Crisis and Change : Structural Reform and Economic Growth in Japan and Korea

Abstract

This thesis examines the role of the Japanese and Korean government in stimulating economic growth after crisis; focusing on structural reforms. By the mid-1990s, it became apparent that Japan was suffering an economic slowdown. In 1996, the Hashimoto administration initiated the ‘Big Bang’ program in order to rejuvenate growth, but the program was not successful. In 2002, the Koizumi administration initiated a reform program intended to change the structure of the financial sector. The same year, the Japanese economy started to recover. Crisis struck the Korean economy in 1997. The government was faces with no choice but to request emergency loans from the IMF. The Kim Dae-Jung administration initiated a series of structural reforms in order to aid Korea’s economic recovery. By 2000, the Korean economy’s growth was restored.

My analysis attempts to discover the relationship between these structural reforms and economic growth. The reforms will be analyzed in the framework of two theories on economic growth: the neoclassical theory and the ‘developmental state’ theory. Structural reforms will be analyzed both utilizing within-case study and comparative-case study. I conclude that the Koizumi administration’s structural reforms of Japan’s financial sector affected economic growth by solving the main cause of the slowdown; problems with financial intermediation. The Kim Dae-Jung administration initiated a more extensive restructuring program, targeting not only the financial sector, but also the corporate sector, public sector and labor market. I conclude these structural reforms affected short-term economic growth positively, but may have decreased the prospects of future economic growth.