Working Paper: NBER ID: w2479
Authors: Ryuzo Sato
Abstract: By 1981, Japan achieved both internal and external equilibrium; exports and imports roughly balanced at sixteen percent of the gross national product. However, within the country, there was concern that the growth in the government, accompanied by raising budget deficits, would make it impossible for the economy to cope with a future crisis similar to the oil price shocks of the seventies. The Chairman of Keidaren, Mr. Doko, called for a 'philosophy of preservance' requiring government austerity and individual sacrifice. The expected crises never occurred but the policies followed led to a balance of payment surplus. Scientific studies to determine the exact sources of these imbalances are few but indications are that forty percent of the gap was due to differences in growth in demand at home and abroad, thirty percent due to differences in the elasticity of import and export functions and thirty percent due to movement in the exchange rate. It is argued that political and economic frictions arise when it attempted to treat the symptom without reforming the fundamental structure. Proper strategies can convert the 'Zero-sum game' to a 'positive-sum' game.
Keywords: US-Japan trade imbalance; economic structure; trade policies
JEL Codes: F10; F20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Growth rates of domestic and foreign demand (F29) | US-Japan trade imbalance (F14) |
| Elasticity differences (H30) | US-Japan trade imbalance (F14) |
| Exchange rate movements (F31) | US-Japan trade imbalance (F14) |