2003 OECD Economic Surveys: Japan 2003

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Despite recent acceleration of growth in Japan, OECD warns in its 2004 survey that Japan still faces serious structural problems that limit its growth potential and weaken demand.  This report carefully examines such issues as deflation, fiscal sustainability, product market competition, and further structural reforms and makes recommendations to strengthen Japan’s macroeconomic framework.

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Product Market Competition and Economic Performance

The OECD Growth Study and other empirical work have shown that the strength of competition in product markets is likely to play an important role in the process of economic growth. In Japan, policies promoting product market competition have long been compromised by ministerial guidance and explicit exemptions from the competition law. Intense competition is thus lacking in many domestic sectors. As a result, these sectors are characterised by comparatively high prices, weak innovative activity and low levels and growth of productivity. The current allocation of resources thus seems inefficient, partly explaining why the Japanese economy has failed to come out of its quasi-stagnation of the past decade. From a positive perspective, however, this means that potential gains from more pro-competition policies are probably quite large. To realise such gains, the Japanese government has made the promotion of competitive markets one of the cornerstones of its policy to promote economic growth. For example, the resources of the Fair Trade Commission have been increased, and greater impetus has been given to regulatory reforms. However, the legacies of past policies appear difficult to dismantle and progress has been uneven...

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