Re: Japan 1973 Re: Concept of a "Growth Equilibrium"

[Leigh Harkness <leigh@xxxxxxxxxxx>]

Gernot Kohler wrote:

>The same source (Economist. Guide....) has the following additional data:
>
>                  Japan, average annual growth rates
>
>                       1960-68 68-73 73-79 79-89
>Consumer expenditure     9.0    8.4    3.9   3.1
>Real fixed investment   15.2   12.5    1.5   5.3
>
>Real GDP                10.1    8.8    3.6   4.1(=79-90)
>
>
>The 1973 drop in investment growth is from 12.5 to 1.5% per annum.
>Which theory explains such a drop in investment growth,
>considering the fact that similar changes occurred throughout OECD?


This is a good question.

I suspect that, for this to have occured, there must have been a deline in
the rate of growth of national income/national expenditure/aggregate demand
since 1973.

Whatever caused the change, it has not been reversed since 1973.  Whatever
the change was, it had a widespread impact.  The change must have been of
magnitude 10+ on the scale of economic shocks or earthquakes.

The only change that could be in this order of magnitude in 1973 was the
collapse of the fixed exchange rate system and the adoption of the floating
exchange rate system.

Under the fixed exchange rate system, countries could increase their
national incomes and money supplies by raising exports.  After the
introduction of the floating exchange rate system, countries could only
export as much as they imported and invested overseas.  This constrained the
growth of national incomes, even in Japan.

With a lower level of growth of aggregate demand, the rate of growth of
production (income) declined, investment declined and many countries started
experienced rising unemployment.

Is there any other explanation for these events?


Regards



Leigh




__________________________________________________________
Leigh Harkness                    leigh@xxxxxxxxxxx