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Does Japan Need a Strategy to Achieve Growth: Issues and Problems Facing the Economy Edward J. Lincoln NYU Stern School of Business October 7, 2010 1
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Background Successful catch-up 1870s-1970s. “Bubble” 1985-1991 – 5% average annual growth and a tripling of real estate and stock market prices. “Lost decade” 1992-2002: 0.8% annual growth Recovery 2003-2007: 2.0% growth Recession 2008-2009: GDP falls 5.5%, driven by exports. Recovery and longer term future? 2
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Issues Going Forward How to solve deflation Is government deficit/debt a problem? Will the financial sector perform adequately? How much more deregulation/structural reform does Japan need? Can exports drive economic growth? Demographics: the implications of a falling and aging population. Other Panelists? 3
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1. Deregulation/structural reform Outmoded economic system was not the main cause of the problems of the 1990s, but poor performance focused attention on reform to improve future growth. Considerable change 1990s-2000s. Remaining areas: Some services still hampered by regulation. Problems: Does the Democratic Party of Japan believe in regulatory change? (privatize Postal Savings and Postal Life Insurance or not?) 4
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2. Reliance on Exports Growth recovery 2003-2007 was highly dependent on exports. Difficult to sustain this reliance going forward due to: –Weak economic recovery in the U.S. and Europe –Stronger yen? 5
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3. Demographics Total population is falling Population is aging rapidly 9
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How to Ensure Future Growth? More deregulation/reform Sexual equality (enable women to achieve their potential in workforce) Pursue pro-family policies Greater international economic openness to increase positive competitive pressures from imports and foreign firms operating in Japan. Greater international human openness (more immigrants more foreign students in universities; more Japanese studying abroad) All of these represent difficult changes. 17
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