Banking Crises and â€œJapanizationâ€ : Origins and Implications
Japanâ€™s â€œtwo lost decadesâ€ perhaps represent an extreme example of a weak recovery from a financial crisis, and are now referred to as â€œJapanization.â€ More recently, widespread stagnation in advanced economies in the wake of the global financial crisis led to fears that Japanization might spread to other countries. This study examines the dimensions of Japanizationâ€”including low trend growth, debt deleveraging, deflation, and massive increases in government debtâ€”and analyzes their possible causesâ€”including inadequate macroeconomic policy responses, delayed banking sector restructuring, inadequate corporate investment, loss of industrial competitiveness, a slowdown in total factor productivity (TFP) growth due to excessive regulation and economic rigidities, and an aging society. The study compares Japanâ€™s experience with three other groups that experienced banking crises in the 1990sâ€”developed economies; emerging Asian economies and Latin American economies. Japanâ€™s experience is found to parallel most closely that of other Asian economies that experienced unusually high growth rates of gross domestic product (GDP) and credit before their crises. The study also develops an econometric model of long-term growth rates that uses measures of net investment, the share of the aged in the population, and occurrence of banking crises in addition to traditional explanatory variables. It finds that very low rates of consumer price index (CPI) inflation (or deflation) and net investment, the lack of openness to foreign direct investment, and an aged population explain much of Japanâ€™s slowdown.
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