Korea’s Growth Prospects: Overcoming Demographics and COVID-19

March 26, 2021

Preview Citation

Format: Chicago

Andrew J Swiston. Korea’s Growth Prospects: Overcoming Demographics and COVID-19, (USA: International Monetary Fund, 2021) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Korea’s economy has leaped to high-income status thanks to several decades of sustained high growth. However, population aging and shifts in global demand provide headwinds for future growth and Korea now faces the effects of COVID-19 on economic activity. This paper asseses the expected drag on potential growth from these factors and discusses policies that could provide offsetting upward momentum by facilitating structural transformation. We find that potential output growth slowed to about 2½ percent before the COVID-19 pandemic and would have fallen to 2 percent by 2030, mainly due to demographic factors. Moreover, there is a possibility of scarring from the COVID-19 shock as adjustment frictions from structural rigidities interact with shifts in demand and supply patterns, lowering investment and labor force participation. At the same time, industry-level analysis suggests ample scope to raise productivity, especially in services where productivity gains have lagged. Addressing these rigidities could offset a large proportion of the expected downward pressure on potential output.

Subject: Capacity utilization, Labor, Labor force participation, Potential output, Production, Total factor productivity

Keywords: Accelerator model, Capacity utilization, Capacity utilization result, COVID-19, Demographics, Global, Growth decomposition, Industry categorization, Korea, Korea's economy, Labor force participation, Multivariate filter, Population aging, Potential growth, Potential output, Productivity, Productivity comparison, Productivity gain, Structural reform, Total factor productivity

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/092
Stock No:

WPIEA2021092
ISBN:

9781513575216
ISSN:

1018-5941

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