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Long-term growth perspectives in Japan and the Euro area

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  • Christian Dreger

    (German Institute for Economic Research)

Abstract

Euro area countries and Japan are confronted with similar challenges. Potential output is on a declining trend in the Euro area, and the decrease started well before the financial crisis. In Japan, low-output growth is a striking feature since many years, despite the unconventional monetary policy stance and numerous fiscal stimulus programs provided by the government. According to a growth accounting exercise based on a Cobb-Douglas production function, the development in both economies can be traced to a weak evolution of TFP. Weak capital deepening is detected especially in the Euro area. Driven by high uncertainty, the willingness of firms to undertake investment is only modest and constitutes the Achilles’ heel for a smooth recovery. Both economies are not well prepared to manage the demographic challenges caused by an elderly population. Given that debt-to-GDP ratios are already at record heights, the scope for further demand-driven policies is limited, especially in Japan. Instead, structural reforms are on the agenda to promote the framework conditions for higher investment and long-run growth in both regions.

Suggested Citation

  • Christian Dreger, 2017. "Long-term growth perspectives in Japan and the Euro area," Asia Europe Journal, Springer, vol. 15(4), pages 363-375, December.
    • Handle: RePEc:kap:asiaeu:v:15:y:2017:i:4:d:10.1007_s10308-017-0486-1
    DOI: 10.1007/s10308-017-0486-1
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    More about this item

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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