Japanese External Policies and the Asian Economic Developments

Japan has been the world’s largest donor during the last ten years (Chart 1), although Japan’s ODA ratio over GNI remains lower than the UN target of 0.7 per cent (Chart 2). Several features of Japan’s ODA include a) high percentage of loans in particular to Asia (Chart 3) and b) high weighting for economic infrastructures (Chart 4). Asian economies have been getting much more important trade partners for Japan. Among others, China’s share increased in a distinguished manner in the 1990s and recently exceeded a tenth both destination for and source of Japan’s trade (Chart 5). While, there are salient features in the sectoral structure of Japan’s trade with Asian economies. Energy, textiles, food, and electric machinery are dominant goods for export to Japan according to economies (Chart 6). Impact of Japan’s ODA capital flows into seven Asian economies: China, Indonesia, Malaysia, the Philippines, Thailand, Viet Nam and India (Chart 7, Table 2); and that of liberalization of Japanese imports from those economies (Table 3) are compared (Chart 8). Their economy-wide impacts are estimated by a modified version of the GTAP Model with Version 5 database aggregating to 16 regions and 8 sectors (Table 1). Japan’s ODA has a sizeable macroeconomic impact in real GDP, which ranges 0.1 to 1.7 per cent annually (Chart 9-A). While, trade liberalization is effective to improve economic welfare. Utility gains range 0.3 to 2.3 per cent (Chart 9-B), which exceed those according to Japan’s ODA. Variations in those economic impacts are much more significantly observed when those are looked at by the industries (Chart 10). However, it may be noted that these outcomes are partly subject to macroeconomic assumptions underlying the model simulations as shown in Annex Tables.