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The Depressing Effect of Agricultural Institutions on the Prewar Japanese Economy

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  • Fumio Hayashi
  • Edward C. Prescott

Abstract

The question we address in this paper is why the Japanese miracle didn't take place until after World War II. For much of the pre-WWII period, Japan's real GNP per worker was not much more than a third of that of the U.S., with falling capital intensity. We argue that its major cause is a barrier that kept agricultural employment constant at about 14 million throughout the prewar period. In our two-sector neoclassical growth model, the barrier-induced sectoral mis-allocation of labor and a resulting disincentive for capital accumulation account well for the depressed output level. Were it not for the barrier, Japan's prewar GNP per worker would have been close to a half of the U.S. The labor barrier existed because, we argue, the prewar patriarchy, armed with paternalistic clauses in the prewar Civil Code, forced the son designated as heir to stay in agriculture.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12081.

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Date of creation: Mar 2006
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Publication status: published as Hayashi, Fumio and Edward C. Prescott. “The Depressing Effect of Agricultural Institutions on the Prewar Japanese Economy.” Journal of Political Economy 116, 4 (August 2008): 573-632.
Handle: RePEc:nbr:nberwo:12081

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  1. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc.
  2. Vollrath, Dietrich, 2009. "How important are dual economy effects for aggregate productivity?," Journal of Development Economics, Elsevier, Elsevier, vol. 88(2), pages 325-334, March.
  3. Francesco Caselli, 2004. "Accounting for Cross-Country Income Differences," NBER Working Papers 10828, National Bureau of Economic Research, Inc.
  4. R. Anton Braun & Toshihiro Okada & Nao Sudo, 2008. "U.S. R&D and Japanese Medium Term Cycles," Discussion Paper Series, School of Economics, Kwansei Gakuin University 43, School of Economics, Kwansei Gakuin University, revised Oct 2008.
  5. Browning, Martin & Deaton, Angus & Irish, Margaret, 1985. "A Profitable Approach to Labor Supply and Commodity Demands over the Life-Cycle," Econometrica, Econometric Society, Econometric Society, vol. 53(3), pages 503-43, May.
  6. Balke, Nathan S & Gordon, Robert J, 1989. "The Estimation of Prewar Gross National Product: Methodology and New Evidence," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(1), pages 38-92, February.
  7. Hayami, Yujiro & Ogasawara, Junichi, 1999. "Changes in the Sources of Modern Economic Growth: Japan Compared with the United States," Journal of the Japanese and International Economies, Elsevier, vol. 13(1), pages 1-21, March.
  8. Echevarria, Cristina, 1997. "Changes in Sectoral Composition Associated with Economic Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 431-52, May.
  9. Douglas Gollin & Steven Parente & Richard Rogerson, 2003. "Structural Transformation and Cross-Country Income Differences," Levine's Working Paper Archive 506439000000000259, David K. Levine.
  10. King, Robert G. & Levine, Ross & DEC, 1994. "Capital fundamentalism, economic development, and economic growth," Policy Research Working Paper Series 1285, The World Bank.
  11. Godo, Yoshihisa & Hayami, Yujiro, 2002. "Catching Up in Education in the Economic Catch-Up of Japan with the United States, 1890-1990," Economic Development and Cultural Change, University of Chicago Press, vol. 50(4), pages 961-78, July.
  12. Laitner, John, 2000. "Structural Change and Economic Growth," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 67(3), pages 545-61, July.
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