Economics Research Paper on the economic systems of Japan and the U.S

The economic systems of Japan and the U.S


Understanding the economic environment of any given country depends on the capacity to comprehend the historical happenings in the same country and as such determine how the country has been doing economically. Several factors affect the macroeconomic conditions in a country. Some of these factors including the political environment and corruption hamper the growth of the economic sectors of the countries involved. While some underdeveloped countries are still facing challenges that limit their economic growth processes, the developed countries have experienced these challenges in the past. For instance, Japan, within the last two decades has been undergoing tumultuous economic times based on the kinds of economic systems in place in the country. Presently, the economy of Japan is not as strong as that of the U.S in spite of the two countries being considered to be some of the greatly developed countries in the world.

Comparison of the U.S economic systems and those of Japan has been conducted in relatively fewer studies in comparison with the studies that compare the U.S to other countries such as China in terms of the economy. Any understanding of these differences needs to stem from the understanding of how the economic policies and practices of the different countries have contributed to the economic growth or decline thereof. In the ensuing study, the key objective is to provide an overview of how the Japanese economic systems compare with those of the U.S. To accomplish this objective, the study adopts a qualitative secondary approach in examining the historical and contemporary economic turns in the two countries. The study question is therefore: How do the economic systems of Japan and U.S.A compare?

Literature Review

Japan Economy

            OECD provides a description of the Japanese economy from the early 20th Century to later years. According to OECD (2015) the country had undergone slight improvements in economic performance following the Second World War, but this was not sustained through the years. As in the U.S, the Second World War resulted in a lot of negative impacts for Japan and rising from those impacts took significant amount of time. The effects of the more sluggish growth experienced in the last two decades are still in existence, resulting in considerably low growth relative to other countries. Kimura (2009) asserts that the slow growth in Japan’s economy in the last two decades was due to excessive emphasis on the macroeconomic development of the country, which resulted in less attention to the microeconomic factors. In some cases, such emphasis on the macro-economy led to the incurrence of several costs which have not been accounted for.

            One of the key strategies that Japan is said to have used to a limited extent in securing economic growth is the development in Hr practices (Kimura, 2009). Unlike the U.S which had a high economic development background, Japan lost significant amounts of opportunities due to the limited emphasis on the development of educational backgrounds. Discriminative education practices are recognized as some of the potential causes of poor economic development due lack of the matching skill sets from most of the citizens. The introduction of various economic policies in Japan, particularly the industrial policies developed in the 1940s is considered to have been a major economic boost in the country. Such policies were enacted to enhance direct financial initiatives and taxation by the Japanese government on the industrial sector. To enhance industrialization during the same period, Japan also created a policy to provide protection to industrial sector businesses for a given period of time. Development of small and medium sized enterprises also became a focus of the Japanese government for a given period of time to boost the contribution of the sector to the national economy. In line with Kimura (2009), Tsutsui and Mazzotta (2014) also consider the period ranging from 1965 to 1970 to be the major period of economic boost in Japan.

            According to Tsutsui and Mazzotta, this period corresponded to the industrialization period in the country, hence the perceived high economic growth during the period. However, contrary to expectations that the strong economic growth in Japan could be sustainable, the latter years were faced with numerous challenges in the economic context, hence resulting to slow GDP growth rates of approximately 1 to 1.7 % per annum until early in the 21st Century. Japan continued to experience the slow growth rate through the years until 2011, when the tsunami earthquake resulted in great economic declines and GDP losses of 1%, countering what had been achieve in the previous years. Following the tsunami, it became difficult for Japan to stand again in economic essence, a factor that has led the country towards development of new strategies for pursuing economic growth and development.

Cooper (2014) reports on the policies that Japan has been putting in place to ensure that the economic growth experienced is sustainable. According to Cooper (2014), Japan has been making efforts to address the key economic challenge of deflation across the years. OECD (2015) also described the key challenges that the country has been facing and how the country intends to deal with them in the near future. Some of the challenges mentioned include: declining labor force due to high percentages of old population, persistent deflation which is based on the recurring 2% inflation rate in Japan and the need to boost the growth of national economy using structural reforms in various sectors. The ability of Japan to take advantage of the opportunities that the country has in terms of export practices however depends on the new structural reforms that are designed to be put in place for the country. According to Cooper (2014), Japan has initiated many economic reforms which are focused on boosting various economic sectors including the medical services sector, agricultural and electricity sectors. This will in effect increase the Japanese exports to the U.S which include agricultural products, industrial goods and services and developments in the region.

U.S.A Economic Systems

The U.S.A, contrary to the observations made on the economy of Japan has continued on a trail of economic growth following the Second World War. The country currently sits as one of the most economically developed countries in the world. Unlike Japan, the U.S focused on the development of its human resources during the mid 20th Century. Currently, the U.S economy is almost 2.5 times as large as the economy of Japan, driven by factors such as low government spending and high productivity among others (Cooper, 2014). The health and education sectors in the U.S are effective indicators of the economic condition of the country, giving evidence to the continued and sustainable economic growth that the country has been undergoing. Kimura (2009) opines that the economic infrastructure in the U.S has been a strong development lever due to its potential to drive investment initiatives.

The growth of North America and the U.S in particular was enhanced especially after the development of the North American Free Trade Agreement (NAFTA) in 1994 (Blecker, 2003). The agreement fostered trade between different countries in North America while also addressing some of the economic issues and challenges pertaining to the countries involved in the agreement. The agreement codified trade initiatives between countries in the agreement hence fostering economic integration. In effect, trade barriers were removed and opened up many market opportunities. However, some challenges in the labor market, which were not addressed by liberalization of immigration from Mexico could have hindered the countries from obtaining the full benefits of the agreement. One of the major challenges at the time of the agreement’s initiation was that of the labor market shortages (Blecker, 2003). Countries such as the U.S did not have sufficient labor for industrial growth and may have required that some of the Mexicans should not be hindered from engaging in trade within America as well as being involved in employment opportunities in the U.S.

            In later years, similar bilateral trade agreements have sustained economic growth in the U.S. For instance, Tsutsui and Mazzotta (2014) describe bilateral trade relations between Japan and the U.S, whereby the U.S has been engaged in heavy foreign direct investment in Japan. In particular, Japan has gained from the U.S in terms of FDIs including in the real estate industry, manufacturing facilities and businesses. Cooper (2014) strengthens this argument by asserting that in the bilateral trade between the U.S and Japan, U.S mostly takes the role of importation as it gets goods such as office machinery parts, electrical apparatus, and gas turbines, medical and optical equipments among others. On the other hand, the Japanese investors have established strong presence in the U.S where they are engaged in providing a series of portfolio investments (Tsutsui & Mazzotta, 2014).


The study adopted a qualitative approach to entirely define the scope of the problem and to find information relating to the subject of study. The qualitative approach to study is considered an efficient study approach, especially where the goal of study is explorative. In the present study, an explorative approach is deemed more suitable due to the nature of the study objective. To understand the economic systems, it is necessary to explore the underlying economic policies and practices that have been in place in the two countries for some time. While most qualitative studies adopt a primary approach, the present study focuses on a secondary approach to research. In this case, materials are selected from various internet based sources to address the objectives of the study.

To select the most suitable materials for the study, a variety of themes were first formulated to act as guides to the study process. Such themes included: Japanese economy, U.S economy and comparison between the U.S and the Japanese economies. Based on these key themes, materials were searched via Google Scholar, to determine their suitability to the research design and objective. A process of recursive abstraction was used to draw the most relevant information from every piece of literature. The process entails summarizing the information presented in every article while inserting the pieces of information collected into relevant themes for the paper. Once sufficient information has been collected on a particular theme, the other themes were searched and the process repeated. During the searches however, care was taken to ensure that all the sources selected were viable, valid as well as reliable and accurate.

The accuracy of each information source was determined based on the level of support and evidence obtained from other sources. Any material that does not provide linkages to other materials of similar standing was not considered to be valid enough. At the same time, articles that provide information which is contrary to what other articles present were considered inaccurate. Most of the articles accessed were however found to be befitting to the study objective. To determine the reliability of the materials, the sources of the materials selected had to be peer reviewed journals. As such, only journals that provide opportunities for peer review were considered valid for the paper as reliable sources of information, and were selected for use in the study. While using any of the selected sources however, it was important to keep certain ethical practices in place. Secondary study also comes with ethical demands in terms of handling materials and protecting their owners from injustices. For instance, ethical principles require that all secondary sources of information should be used in accordance with copyright laws (Tripathy, 2013). As such, only materials provided online for public use via online means were used as this type of material have an implied permission for use. At the same time, all quotations from any given source were cited accordingly to avoid plagiarism. The materials were also preserved from archiving to avoid instances of unwarranted distribution of materials.

After data collection, the analytical process also involved a summary of the key points collected from the different sources. A consolidated report was then generated from the digestions of different implications by different authors.


The economies of the U.S and Japan are such that they can be considered different to a large extent. While the two countries are both categorized under large and industrialized economies, the manner in which each country achieves its well being is dependent on the resources available in the respective countries. According to Cooper (2014), both countries are capable of providing their citizens with high living standards regardless of the economic situation elsewhere in the world. However, the two countries have undergone different rates of economic growth through the last 20 years, with the U.S attaining almost 2.5 times the economy of Japan. In the contemporary times, Japan thrives well due to exports rather than imports while the U.S thrives well due to imports and foreign direct investments (Cooper, 2014). The combination of recession and natural disasters in the last two decades contributed significantly to the sluggish economic growth rate.

The U.S experienced significant growth in various sectors due to the economic and fiscal policies put in place. The economic growth in the U.S was steered by hiked government spending to generate higher GDP. On the other hand, increase in government spending in Japan resulted in the increase of public debt to almost 226% of the national GDP (OECD, 2015). As the U.S engaged in more productive human resources practices, Japan continued to practice discriminative education. This gives the rationale provided by Kimura (2009) that discriminative education was one of the factors that slowed down economic growth in Japan. This, together with other bottlenecks such as poor economic infrastructure and high deflation rates resulted in the observed slow growth of the Japanese economy. However, in contemporary times, the U.S economy continues to raise questions as to its sustainability given the level of dependence that the country has on imports.

Sustainable economic growth has been described to be dependent on a virtuous circle of wage rise, increased product prices and better corporate earnings. The same has been practiced significantly in the U.S but to only a limited extent in Japan. In particular low labor mobility in Japan has been the core cause of the limitations in the virtuous circle. As fewer people are working due to higher percentages of old population, Japan faces lower general productivity. The country has therefore put in place measures to enhance economic growth through reforms. According to OECD (2015), some of the reforms initiated include corporate governance reforms, promotion of venture businesses, reforms in the corporate tax sector, stimulation of growth in science and technology through innovations, development of an aggressive agricultural policy to boost domestic agricultural produce and thus enhance the surplus produce issued to the market, opening up the healthcare industry and enhancing the quality of services in the industry, promotion of public funds management and attraction of talent from other countries. Such initiatives are continuing to yield fruit. For instance, the agricultural sector in Japan has improved significantly, resulting in more surpluses. The U.S and other countries therefore import agricultural produce, besides the industrial machinery from Japan. Other initiatives in Japan have also yielded significant fruit. Innovation in science and technology has yielded growth in the industrialization sector, especially fostered by government support in the sector. For instance, as in the U.S, Japan began to provide support to the development of SMEs in the industrialization sector.

As the U.S economy continues to grow, the U.S accesses more products from Japan and from other countries in the form of imports. This may appear to be signs of unsustainable economic growth. On the contrary, the U.S prides itself in preserving the domestic resources while utilizing the resources imported from other countries. This implies that contrary to expectations, the U.S is actually building up domestic resource reserves in various areas of the economy.


The economies of the U.S and Japan have taken different paths since the Second World War. While the U.S economy has been on a path of prolific growth, the Japanese economy has been somewhat slow in growth. The rates of economic growth were different across the countries due to different bottlenecks in economic growth. While the U.S experienced a well developed human resources sector in the last 20 years, Japan has been battling with a bottleneck in human resources development, arising from discriminative education in the country. As expected therefore, Japan’s economy somehow slowed down due to this low productivity. Additionally, other factors such as high deflation and natural disasters like the tsunami resulted in unsustainable economic growth. As Japan puts in place initiatives to boost economic growth through various structural reforms, the U.S continues to advance economically in spite of the importation practices in the country.


Blecker, R.A. (2003). The North American economies after NAFTA. International Journal of Political Economy, 33(3): 5- 27. Retrieved from

Cooper, W. (2014, February 18). U.S – Japan economic relations: significance, prospects and policy options. Congressional Research Service. Retrieved from

Kimura, F. (2009). Japan’s model of economic development. United Nations University Research paper No. 2009/22. Retrieved from

OECD (2015). OECD economic surveys: Japan April 2015 overview. Retrieved from

Tripathy, J.V. (2013). Secondary data analysis: Ethical issues and challenges. Iranian Journal of Public Health, 42(12): 1478- 1479. Retrieved from

Tsutsui, W.M. and Mazzotta, S. (2014). The bubble economy and the lost decade: Learning from the Japanese economic experience. Journal of Global Initiatives: Policy, Pedagogy, Perspectives, 9(1): 57- 74. Retrieved from