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After the Meiji Restoration of 1868, Japan introduced Western institutions and new technologies. As the first Asian economy to make the transformation to ‘modern economic growth’, Japan’s development process was not smooth, and it took until the 1970s to achieve the goal of catching up with Western economies. From a supply-side perspective, the main drivers of economic growth to the 1970s were capital accumulation and TFP growth. From a demand-side perspective, private and government investment played a more significant role than private consumption. After the high-speed growth era, investment and TFP growth slowed down and exports took centre stage in propelling the economy forward. Further, especially since the 1990s, some features that played a key role in Japan’s remarkable economic performance, such as lifetime employment, the dual economy, and the high saving rate, held back Japan. Also, globalization and slow/negative growth in the working-age population have posed new challenges.
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