EXCHANGE-RATE AND ECONOMIC-RECOVERY OF JAPAN IN THE 1930S

This paper investigates why Japan's recovery from the depression of th e early 1930s was so quick. A simple macromodel is constructed and car efully estimated. A dynamic simulation analysis is conducted in order to evaluate various causes of recovery. It is found that the recovery of Japan owed mainly to both deficit spending and expansion of exports , while the contribution of a rise in profit rate (fall in real wage) or low interest rate policy is rather marginal. The expansion of expor ts was ignited by exchange rate depreciation, but their sustained grow th was due to development of markets in colonial and semicolonial regi ons based on capital exports from Japan.