How can Korea Boost Potential Output to Ensure Continued Income Convergence?
IMF Working Papers, April 3, 2014
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Bibliographic details
- Authors: Sonali Jain-Chandra, Longmei Zhang
- Published: April 3, 2014
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484350324.001
Key findings
- Trend growth has fallen from around 4¾ percent during 2000-07 to around 3¼ -3½ percent by 2011-12.
- Absent reforms, potential growth is projected to fall further to around 2 percent by 2025, primarily due to declining working-age population.
- Staff simulations suggest a comprehensive structural reform agenda could lift potential growth by around 1¼ percentage point over the next decade, maintaining potential growth at around 3¼ percent and counteracting the effect of population aging.
- Maintaining higher potential growth would enable Korea to continue to converge to income levels of the United States.
Methods and analytical approach
- Uses an array of techniques, including statistical filters, a multivariate model, and the production function, to estimate Korea’s potential growth.
- Employs staff simulations to quantify the impact of structural reforms on potential growth.
Policy recommendations and reform agenda
- Implement a comprehensive structural reform agenda focused on:
- Increased female labor force participation.
- Increased youth labor force participation.
- Liberalization of product market regulation.
- Liberalization of labor market regulation.
- Such reforms are simulated to raise potential growth by around 1¼ percentage point over the next decade.
Subject areas and keywords
- Subject: Employment protection, Labor, Potential output, Production, Productivity, Total factor productivity
- Keywords: Employment protection, Global, income convergence, labor force, OECD employment outlook database, OECD frontier, OECD indicator, physical capital, potential output, product market regulation, production function approach, Productivity, structural reforms, Total factor productivity, WP
Source: Sonali Jain-Chandra and Longmei Zhang, "How can Korea Boost Potential Output to Ensure Continued Income Convergence?", IMF Working Paper No. 2014/054 (April 3, 2014), DOI: https://doi.org/10.5089/9781484350324.001