Has Foreign Growth Contributed to Stagnation and Inequality in Japan?

36 Pages Posted: 3 May 2016

See all articles by Kazuki Tomioka

Kazuki Tomioka

University of Western Australia

Rod Tyers

Australian National University (ANU) - School of Economics; The University of Western Australia - Department of Economics

Date Written: April 17, 2016

Abstract

This paper examines the contributions of foreign growth (particularly in China), on Japan’s domestic economic performance and inequality. While the standard approach to external sources of inequality has emphasized transmission through trade and labor markets, here the emphasis is on financial flows. We begin by exploring this link using a three factor, three sector, two-region dynamic computable general equilibrium model (CGE), in which the regions are interlinked by both trade and financial flows. To provide an empirical perspective, a lag-augmented vector autoregression (LA-VAR) and a sign restricted vector autoregression (Sign restricted VAR) are estimated. We find convincing evidence through numerical simulations that strong growth in a near neighbor not only retards domestic performance but also raises home inequality. Empirical results suggest that growth in China has a significant delayed effect in aggravating Japanese inequality and its importance in explaining Japanese inequality increases in magnitude over time.

Keywords: Japanese inequality, foreign growth, stagnation, Financial linkages, CGE, lag augmented, sign restriction, VAR

JEL Classification: C32, C68, E25, F21, F41, F60

Suggested Citation

Tomioka, Kazuki and Tyers, Rod, Has Foreign Growth Contributed to Stagnation and Inequality in Japan? (April 17, 2016). CAMA Working Paper No. 21/2016 , Available at SSRN: https://ssrn.com/abstract=2773411 or http://dx.doi.org/10.2139/ssrn.2773411

Kazuki Tomioka

University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
AUSTRALIA

Rod Tyers (Contact Author)

Australian National University (ANU) - School of Economics ( email )

Arndt Building
Australian National University
Canberra, Australian Capital Territory 0200
Australia
61-6-249-5124 (Fax)

The University of Western Australia - Department of Economics ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia
61 8 6488 5632 (Phone)

HOME PAGE: http://www.business.uwa.edu.au/school/staff-profiles?type=profile&dn=cn%3DRodney%20Tyers%2Cou%3DEcon

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