan must form a bulwark to protect globalization and contribute to world development. In the December issue of the RIETI Report, we present the column "Japan Must Form a Bulwark to Protect Globalization" by Faculty Fellow Yasuyuki Todo.
Japan's Prime Minister Shinzo Abe stressed at the APEC meeting in November 2016 that free trade is the wellspring of growth in the world economy and that protectionism should be opposed by economic policies that promote inclusive growth. If network closure and economic stagnation sparks a vicious cycle, it will be difficult to correct the increasing economic insularity, leading to significant economic and social losses. Todo stresses that Japan must play a vital role in preventing this vicious cycle, but to achieve this, Japan itself must become more open and liberalize its trade barriers without seeking to establish sanctuaries. Furthermore, Japan must also remove both explicit and implicit barriers to foreign investment and accept a greater amount of inward investment, which is currently extremely low by global standards. Finally, Todo concludes that inclusive policies should not involve protectionism, thereby building institutions that enable all citizens to enjoy the fruits of growth under globalization.
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Japan Must Form a Bulwark to Protect Globalization
Vicious cycle between closed networks and economic stagnation
U.S. President-elect Donald Trump has announced his intention to withdraw from the Trans-Pacific Partnership agreement (TPP). A wave of protectionist policies is rising around the world, as evidenced, for example, by Britain's decision to leave the European Union (EU) and Indonesia's imposition of export restrictions to raw mining resources. Against this background, at the Asia-Pacific Economic Cooperation (APEC) meeting held on November 20, 2016, Japan's Prime Minister Shinzo Abe stressed that free trade is the wellspring of growth in the world economy, and expressed his opinion that protectionism should be opposed by economic policies that promote inclusive growth (as reported in the Nihon Keizai Shimbun on November 21, 2016). I would like to express my wholehearted agreement with Prime Minister Abe's statements. Further, Japan must form a bulwark to protect globalization and contribute to world development.
A great deal of empirical research supports the prime minister's contention that free trade promotes economic growth. This is not merely because free trade leads industries with comparative advantage to efficient production, as David Ricardo claimed. Engaging with overseas "outsiders" via trade enables domestic businesses to absorb new knowledge, which has a significant effect in promoting innovation. In addition, foreign direct investment (FDI) can also promote innovation, as it establishes ties with the outside world.