Globalization, Quasi-Rents, and Structural Adjustment: Japan in the 90s

This paper attempts to explain the growth slowdown in Japan as a structural adjustment to the emergence of lower cost producers of manufacture goods. Prior to the 1990s Japan had achieved significant market power and hence profitability in producing various manufacture goods. This profitability led to an allocation of resources towards this sector; indeed, the fraction of resources in the manufacture sector in Japan exceeded that of other countries in a similar stage of development. The emergence of largely populated developing nations, such as China, lowered the profitability of the manufacture sector in Japan, which required a substantial reallocation of labor and capital resources from the manufacture to the service sector. This process of structural adjustment led to the growth slowdown in Japan during the 1990s. The paper contains a thorough analysis of the data to support this argument and develops a model to capture the various dependencies observed in the data and to make the interpretation of the data precise.