Japan Economy

James Ruse Agricultural High School

Economics - Preliminary Course 2006

Assessment Task - Group Research

TOPIC: A comparison of the Australian economy with one other economy.

Question 1

Size and structure of the economy, including:

* GDP,

* GDP per capita,

* Relative importance of primary, secondary and tertiary sectors,

* Role of government in the economy, including provision of health care, education and welfare payments,

* Openness (to both trade and financial flows).

Japan and Australia represent two developed economies; in 2005 Japan had the 4th highest GDP (PPP ) in the world ($3.867 trillion), and Australia ranking 18 ($642.7 billion). Although Japan's entire GDP is significantly higher, Australia's per capita GDP score is better.

Japan Australia

GDP (purchasing power parity) $3 867 000 000 000

or ($3.867 trillion) $642 700 000 000

or ($642.7 billion)

GDP (official exchange rate) $4 955 000 000 000

or ($4.955 trillion) $649 900 000 000

or ($649.9 billion)

GDP (real growth rate) 2.1% 2.7%

GDP (per capita)

(purchasing power parity) $30 400 $32 000

GDP (composition by sector)

Primary

Secondary

Tertiary

4.0%

26.4%

69.6%

1.3%

25.3%

73.5%

Figure 1: GDP comparison of Japan and Australia

(Source: CIA World Fact book 2006)

'Agriculture and mining played a significant role in Australia' (Encarta 2006), and is a 'major exporter of wheat, meat, dairy products and wool' (Encarta 2006). These are among the primary industries of Australia, accounting for 6% of GDP. The secondary/manufacturing sector, including iron and steel production has grown to 26% of Australia's 2005 GDP. The tertiary sector, especially the financial sector (22% GDP), has also grown substantially to 70% of GDP. The Japanese primary sector is only 2% of GDP. This is limited to rice, wheat and fishing, because of the scarcity of arable land. The Japanese industrial sector per GDP is similar to Australia (26%). However, Japanese specializes in high-tech production, such as electronics and industrial raw materials. Its services sector is almost 4% higher than ours, including US$3.28 billion from tourism (1999).

The Australian government plays an important role in the economy by resource reallocation, income redistribution and economic stabilization. It levies 'socially undesirable' products such as cigarettes and alcohol, but subsidises other sectors, such as regional businesses, to balance national interests against market drive. Australia's high tax rate for higher income earners (47%) allows money to fund social welfare payments, and reduce income inequality. These include the disability allowance, socials benefits to the unemployed, Medicare and Immunisation Program. 'In 1998, 15% of government expenditure was spent on health care' (Encarta 06). Education is primarily the responsibility of each individual state, but the federal government funds universities and colleges of advanced education; representing 5.25% of GDP spending (2002)

(http://www.abs.gov.au/Ausstats/abs@.nsf/0/5452E7D0387161BACA256BDC0012241C?opendocument).

Historically, Japanese attitudes towards governments were characterized by loyalty and patriotism. Businesses looked to the government for support, and government protected them through legislation. The Ministry of Trade and Industry managed manufacturing industries such as automobiles because of Japan's lack of natural resources. Social welfare legislation such as Livelihood Security Law for Needy Persons and the Law for the Welfare of Disabled Persons helped protect the disadvantaged. 'In 1994 about 6.45% of the annual national budget was allocated or health purposes. A medical insurance system has been in effect in Japan since 1927' (Encarta 06). 'Education in Japan is centralized under the Ministry of Education' (Encarta 06). The Fundamental Law of Education of 1947 enables all students to compete for admission to institutions of higher education. 'In 1995, 4.7% of the state budget was spent on education' (Encarta 06).

Traditionally, Japan is not very open to trade/financial flows. In 2005, Japan exported $550.5 billion f.o.b. compared to only importing $451.1 billion f.o.b. 'The trade deficit was 3.67 billion dollars (2005)' (http://money.inq7.net/topstories/view_topstories.php?yyyy=2006&mon=02&dd=25&file=3v). In general, Japan is protective over its agricultural industries, through tariffs on imports and subsidising local industries. (http://www.ers.usda.gov/Briefing/Japan/policy.htm) In contrast, Australia is much more open. Its imports ($119.6 billion) in 2005 were more than its exports ($103 billion). Australia's 'general tariffs are low and relatively uniform' (http://www.pc.gov.au/inquiry/tariff/draftreport/mediarelease.html), falling 'from 15.6% (1988) to around 5% a decade later' (http://www.abs.gov.au/Ausstats/abs@.nsf/0/D565431DB0675D81CA256BDC0012241E?opendocument). The graph demonstrates how the ratio of imports to GDP has steadily increased over time. Deregulation of financial systems and changes in economic composition have contributed to the increasing openness of Australia compared to Japan.

Question 2

Recent macroeconomic performance, including:

* Rates of economic growth

* Inflation and unemployment rates

* External viability (stability)

The recent macroeconomic