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Article Excerpt
Hegazy Elgazar (*)
Abstract
This paper examines the properties of a dynamic equilibrium model focused on sectoral specialization and dynamic competitiveness in international trade. Factors of competitiveness and growth were broken down into three parameters on the export side, two parameters on the import side, and two parameters on the productivity side. Furthermore, the relation between the growth rate of productivity and the wages index is examined. In the first period, 1960-1972, the rapid change in the structure of Japanese production and the composition of Japanese exports paralleled the rapid structural change in the international market and the rapid change in the prices of Japanese exports, stimulating Japanese exports to the international market. The engine of economic growth here is a significant technological change along with improvement of labor and capital productivity. In the second period, 1973-1996, factors such as improving the quality of production, cumulative experience, and the flexibility of price elasticity were crucial factors in increasing Japanese exports. Despite the decline in growth rate of technological change, the engine continued to grow and was supported by increasing the value of the economies of scale. (JEL F10, C10, O40)
Introduction
The theory of international trade and competitiveness in the economic literature has changed dramatically [Leamer, 1984]. Competitiveness seemed to be a dynamic issue of combining growth with balanced trade. Investment in physical and human capital, technology, and information were the means to change welfare and the level of competition.
In this respect, reallocation of economic resources into more highly value-added sectors seems to be crucial in order to create and sustain the competitiveness and growth of the macro economy. The empirical experiences in recent economic development amply show the importance of this type of reallocation in the economy [Boltho. 1975]. Japan is an outstanding model for this approach. After the Second World War, Japan suffered from weak capital competitiveness. The government's Economic Survey of Japan for 1952 pointed out that "equipment is often old-fashioned, decrepit and inefficient and will not easily permit standardization and mass production." It also noted that the products of heavy industry were typically 30 to 40 percent more expensive than in other countries because of high material costs and low productivity. For instance, by the mid-1950s, productivity in steel was around half that of the U. S., although the wages were still only around one-fifth of U. S. rates.
At the macro level, Japanese wage costs per unit of output were less than half of those in the U. S. and below European levels [Armstrong, 1991]. This means that in the early 1950s, Japan was not a capital-intensitive state. Accordingly, Japan had a disadvantage in producing capital-intensive goods. On the other hand, productivity in cotton-spinning was almost equal to the U.S. level, and much higher than that in Europe. Therefore, Japan probably had an advantage in producing textiles and cotton- based goods in comparison to the US and Europe, the main partners in her foreign trade.
The Japanese government adopted a policy of fostering particular industries for rebuilding and modernizing the industrial sector, causing the economy to recover as a whole [Vaglio, 1988]. Basically, captial-intensive industries such as steel, chemical, and shipbuilding were initially assisted, followed by knowledge-intensive sectors [Grossman, 1990]. Several different policies were used, ranging from market mechanisms to selective government intervention. As a result, by the early 1970s, Japanese shipyards had achieved what is known as Japan's first miracle industry by launching over half the world's ships. (1)
This approach by the Japanese government was also recommended by Perroux [1987, p. 101]:
"The best chances of success will, of course, be obtained by establishing a pole of concentration by choosing the type of focal point appropriate to the set of economic factors or geographical areas considered, and by preparing the immediate environment for outward expansion from that focal point."
Krugman also observes an important result in regards to the dynamic process of competitiveness [1997].
This paper attempts to identify the sources and processes of Japan's high economic growth and competitiveness at the macro level. It also considers the factors that created and supported the high rate of economic growth while simultaneously obtaining a large share in the international market. This paper also investigates the role of internal and external variables such as domestic prices, the quality of industrial production, structural change, relative prices of the national exports, technological progress, product quality, price elasticities of exports, and the income elasticity in the international market. The next section presents a brief overview of the methodology and theoretical specification of the model. The following section describes the data sources and adjustments. Empirical results and factors behind Japanese competitiveness and growth are then explained. The final section summarizes the main arguments of the paper.
The Methodology
The paper will use the post-Keynesian macroeconomic model for the growth in an open economy based on the balance-of-payments constraint [Amable, 1993; Thirlwall, 1979]. In general, the model depends on four kinds of equations. These equations explain the parameters that determine the competitiveness of the economy and the behavior of economic growth in the short and long term.
Exports Function
Exports depend on two types of variables, internal and external:
X = [Y.sup.*[epsilon]] [(P/[P.sup.*]).sup.[eta]] [[OMEGA].sup.[lambda]], (1)
where X is the value of industrial exports; [Y.sup.*] is the value of GDP of the rest of the world; [epsilon] is the income elasticity of exports (> 0); P is the value of the level of prices in the country; [P.sup.*] is the value of the prices in the rest of the world; is [eta] the value of price elasticity of exports ( 0); and [omega] is the value of quality of exports.
Quality of Exports Function
Quality of export is assumed to be a function of accumulated (production) experience and is supposed to have a constant elasticity represented by aggregate production:
[OMEGA] = [K.sup.[upsilon]] = [[integral].sup.t.sub.0] Q([tau])d[tau]], (2)
where [OMEGA] is the quality of exports; K is the cumulative...
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