Japan: Investment and Growth
Published: September 2021
The Japanese economy has been growing at less than 1% over the past 20 years. This is a marked fall from its previous trend. This decline cannot be explained by any weakness in business investment, which is little changed as a percentage of GDP. I show that the explanation lies in the fall in tangible investment, the decline in which has been often overlooked as it has been offset by a rise in the share of total business investment taken by intangibles. The trend growth of economies depends on the speed at which the value of the produced capital stock rises. As intangible assets depreciate much more rapidly than tangibles, growth depends on the value of tangible assets. The level of net tangible investment thus determines trend growth. The fall in the trend rate of Japanese growth is thus due to the fall in tangible business investment. This mirrors the similar slowdown seen in the USA.