## _wp1454

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---

### I. Introduction
- Korea’s per capita income rose from around 11 percent of the United States level in 1970 to 65 percent by 2012.
- Real GDP growth slowed from almost 10 percent during 1981−1990 to around 3 percent during 2011–12.
- Paper objectives:
  - Estimate Korea’s potential growth using multiple techniques.
  - Analyze whether potential output was affected by the 2008 crisis.
  - Provide illustrative scenarios of structural reforms (labor: female and youth participation, employment protection legislation; product market deregulation; service sector productivity) and quantify their impact on potential growth.
- High-level preview finding:
  - Trend growth fell from around 4¾ percent during 2000−07 to around 3¼−3½ percent by 2011−12; absent reforms it is projected to fall to around 2 percent by 2025, but comprehensive structural reforms could lift potential growth by around 1¼ percentage point over the next decade.

### II. Estimating Potential Output — Methodologies Employed
- Rationale:
  - Potential output is unobservable; combining multiple approaches reduces reliance on any single method.
- Methods used:
  - Univariate statistical filters: Hodrick-Prescott (HP) filter, Baxter-King (BK) filter, Christiano-Fitzgerald (CF) filter; applied to quarterly GDP data from 1990 to end-2012 using the standard 1600 smoothing parameter for quarterly data.
  - Univariate and bivariate state-space models with the Kalman filter: trend output follows a local linear trend (trend growth rate follows a random walk); output gap follows an AR(1); bivariate adds a backward-looking Phillips curve.
  - Multivariate filter (Benes et al (2010) framework): small macroeconomic model with IS curve, Phillips curve, Okun’s law, and capacity utilization; output gap estimated as common latent factor; parameters estimated using Bayesian techniques.
  - Production function approach (Cobb-Douglas):
    - Capital share assumed to be 1/3.
    - Capital stock constructed using perpetual inventory method with 5 percent depreciation rate.
    - Human capital: weighted average of primary, secondary and tertiary years of schooling; weights are Mincerian coefficients from Psacharopuolos (1994).
    - Annual data from 1990 to 2014 (2013 and 2014 based on World Economic Outlook projections).
    - HP filter used to estimate trend growth of components; TFP calculated as residual.

### III. Estimation Results — Filters and Models
- Filters and state-space models:
  - HP filter shows potential growth rate had fallen to around 3.1 percent by 2011−12.
  - CF filter and state-space models confirm fall to around 3¼ percent.
- Multivariate filter:
  - MV filter yields an estimate of around 4 percent for potential growth in 2012, implying a smaller drop than univariate filters.
  - MV filter indicates the output gap is negative.
- Production function decomposition (potential growth contributions by period):
  - 1991-1996: Potential growth rate 7.1; Total Factor Productivity 0.8; Physical Capital Stock 3.8; Human Capital Stock 1.6; Labor 1.0.
  - 1997-2001: Potential growth rate 4.6; Total Factor Productivity 1.3; Physical Capital Stock 2.1; Human Capital Stock 0.6; Labor 0.6.
  - 2002-2007: Potential growth rate 4.0; Total Factor Productivity 1.2; Physical Capital Stock 1.8; Human Capital Stock 0.5; Labor 0.5.
  - 2008-2009: Potential growth rate 3.6; Total Factor Productivity 1.0; Physical Capital Stock 1.3; Human Capital Stock 0.5; Labor 0.7.
  - 2010-2012: Potential growth rate 3.3; Total Factor Productivity 0.9; Physical Capital Stock 1.2; Human Capital Stock 0.5; Labor 0.7.
- Table 2 — Summary of potential growth estimates (by method and period):
  - Statistical Filters average: 1991-1997 7.0; 1997-2001 5.1; 2002-2007 4.5; 2008-2009 3.2; 2010-2012 3.3.
  - Hodrick Prescott Filter: 7.1; 5.2; 4.5; 3.4; 3.2.
  - Baxter King Filter: 6.8; 5.1; 4.5; 3.5; 3.2.
  - CF Filter: 7.3; 4.9; 4.6; 3.4; 3.3.
  - Univariate Filter: 6.8; 5.1; 4.5; 3.1; 3.3.
  - Bivariate Filter: 7.1; 5.1; 4.5; 3.1; 3.3.
  - Multivariate Filter: 7.1; 5.0; 4.3; 3.1; 3.5.
  - Production Function: 7.1; 4.6; 4.0; 3.6; 3.3.
  - Average across methods: 7.1; 4.8; 4.3; 3.4; 3.3.
  - Actual Growth by period: 7.8; 4.7; 4.8; 1.3; 4.0.
- Synthesis:
  - Trend growth has fallen from around 4¾ percent during 2000−07 to around 3¼−3½ percent by 2011−12.
  - Since the global financial crisis, Korea’s potential growth has dipped but not as much as some other advanced countries, because the crisis did not seriously damage major sectors of the economy.

### IV. Drivers of the Decline and Projection Without Reforms
- Production function interpretation of drivers:
  - Sharp decline in potential growth after the Asian financial crisis driven by rapid decline in growth rate of physical capital and moderate decline in labor inputs.
  - Continued decline since the Asian crisis driven by reduction in contribution from labor input and physical capital stock.
  - Capacity utilization has held up.
  - Growth in physical capital stock continued to decline due to correction of pre-crisis overinvestment and outward FDI.
  - Contribution of TFP growth has continued to increase over the last decade and helped shore up potential growth.
  - Measuring labor input by total working hours (downward trend) leaves overall potential growth level largely unchanged, but reduces labor’s contribution and increases TFP’s contribution.
- Projections without reforms (production function approach, demographic and other assumptions):
  - Potential output will fall to around 2.4 percent by 2020.
  - Potential output will fall further to around 2 percent by 2025.
  - In this scenario, GDP per capita will remain stagnant at the current level of around 64−65 percent of United States GDP per capita.
- Context and corroboration:
  - Korea Development Institute estimates Korea’s potential growth will drop below 2 percent in the 2030s.
  - Bank of Korea estimated potential growth had fallen to around 3.3−3.8 percent (based on 4 different methods) by 2010−12 from around 6¾ percent during the 1990s.

### V. Reform Scenarios and Quantitative Illustrations
- Overview:
  - Simulations quantify benefits from key structural reforms: increasing female and youth labor force participation; reforming Employment Protection Legislation (EPL); fostering greater competition in network service sectors.
  - Comprehensive structural reform agenda could lift potential growth by around 1¼ percentage point over the next decade and maintain potential growth at around 3¼ percent.

- A. Increasing Female and Youth Labor Force Participation
  - Context:
    - Working age population projected to start declining "by as soon as 2016"; working hours have been on a declining trend.
    - Women and youth remain underrepresented in the workforce.
  - Key statistics:
    - Female labor force participation rate was around 59.6 percent in 2012 compared to the OECD average of around 65 percent, and 70−80 percent in the most advanced countries.
    - The gap in female participation is largest for the 30−39 age group.
    - Participation rate gaps for young males are very large compared with OECD peers due to high enrolment in tertiary education, mandatory military service and a widening skills mismatch.
  - Simulation assumptions and outcomes:
    - Without reform, the labor force would fall from 25 million in 2013 to 23 million by 2025.
    - Simulations assume rising female participation rates until 2033 to narrow the gap between male and female participation rates by 0.66 percentage point a year.
    - A boost from increased female participation could lead to a slight rise in the labor force to around 25.6 million, more than counteracting the effect of aging.
    - Incremental gains would lead to a rise in potential growth by around 0.3 percentage point per year over the projection period (relative to a baseline where female participation rates remain unchanged at the 2012 level).
    - If more of the youth (age group 20−29) are brought into the workforce to close the gap over 20 years, potential output will rise by an additional 0.1 percentage point per year.
  - Policy notes:
    - A 2010 government survey cited family and child related responsibilities, including child care and children’s schooling, as precluding labor force participation in the 30−39 age cohort.
    - The government target to boost female labor force participation to 60 percent by 2014 has almost been achieved.
  - Footnote context:
    - OECD estimates: if participation rates remain at current levels the labor force would peak at 27.2 million in 2022 and then fall to 21.5 million in 2050. Raising female participation rates to the level of male participation rates would lead to working population falling to only 25.6 million.

- B. Reforming Employment Protection Legislation (EPL)
  - Context and mechanism:
    - Korea has more stringent employment protection than the OECD average (relates to regular workers and not non-regular workers).
    - High employment protection has contributed to labor market duality, with firms preferring non-regular workers and providing inadequate training for them.
  - Empirical specification and key parameters:
    - Economy-wide productivity P depends on its own lag, the degree of employment protection EPLR, and the productivity level in the frontier economy P*.
    - β captures the negative impact of EPLR on productivity and is estimated to be -0.174.
    - λ measures the extent to which employment protection constraints labor turnover and is the weighted average of industry level layoff rate above 4 percent with weights equal to industry value added shares; the U.S. industry layoff rate is used as proxy for the natural layoff rate.
  - Industry structure relevance:
    - Korea’s EPL-binding extent is the highest in OECD, reflecting notably the high share in value added of the “Electrical and optical equipment” sector (more than 6.5 percent of GDP in 2005 compared to less than 1.5 percent in the U.K. and the U.S.), a sector with very high natural lay-off rate.
  - Simulation results:
    - If the level of employment protection in Korea converges to the average of the three lowest in the sample by 2020, the gains in TFP level will accrue to around 1.2 percent after 10 years.
    - This corresponds to an annual increase in potential growth of around 0.2 percentage points after the phase-in of the first five years of reform.

- C. Fostering Greater Competition in Network Service Sectors
  - Context and channels:
    - Product market regulatory reform in upstream network service sectors (energy, transport, communication, retail trade, professional services, banking) can boost downstream aggregate labor productivity by lowering intermediate input prices.
    - The OECD indicator for upstream sectors relates to entry regulation, public ownership, market structure and, where relevant, vertical integration.
  - Regulatory assessment:
    - The regulatory environment for upstream service sectors in Korea is very stringent compared with the OECD frontier and more stringent than the OECD average.
  - Empirical framework and coefficients (Bourlès et al (2010) approach):
    - Change in factor productivity MFP in sector j depends on frontier productivity growth, the distance to the frontier (gap), lagged upstream regulatory burden REG and its interaction with the distance to frontier, plus sector and country fixed effects.
    - Coefficients used:
      - Frontier productivity pass-through ρ(1) = 0.122.
      - Coefficient on the gap ρ(2) = 0.032.
      - Coefficient on regulatory burden ρ(3) = -0.124.
      - Coefficient on the interaction term ρ(4) = 0.132.
  - Simulation results:
    - If the regulatory burden in upstream sectors in Korea converges to the average of the three best performing (most competitive) economies in OECD by 2020, the gains in TFP level will accrue to around 3½ percent after 10 years.
    - This implies an annual increase in potential growth of around ½ percentage point after the phase-in of the first five years of reform.
    - More front-loaded reform will yield higher benefits.
    - The estimated TFP gain is a lower bound because it only accounts for indirect effects on downstream sectors and ignores possible direct productivity gains in upstream sectors.
  - Sectoral productivity gap:
    - Productivity in services is only around 53 percent of manufacturing in Korea.
    - The corresponding gap in the OECD (average) is around 87 percent.
  - Policy implications:
    - Closing the services–manufacturing productivity gap requires leveling the playing field between manufacturing and services through taxation, deregulation to foster competition, and higher investment in services (investment in services currently lags investment in manufacturing).

### VI. Concluding remarks
- Main findings on trend potential growth:
  - 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.
  - GDP per capita would remain at around the current level of 65 percent of the United States, stalling convergence with the United States.
- Impact of comprehensive structural reform agenda:
  - Policies include increased female and youth labor force participation, easing product market regulation, reduced employment protection and reforms to boost service sector productivity.
  - Staff simulations suggest sustained and comprehensive structural reforms, including some already in train, could lift potential growth by around 1¼ percentage point over the next decade, essentially maintaining potential growth at around 3¼ percent and enabling Korea to continue to converge to income levels of the United States (and attain 72 percent of U.S. income levels).
  - Additional reforms could enable even greater convergence.

*Source: IMF Working Paper WP/14/54 — How can Korea Boost Potential Output to Ensure Continued Income Convergence? (Sections 1–2).*

### Section 1

### _wp1454 - Section 1

### I. Introduction
- Korea’s per capita income rose from around 11 percent of the United States level in 1970 to 65 percent by 2012.
- Real GDP growth slowed from almost 10 percent during 1981−1990 to around 3 percent during 2011–12.
- Paper purpose:
  - Estimate Korea’s potential growth using multiple techniques.
  - Analyze whether potential output was affected by the 2008 crisis.
  - Provide illustrative scenarios of structural reforms (labor: female and youth participation, employment protection legislation; product market deregulation; service sector productivity) and quantify their impact on potential growth.
- Key high-level finding preview: trend growth fell from around 4¾ percent during 2000−07 to around 3¼−3½ percent by 2011−12; absent reforms it is projected to fall to around 2 percent by 2025, but comprehensive structural reforms could lift potential growth by around 1¼ percentage point over the next decade.

### II. Estimating Potential Output — Methodologies Employed
- Rationale:
  - Potential output is unobservable; combining multiple approaches reduces reliance on any single method.
- Methods used:
  - Univariate statistical filters: Hodrick-Prescott (HP) filter, Baxter-King (BK) filter, Christiano-Fitzgerald (CF) filter; applied to quarterly GDP data from 1990 to end-2012 using the standard 1600 smoothing parameter for quarterly data.
  - Univariate and bivariate state-space models with the Kalman filter: trend output follows a local linear trend (trend growth rate follows a random walk); output gap follows an AR(1); bivariate adds a backward-looking Phillips curve.
  - Multivariate filter (Benes et al (2010) framework): small macroeconomic model with IS curve, Phillips curve, Okun’s law, and capacity utilization; output gap estimated as common latent factor; parameters estimated using Bayesian techniques.
  - Production function approach (Cobb-Douglas):
    - Capital share assumed to be 1/3.
    - Capital stock constructed using perpetual inventory method with 5 percent depreciation rate.
    - Human capital: weighted average of primary, secondary and tertiary years of schooling; weights are Mincerian coefficients from Psacharopuolos (1994).
    - Annual data from 1990 to 2014 (2013 and 2014 based on World Economic Outlook projections).
    - HP filter used to estimate trend growth of components; TFP calculated as residual.

### III. Estimation Results — Filters and Models
- Filters and state-space models:
  - HP filter shows potential growth rate had fallen to around 3.1 percent by 2011−12.
  - CF filter and state-space models confirm fall to around 3¼ percent.
- Multivariate filter:
  - MV filter yields an estimate of around 4 percent for potential growth in 2012, implying a smaller drop than univariate filters.
  - MV filter indicates the output gap is negative.
- Production function decomposition (Table 1; potential growth contributions by period):
  - 1991-1996: Potential growth rate 7.1; Total Factor Productivity 0.8; Physical Capital Stock 3.8; Human Capital Stock 1.6; Labor 1.0.
  - 1997-2001: Potential growth rate 4.6; Total Factor Productivity 1.3; Physical Capital Stock 2.1; Human Capital Stock 0.6; Labor 0.6.
  - 2002-2007: Potential growth rate 4.0; Total Factor Productivity 1.2; Physical Capital Stock 1.8; Human Capital Stock 0.5; Labor 0.5.
  - 2008-2009: Potential growth rate 3.6; Total Factor Productivity 1.0; Physical Capital Stock 1.3; Human Capital Stock 0.5; Labor 0.7.
  - 2010-2012: Potential growth rate 3.3; Total Factor Productivity 0.9; Physical Capital Stock 1.2; Human Capital Stock 0.5; Labor 0.7.
- Table 2 — Summary of potential growth estimates (by method and period):
  - Statistical Filters average: 1991-1997 7.0; 1997-2001 5.1; 2002-2007 4.5; 2008-2009 3.2; 2010-2012 3.3.
  - Hodrick Prescott Filter: 7.1; 5.2; 4.5; 3.4; 3.2 (periods as above).
  - Baxter King Filter: 6.8; 5.1; 4.5; 3.5; 3.2.
  - CF Filter: 7.3; 4.9; 4.6; 3.4; 3.3.
  - Univariate Filter: 6.8; 5.1; 4.5; 3.1; 3.3.
  - Bivariate Filter: 7.1; 5.1; 4.5; 3.1; 3.3.
  - Multivariate Filter: 7.1; 5.0; 4.3; 3.1; 3.5.
  - Production Function: 7.1; 4.6; 4.0; 3.6; 3.3.
  - Average across methods: 7.1; 4.8; 4.3; 3.4; 3.3.
  - Actual Growth by period: 7.8; 4.7; 4.8; 1.3; 4.0.
- Synthesis:
  - Trend growth has fallen from around 4¾ percent during 2000−07 to around 3¼−3½ percent by 2011−12 (as stated in paper summary).
  - Since the global financial crisis, Korea’s potential growth has dipped but not as much as some other advanced countries, because the crisis did not seriously damage major sectors of the economy.

### IV. Drivers of the Decline and Projection Without Reforms
- Production function-based interpretation:
  - Sharp decline in potential growth after the Asian financial crisis driven by rapid decline in growth rate of physical capital and moderate decline in labor inputs.
  - Continued decline since the Asian crisis driven by reduction in contribution from labor input and physical capital stock.
  - Capacity utilization has held up.
  - Growth in physical capital stock continued to decline due to correction of pre-crisis overinvestment and outward FDI.
  - Contribution of TFP growth has continued to increase over the last decade and helped shore up potential growth.
  - Measuring labor input by total working hours (downward trend) leaves overall potential growth level largely unchanged, but reduces labor’s contribution and increases TFP’s contribution.
- Projections without reforms (production function approach, current demographic trends from UN population projections, constant participation rates, contributions of physical capital stock and human capital at 2012 level):
  - Potential output will fall to around 2.4 percent by 2020.
  - Potential output will fall further to around 2 percent by 2025.
  - In this scenario, GDP per capita will remain stagnant at the current level of around 64−65 percent of United States GDP per capita.
- Context and corroboration:
  - Korea Development Institute estimates Korea’s potential growth will drop below 2 percent in the 2030s.
  - Bank of Korea estimated potential growth had fallen to around 3.3−3.8 percent (based on 4 different methods) by 2010−12 from around 6¾ percent during the 1990s.

### V. Reform Scenarios and Quantitative Illustrations (overview from Section start)
- The paper will quantitatively illustrate benefits from key structural reforms using scenario analysis, including:
  - Increasing female and youth labor force participation.
  - Reforming Employment Protection Legislation.
  - Fostering greater competition in network service sectors.
- Staff simulations (summary preview):
  - Comprehensive structural reform agenda (increased female and youth labor force participation, liberalization of product and labor market regulation) could lift potential growth by around 1¼ percentage point over the next decade.
  - Such reforms could maintain potential growth at around 3¼ percent, counteracting the effect of population aging and enabling continued income convergence to United States levels.

*Source: IMF Working Paper WP/14/54 — How can Korea Boost Potential Output to Ensure Continued Income Convergence? (Section 1).*

### Section 2

### _wp1454 - Section 2

### A. Increasing Female and Youth Labor Force Participation
- Context and challenge:
  - Working age population is projected to start declining "by as soon as 2016" and working hours have already been on declining trend.
  - Certain segments remain underrepresented in the workforce, notably women and youth.
- Key statistics:
  - The labor force participation rate for women was around 59.6 percent in 2012 compared to the OECD average of around 65 percent, and 70−80 percent in the most advanced countries.
  - The gap in female participation is largest for the 30−39 age group.
  - Participation rate gaps for young males are very large compared with OECD peers due to high enrolment in tertiary education, mandatory military service and a widening skills mismatch.
- Simulation results and scenarios:
  - Without reform, the labor force would fall from 25 million in 2013 to 23 million by 2025.
  - Simulations assume rising female participation rates until 2033 to narrow the gap between male and female participation rates (by 0.66 percentage point a year).
  - A boost from increased female participation could lead to a slight rise in the labor force to around 25.6 million, more than counteracting the effect of aging.
  - Such incremental gains would lead to a rise in potential growth by around 0.3 percentage point per year over the projection period (relative to a baseline where female participation rates remain unchanged at the 2012 level).
  - If more of the youth (age group 20−29) are brought into the workforce to close the gap over 20 years, potential output will rise by an additional 0.1 percentage point per year.
- Policy notes:
  - A 2010 government survey cited family and child related responsibilities, including child care and children’s schooling, as precluding labor force participation in the 30−39 age cohort.
  - The government target to boost female labor force participation to 60 percent by 2014 has almost been achieved.
- Footnote simulation context:
  - The OECD estimates that if participation rates remain at their current levels the labor force would peak at 27.2 million in 2022 and then fell to 21.5 million in 2050. Raising female participation rates to the level of male participation rates would lead to working population falling to only 25.6 million.

### B. Reforming Employment Protection Legislation
- Context and mechanisms:
  - Korea has more stringent employment protection than the OECD average (relates to regular workers and not non-regular workers).
  - The OECD indicator measures procedures and costs involved in dismissing regular workers (in individual dismissals not collective).
  - High employment protection has contributed to labor market duality, with firms preferring non-regular workers and providing inadequate training for them.
- Empirical specification and parameters:
  - Economy-wide productivity P depends on its own lag, the degree of employment protection EPLR, and the productivity level in the frontier economy P*.
  - β captures the negative impact of EPLR on productivity and is estimated to be -0.174.
  - λ measures the extent to which employment protection constraints labor turnover and is the weighted average of industry level layoff rate above 4 percent with weights equal to industry value added shares; the U.S. industry layoff rate is used as proxy for the natural layoff rate.
- Industry structure relevance:
  - Korea’s EPL-binding extent is the highest in OECD, reflecting notably the high share in value added of the “Electrical and optical equipment” sector (more than 6.5 percent of GDP in 2005 compared to less than 1.5 percent in the U.K. and the U.S.), a sector with very high natural lay-off rate.
- Simulation results and scenarios:
  - If the level of employment protection in Korea converges to the average of the three lowest in the sample by 2020, the gains in TFP level will accrue to around 1.2 percent after 10 years.
  - This corresponds to an annual increase in potential growth of around 0.2 percentage points after the phase-in of the first five years of reform.
- Literature evidence:
  - Bassanini et al (2009) find excessively stringent employment protection legislation depresses productivity growth in industries with high turnover or where layoff restrictions are most binding.

### C. Fostering Greater Competition in Network Service Sectors
- Context and channels:
  - Product market regulatory reform in upstream network service sectors (energy, transport, communication, retail trade, professional services, banking) can boost downstream aggregate labor productivity by lowering intermediate input prices.
  - The OECD indicator for upstream sectors relates to entry regulation, public ownership, market structure and, where relevant, vertical integration.
- Regulatory environment assessment:
  - The regulatory environment for upstream service sectors in Korea is very stringent compared with the OECD frontier and more stringent than the OECD average.
- Empirical framework and coefficients:
  - Simulations follow Bourlès et al (2010). The change in factor productivity MFP in sector j depends on frontier productivity growth, the distance to the frontier (gap), lagged upstream regulatory burden REG and its interaction with the distance to frontier, plus sector and country fixed effects.
  - Coefficients used:
    - Frontier productivity pass-through ρ(1) = 0.122.
    - Coefficient on the gap ρ(2) = 0.032.
    - Coefficient on regulatory burden ρ(3) = -0.124.
    - Coefficient on the interaction term ρ(4) = 0.132.
- Simulation results and scenarios:
  - If the regulatory burden in upstream sectors in Korea converges to the average of the three best performing (most competitive) economies in OECD by 2020, the gains in TFP level will accrue to around 3½ percent after 10 years.
  - This implies an annual increase in potential growth of around ½ percentage point after the phase-in of the first five years of reform.
  - More front-loaded reform will yield higher benefits.
  - The estimated TFP gain is a lower bound because it only accounts for indirect effects on downstream sectors and ignores possible direct productivity gains in upstream sectors.
- Sectoral productivity gap:
  - Productivity in services is only around 53 percent of manufacturing in Korea.
  - The corresponding gap in the OECD (average) is around 87 percent.
- Policy implications:
  - Closing the services–manufacturing productivity gap requires leveling the playing field between manufacturing and services through taxation, deregulation to foster competition, and higher investment in services (investment in services currently lags investment in manufacturing).

### IV. Concluding remarks
- Main findings on trend potential growth:
  - 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.
  - GDP per capita would remain at around the current level of 65 percent of the United States, stalling convergence with the United States.
- Impact of comprehensive structural reform agenda:
  - Policies include increased female and youth labor force participation, easing product market regulation, reduced employment protection and reforms to boost service sector productivity.
  - Staff simulations suggest sustained and comprehensive structural reforms, including some already in train, could lift potential growth by around 1¼ percentage point over the next decade, essentially maintaining potential growth at around 3¼ percent and enabling Korea to continue to converge to income levels of the United States (and attain 72 percent of U.S. income levels).
  - Additional reforms could enable even greater convergence.

* _wp1454 - Section 2_*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2014/_wp1454.pdf_