What growth engines for Japan?
After a dazzling economic catch-up in the post-war period, Japan has experienced weak growth since 1990, which sets it apart within the OECD, despite the efforts of successive governments to create a new dynamic. With a GDP per capita of around $42,000 at purchasing power parity, Japan ranked last in the G7 in 2019, reflecting the weak growth of this indicator since 2001 (see Chart).
Initially supported by a rapid increase in the stock of capital, Japanese growth since 2010 has only relied on labor and total factor productivity. But these levers are failing today. The population is aging and declining, and hourly labor productivity is growing slowly, particularly in SMEs, which dominate the productive fabric and are less productive than large companies. Too much of the investment is destined to compensate for the depreciation of the capital, testifying to a bad allocation of this factor. Potential growth, around +4.0% in 1990, would now be less than +0.5%.
The “Abenomics”, launched in 2013, wanted to expand the working population and improve working conditions, but only partially achieved their objectives. The following governments have focused on investments for the future to support supply and sustainably increase productivity, with digital transformations and the low-carbon transition launched from 2020, then the priority given to entrepreneurship and vocational training as part of the plan promoting a “new capitalism” formulated in 2021.
Japanese growth will remain constrained by demographic trends, which justifies continuing to promote employment for seniors, immigration and the birth rate through ambitious structural reforms. Japan also has room for maneuver in improving capital allocation and deploying new technologies, a sector with strong growth potential.
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+ Other publications to consult on the subject:
- Colacelli M. Hong GL (2019), “Productivity Drag from Small and Medium-Sized Enterprises in Japan”, IMF Working Papers No. 2019/137.
- Bergeaud A., This G. and Drapala S. (2023), “ Telecommuting and productivity before, during and after the Covid-19 pandemic », INSEE, Statistics and studies.
- Hosono K. Takizawa M. Yamanouchi K. (2020), “Firm Age, Productivity, and Intangible Capital”, RIETI Discussion Paper Series, 20-E-001.