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The Role Of Trade In Japan's Economy

4171 words - 17 pages

The purpose of this paper is to examine the proposition that has been put forth by many that Japan's post-war economic success has been due to a policy of export-led growth. It is important to understand that Japan is currently the second largest economy in the world. Even more, the country enjoyed decades of economic growth following World War II that was unmatched by all other countries around the world (Economic Overview, 2007). However, a determination of whether exports are an important part of this growth requires both an analysis of economic policies and developments in the country, as well as a comparison of these policies to a theoretical framework explaining economic growth.Theoretical Framework of ExportsBlumenthal (1972) explained that exports can be an important part of an economy's growth in three different ways. First, exports are how a country obtains money that contributes to growth in its gross domestic product. In order for a country to see growth in its GDP, it must have a continuous level of exports to foreign countries. In addition, increases in the level of exports from a country actually help to increase the level of production in other industries within the country. For example, a country may have a high level of exports of agricultural products. The exports in the agricultural industry help industries that produce farm equipment, as well as the shipping industry and even the chemical industry that produces the pesticides and fertilisers needed to produce high yields of crops.The third way explains how exports help a country to create a level of trade with foreign countries that in turn bring in new technologies and innovations. As new products are brought into a country through trade, these products can be sold by domestic companies. Even more, they can help to bring in new technologies that can spur innovation from domestic companies (Blumenthal, 1972).However, there is another theory, the theory of trade elasticity, which highlights the fact that as the level of exports from a country grows, the level of imports are also likely to grow because the country will spend more money and have a greater demand for foreign products. This creates an imperfect balance for a country because it may have a high level of exports, but the money earned from these exports will likely fuel a greater desire to purchase foreign-made goods. In order for a country to see continuous growth from exports, it must control the level of buying that takes place from foreign countries. Otherwise, the demand for foreign-made products may increase to the point where the level of imports actually outpaces exports. The result leads to an account deficit, or a balance that is negative, because more money is going out than coming in (Crane, Crowley & Quayyum, 2007).What these theories explain is that if Japan is an export-led economy, then it will have economic policies that encourage export while also attempting to prevent a high level of imports...

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