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Unless something unforeseen happens, Japan's declining birth rate will hurt its potential for future economic growth. Economic growth can come from two sources. It can come from a growing labor force or it can come from increased productivity. There is no reason to believe that there will be huge booms in productivity in a modern economy like Japan's. Therefore, economic growth would have to come from growth in the labor force. With Japan's declining birth rate and its reluctance to allow immigration, Japan's labor force is not likely to grow and is, in fact, likely to shrink. If the labor force shrinks, there will not be any significant growth unless major changes in productivity occur.
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