A neoclassical analysis of the postwar Japanese economy

Two key features of the postwar Japanese economy are the rapid economic growth during the 1960's and early 70's and the decline in labor supply during the rapid growth period. Taking the capital stock destruction and total factor productivity (TFP) as given, a standard neoclassical optimal growth model can account for the growth patterns of postwar Japanese capital stock, output, consumption, and investment. The decline in labor during the rapid growth period can be attributed to an income effect that occurs as household consumption rises above its subsistence level in this period.