How can Korea Boost Potential Output to Ensure Continued Income Convergence?

Author/Editor:

Sonali Jain-Chandra ; Longmei Zhang

Publication Date:

April 3, 2014

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Korea’s rapid growth has slowed in recent years, suggesting lower potential growth. This paper uses an array of techniques, including statistical filters, a multivariate model and the production function, to estimate Korea’s potential growth. The main finding is that trend growth has fallen from around 4¾ percent during 2000-07 to around 3¼ -3½ percent by 2011-12. Absent reforms, it is projected to fall further to around 2 percent by 2025, primarily due to declining working-age population. However, Korea’s potential growth can be maintained at a higher level by putting in place a comprehensive structural reform agenda, including increased female and youth labor force participation, liberalization of product and labor market regulation. Staff simulations suggest that such reforms could lift potential growth by around 1¼ percentage point over the next decade, maintaining potential growth at around 3¼ percent, counteracting the effect of population aging, and enabling Korea to continue to converge to income levels of the United States.

Series:

Working Paper No. 14/54

Subject:

English

Publication Date:

April 3, 2014

ISBN/ISSN:

9781484350324/1018-5941

Stock No:

WPIEA2014054

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

15

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