The Root Cause of Japan's 30-year Stagnation: Implications for the U.S., Europe, and East Asia

Abstract

After decades of spectacular growth, Japan has been stagnant for three decades since 1990. We argue that this reversal of fortune is what one would expect for any country experiencing a population aging as rapid as Japan's. The argument is based on the finding of a negative association, across countries, between growth and aging. We also show that one can exploit this association to predict growth far into the future for a number of countries. China's GDP relative to U.S. GDP for 2050 will be higher than it currently is, but not by much.

Keywords: Japan's stagnation, population aging, demographic transition, China

JEL Classification: J11, O11