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Could Korea face a Japan-like

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Could Korea face a Japan-like Lost Decade in the coming years? Jacob Loree, Scott Stroughan, Yarui Wang, Yuxi Liu – PowerPoint PPT presentation

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Title: Could Korea face a Japan-like


1
Could Korea face a Japan-like Lost Decade in
the coming years?
Jacob Loree, Scott Stroughan, Yarui Wang, Yuxi Liu
2
Introduction
  • 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

3
Introduction
  • 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

4
Reasons
  • 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.

5
Reasons
  • 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.

6
Korea
  • 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

7
Korea
  • 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.

8
Making 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.

9
Solow Model
  • YAKaLß
  • Focuses on savings, population growth, and
    capital per worker
  • Steady state equilibrium
  • Model forecasts a convergence among all
    countries

10
Solow 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?

11
Solow 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

12
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13
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14
Capital 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

15
Differences 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

16
Solow 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?

17
Japan 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

18
Growth 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

19
Differences 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

20
Demographics
21
Demographics (South Korean Demographic
Pyramid)
From http//www.indexmundi.com/graphs/population-
pyramids/south-korea-population-pyramid-2013.gif
22
Demographics(Japanese Demographic Pyramid)
From http//www.japanfocus.org/data/j.pop.pyramid2
003.gif
23
Immigration
24
Immigration
"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
25
Technology
  • 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

26
Technology
Compared with Japan, South Koreas high-tech
manufacturing accounts for larger proportion in
the whole industry .
27
Technology
28
Technology
  • 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.

29
Conclusion
  • 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
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