ABSTRACT
This chapter sets out the factors responsible for the change of capital coefficient, and discusses what adjustments became necessary. In the 1970s the economy was beset by a succession of problems – the appreciation of the yen against the dollar, the oil price rises, high inflation, and recession. It might therefore be argued that short-term problems were largely responsible for the fall in the growth rate. The proportion of savings that can be exploited domestically is affected by changes in the terms of trade. A change in the distribution of income is another factor that can affect the rate of savings. If the relative share of profits falls and the relative share of wages rises, a fall in the propensity to save ensues, pushing down the rate of savings. The personal savings rate, which had for a time risen sharply with the fall in the anticipated growth rate, gradually came down as actual growth settled down at a lower rate.
