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Why Japan has done so poorly in the 90s

Performance 60s improved but dismal in the 90s. The main culprit was the movement in the stock prices in mid 80s to early 90s. Performance of the Nikkei index. Speculative Bubble

Measures undertaken to increase growth

Japanese CB decreased interest rates to very low level (1%) since 1996. Cut taxes to stimulate spending Structural changes a. loans to market investors and real estate developers. Without healthy banking system, it is difficult for Japan to return to steady growth.

How is Japan now?

GDP growth 1.4% Inflation rate (1.7%) Unemployment rate 4.1% Interest rate 0% Four tigers Hongkong Korea Singapore Taiwan

The Changing Development Agenda in the Region

The development agenda has changed in the East Asia region. Three lessons from our recent experience in the region. 1. Competitiveness is no longer driven only by labor costs, the availability of resources, and the openness of markets. While these are important, a nations ability to compete in the global economy is heavily influenced by the stability, transparency, and reliability of the legal and judicial system, by levels of corruption, and by effective supply chain management.

Second, it has become easier to do business in East Asia. There is greater interest in opening markets, in coordinating the reduction of tariff and non-tariff barriers, and also in the harmonization of standards across the region. Third, as a result of the two changes, a profound change has occurred in the organization and location of economic activity. To compete, grow and prosper, East Asian countries must understand that investors, businesses, tourists and, to an extent even workers, all have a choice of where they go. Sharp reduction in the cost of trade, transport and capital transfers has allowed production processes to be unbundled and broken up into small pieces, each of which can be located in a different country. The relocation of manufacturing industries to China and developments in Bali on FDI in Southeast Asia, reflect this phenomenon.

Implications for Governments

Governments must recognize that the socalled structural agenda of reforms, which the World Bank emphasizes consistently, is not an option, it is a must. First, banks and financial systems need to be cleaned up and strengthened, to provide quick and dependable support to growing economies and to consumers and investors.

Second, legal systems need to function, independently and cleanly, so investors know that there are rules to the game, and that the rules apply equally to all. Third, Customs, trade facilitation and business approval services need to be quick and honest. And fourth, corporate governance standards should be raised and harmonized.

How Is the Region Doing?

There is growth in East Asia. However, just as there are differences in the current and prospective economic performance and reform agenda faced by the countries that make up East Asia. In the low income countries, strategies need to formulated tightly around poverty reduction, with a clear focus and a practical set of actions keyed to the Millennium Development Goals that have been agreed by the international development community.

In the middle income countries, the macroeconomic situation has generally stabilized. The pace of corporate and financial reforms needs to continue. It is clear that those countries that have made most progress on corporate and financial sector reforms Korea, Malaysia, Chinahave experienced the strongest growth performance since the Asian Crisis. However, in all countries debt-to-equity ratios remain high in relation to international norms, nonperforming loans continue to accumulate, and the balance sheets of the financial and corporate sectors are still weak.
A sustained effort is needed to address this agenda.

1. Discuss the Asian Miracle in the light of modern growth theory. 2. What are the modern growth theory associated with the Asian Miracle? 3. How did these theories helped in transforming these economies to relatively modern and affluent economies?