Title: Could Korea face a Japan-like
1Could Korea face a Japan-like Lost Decade in
the coming years?
Jacob Loree, Scott Stroughan, Yarui Wang, Yuxi Liu
2Introduction
- From the 1950s to the 1980s Japan was
considered an economic miracle - Experienced double digit economic growth
year-by-year - Became the second largest economy in a very short
period of time
3Introduction
- However, in the 1990s, the Japanese economy
stagnated and began what is known as the Lost
Decade - Very little economic growth per year
- Some negative growth years
- This has turned into the Lost Double Decade
4Reasons
- Fundamentally our view is that sustainable high
level growth in Japan ended after achieving some
rough level of convergence, but was extended
through credit and macro policy. Eventually this
bubble burst leaving Japan with a financial
crisis, which led to a Lost Decade.
5Reasons
- The reason Japan took so long to recover from its
crisis and stagnated can be explained by many
different theories. - -asset bubbles and zombie banks
- -appreciation of its currency
- - a tightening of monetary policy
- -or more long-term deficiencies such as
technology or demographics.
6Korea
- Korea is one of the Asian Tigers of economic
growth - One of the fastest growing economies from the
1970s onwards - One of the largest importers/exporters in the
world
7Korea
- However, there is growing concern that Korea
could face a similar stagnation as Japan in the
1990s - Asset bubbles, banking issues, etc.
- To investigate the similarities and differences
in these countries, we can look at economic
modelling.
8Making Comparisons
- We can compare Solow model of both countries to
better understand their economic fundamentals and
determine their projected growth rates. - We can also compare the gap between expected and
actual growth rates. - Check to see if Korea has attained convergence.
9Solow Model
- YAKaLß
- Focuses on savings, population growth, and
capital per worker - Steady state equilibrium
- Model forecasts a convergence among all
countries
10Solow Model
- The most important factor of production, however,
is technological innovation - A
- This shifts the Solow curve upwards, allowing the
steady state to be further out - Does present-day Korea and 1990s-era Japan have
significantly different technological innovation
levels?
11Solow Model
- However, how A is defined differs from
economist to economist - Some look at technology as a whole, while some
use it as a catch-all of everything not
contained by K and L - Solow Residual
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14Capital and Labour
- The two countries have relatively similar capital
and labour growth rates. - Capital growth rates are extremely similar, with
trends moving in the same direction - Labour growth rates differ slightly more, but the
coefficient is so small, that the graph
overstates the differences
15Differences in Japan and Koreas Solow Model
- Japan (1990-2000)
- logGDP5.6734 0.1856K-0.1684L
- Korea(2000-2010)
- logGDP6.1128 0.2213K -0.0329L
- Very similar Solow models
16Solow Model
- According to the Solow model, we would expect
Japans GDP to grow by 0.18 per 1 increase in
capital, and decrease by 0.16 per 1 increase in
labour - Did this actually come true with the data we now
have?
17Japan Results
- From 1990-2000
- GDP grew a total of 7
- Capital grew a total of 0.61
- Labour force grew a total of 5.84
- According to Solow, GDP should have contracted by
0.82
18Growth Accounting Model
- Using the data from 1990-2000, we know GDP grew
7, K grew by 0.61, and L grew by 5.84 - Using the Growth Accounting coefficients of
a0.33 and ß0.66 we see that A grew by 2.94 - Significant portion of growth
19Differences between Japan and Korea
- Obvious difference between theory and reality
when looking at K and L - While K and L may be similar for the two
countries, the more important question is how do
their demographics, political economy, and
culture match up? - These all are a part of A and help determine
total output of both countries
20Demographics
21 Demographics (South Korean Demographic
Pyramid)
From http//www.indexmundi.com/graphs/population-
pyramids/south-korea-population-pyramid-2013.gif
22Demographics(Japanese Demographic Pyramid)
From http//www.japanfocus.org/data/j.pop.pyramid2
003.gif
23Immigration
24Immigration
"65 respondents were opposed to relax the
restriction in terms of immigration
policy" (Asahi News, 2010)
Japan
Serious Racism
Anti Immigrant Policy
"There are more than one million immigrants
workers in South Korea" (South Korean Ministry
of Justice)
Create a buffer against the low fertility rate
Korea
No Serious Racism
25Technology
- Japan and Korea are very different in how they
deal with technological innovation - Japan, almost exclusively, imports new technology
from the United States - Korea, however, has started to shift towards
producing in high-tech industries, to avoid
reliance from imports
26Technology
Compared with Japan, South Koreas high-tech
manufacturing accounts for larger proportion in
the whole industry .
27Technology
28Technology
- Japan- a middle man economy
- Japan was the single largest consumer of U.S.
technology, Japans share of U.S. receipts was
approximately 51 in 1990. 35 in 2000.39 in
2001. - ( Japan lacks innovation on the fundamental
technology) - Risk Korea is trying to snatch the role of the
middleman for the U.S. in the U.S.-East Asia
Supply Chain.
29Conclusion
- Korea wont face the lost decade like Japan.
- Capital and Labour-relatively similar
- Demographics-immigrations(Japan has a stronger
anti-immigrant bias) - Technology-Japan imports from US-Korea avoid the
reliance on US