Following the start of modern economic growth around the mid-1880s, Japan’s economy continued to substantially lag behind leading economies before World War II, but achieved rapid catch-up after the war. To explain the patterns, we build a dynamic model and examine the role of barriers to technology adoption. We find such barriers hampered catch-up in the prewar period and explain about 40 percent of the postwar miracle. Taking a historical perspective, we argue that factors that acted as barriers include low capacity to absorb technology, economic and political frictions with the outside world, and a lack of competition.
Keywords: Japan; Barriers to technology adoption; Investment specific technology; Catch-up; Postwar miracle
Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.