We have presented in this paper a macroeconometric model for the postwar Japanese economy and applied it to the forcasting simulations of the 1980 national economy. Our econometric model, which has its origin in the DRI model for the U. S. economy, has been characterized as the model of neoclassical type since it is an econometric extension of the neoclassical Solow-Swan model. The Solow-Swan model is a growth model so that our econometric model is characterized also as a growth model. This means that the production function plays a key role in our econometric system. In other words, our econometric model emphasizes especially the automatic growth process of the national economy through the expansion of production capacity caused by the capital accumulation. Without introducing production function, the long-run growth process of the national economy cannot be analized in the proper way, because the accumulated capital cannot have the direct effects on the growth path of the economy. In this sense, it seems natural that our forecasting simulations on the effects of the changes in government expenditures and revenues are completely opposite to the results derived by Shishido (1968) based on the Medium-Term Macromodel which has no explicit production function. His result looks like that of the short-term Keynesian effective demand model in the sense that the increase in government consumption expenditures has expansionary effects while the increase in tax revenues has depressing effects on the national economy. From the quantitative point of view, however, the differences between his analysis and ours may not be important because the changes in government expenditures and/or revenues have only small effects on the rate of growth of GNP. We have, therefore, reached the same conclusion that a higher share of government expenditures in GNP and a greater tax burden could be or will be achieved without causing too much decrease in the overall growth rate of the national economy (other things being equal).
The production function plays a key role also in the other implications of our forecasting simulations for the 1980 economy. As far as the economic structure of the estimation period remain unchanged, the tendency for trend acceleration is expected to be realized in the 1970's. This tendency for trend acceleration will be mitigated by the expected slowdown of the growth in labor supply and in quality indexes of capital and wealth. The effects of these factors are not, however, large enough to change the growth tendency from trend acceleration to trend deceleration. According to our econometric mode', the tendency for trend deceleration seems to to be achieved only by the change in production function through the slowdown of the rate of (capital-augmenting) technical progress which has a close correspondence to the total factor productivity. As is analized in Ohkawa and Rosovsky (1973), the technological gap between Japan and the West is closing rapidly and Japan is expected to reach the point of technological parity sometime in the 1970's. Around this point, Japan will no longer be able to maintain its past rapid progress in technology or in total factor productivity. This means that the production function is highly expected to shift in the downward direction resulting in the trend deceleration in the 1970's. We have, therefore, provided the case of moderate growth (8%-10% in real GNP) as a reasonable result of forecasting for the 1980 national economy.
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