In recent decades, Japan’s growth rate gradually declined and now lags behind those ofother advanced economies and other Asian nations. Japanese government’s plan to revitalize the nation’s economy stresses population decline and population aging as factors that undermine national growth and development, but also highlights the need to enhance the productivity of human capital through training, economic diversification and technology advancements. Given the closed nature of its island economy, declining birth rates and significant aging of the population, Japan’s human capital-focused approach to economic revitalization requires strong understanding of the roles of human capital, as well as new insights on the opportunities to transform such roles to achieve improved economic development. In this dissertation, I argue that understanding the pattern of productivity growth, the role of immigrants, the quality of human capital and the differentials between Japanese prefectures in development patterns are key to improving the performance of the Japanese economy. I therefore develop three related studies which culminate in three essays. In the first essay, I develop the theoretical framework for growth decomposition and estimate the relationship between economic growth and labor productivity at various scales and identify its determinants. I find that national and regional labor productivities grew over time but their growth rates decreased. I further found that labor productivity measures are positively correlated with physical capital, education and immigrants, but negatively correlated with population aging. In the second essay, I develop the conceptual framework for deeper understanding of the role of population aging in regional economic growth. I invoke the multiple generations model in estimating the impacts of various living Japanese generations on economic growth. I find that as generation Z (Gnz), the base generation, ages, economic output increases at a decreasing rate, peaking at age 36, which is younger than current Japanese median age. This reconfirms the notion that as the Japanese society ages, the average contribution of Japanese people to the economy decreases. However, this is conditional on the distributions of other generations and their ages. The older generations, generation X, the before baby boomer generation and the first baby boomer generation, have positive additional economic contribution. On the other hand, the Yutori generation’s contribution is less than Gnz and the contribution of the second baby boomer generation and generation Y stops growing at their early 20s. These suggest that younger generations are not able to replace the older ones in terms of productivity. In the third essay, I develop the conceptual framework for understanding the relative impact of both immigrants and the native population on regional economic growth. I find that the average impacts of international immigrants and natives are both positive, but that the impacts of natives are larger than those of immigrants. I further find that the impacts of immigrants are increasing over time, while natives struggle to contribute to the economy. Given the closed nature of Japanese economy and historical strictness of immigration rules, it appears that immigrants have the potential to help turn around the economic growth rate slowdown. Attempts by the Japanese government to enhance labor productivity by improving the technology environment, especially through information and communication technology seem justifiable. The findings from my three-pronged essay research make important contributions to the literature on economic transformation and are useful in labor and immigration policy for the future of Japanese society.
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