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Tuesday, April 30, 2013

Generating the Wealth of Nations: 2

This is a response to one of the study questions for the first week's overview of world economic development.

How does Japan’s economic performance compare against England/UK and the US?  Has it benefited from the Industrial Revolution?  If so, at what time did that occur?
(Click image to enlarge.)

I have used data for the 1870 – 2010 period, because the Maddison Project has only limited GDP per capita data for Japan before 1870.
There appear to be four clearly defined periods in the data:

1.      1870 – 1940.  Japan’s GDP per capita grew relative to that in the UK and the US, but very slowly.  Over that 70 year period, GDP per capita grew at an average annual rate of 1.96%, compared with 1.10% in the UK and 1.53% in the US.
2.      1940 – 1945.  During World War II, Japan’s GDP per capita fell considerably relative to the other two countries.  This is, in large part, a consequence of being an easily blockaded country that ultimately lost the war.
3.      1945 – 1992.  Convergence.  Japan’s 5.85% average annual growth rate was 3 to 4 times as fast as that in the UK or in the US.  In consequence, by 1992, Japan’s GDP per capita exceeded that in the UK and had grown to more than 80% of the US level.
4.      1992 – 2010.  Relative stagnation in Japan.  Since 1992, Japan’s GDP per capita has grown by only 0.67% per year, one-third the rate in the UK and less than half the rate in the US.  As a result, its relative GDP per capita was declined to (roughly) its 1970 level.
The impact of the Industrial Revolution might begin to become apparent as early as 1870, but I would prefer to date it to the post-World-War II period, when convergence really became apparent.  While Japan’s economy grew (modestly) more rapidly than those of the UK and US in the 1870-1940 period, its relative economic performance remained far behind.  With continuation of the pre-1940 trend Japan would have caught up to the UK in about 2080, and would have reached 80% of the US level of development also in about 2080.  Only after WWII do we see any real closing of the gap.  It’s the 1992 – 2010 period that represents something of a conundrum for us, I think.


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