Interaction with the International Economy

During a major part of the 1960s and 1970s the Japanese economy outperformed the other industrial economies in terms of total factor productivity growth, that is, the combined productivity of labour and capital inputs. The 1980s were an eventful decade for the international economy and a momentous one for Japan. Ebullient growth rates and the yen appreciation made it the second largest economy in the world after the United States. The conventional method of comparing the nominal GNP of different countries is to convert the GNP figures in current prices into a common currency using market exchange rates. Accordingly, measured in the European Currency Unit (Ecu) the GNP of the US in 1990 was Ecu 4288 billion and it was the largest economy in the world. Japan stood second with a GNP of Ecu 2335 billion and Germany came next with Ecu 1190 billion.1 However, when measured in constant prices some surprising developments may come to the fore. For instance, the Japanese GNP contracted in 1990 (see above) from Ecu 2625 billion in 1989, thus reducing Japan’s share in the total output of the six largest industrialised countries (the US, Japan, Germany, France, Italy and the UK) from 24.2 per cent in 1989 to 22.5 per cent in 1990. Yet at constant prices Japan’s growth rate, at 5.6 per cent, was the highest of the six countries in 1990.