A Model of Technology Transfer in Japan's Rapid Economic Growth Period

Why did the Japanese economy stagnate before World War II, how did it achieve rapid economic growth after the war, and why did it stagnate again after the 1970s? To answer these questions, I developed a two-country trade model with technology transfer, where rms in the two countries compete in a Bertrand fashion, where rms in a developed country (the U.S.) transfer technology to rms in a developing country (Japan) if it is protable to do so, and where the technology transfer is the engine of economic growth. In this model, among multiple equilibria, the equilibrium with low labor cost in Japan was chosen during the rapid growth period. As a result, the rms in the developed country transferred technology to the rms in the developing country, resulting in rapid growth. However, during the other periods, the equilibrium with high labor cost in Japan was chosen, which caused stagnation. The model is quantitatively consistent with the per capita GDP relative to the U.S., the purchasing power parity-exchange rate ratio, and to some degree, the swings in labor share of postwar Japan.