Description

Korea’s rapid growth has slowed in recent years, suggesting lower potential growth. This paper uses anarray of techniques, including statistical filters, a multivariate model and the production function, toestimate Korea’s potential growth. The main finding is that trend growth has fallen from around4¾ percent during 2000-07 to around 3¼ -3½ percent by 2011-12. Absent reforms, it is projected tofall 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 comprehensivestructural reform agenda, including increased female and youth labor force participation, liberalizationof product and labor market regulation. Staff simulations suggest that such reforms could lift potentialgrowth by around 1¼ percentage point over the next decade, maintaining potential growth at around3¼ percent, counteracting the effect of population aging, and enabling Korea to continue to converge toincome levels of the United States.

More publications in this series: Working Papers

More publications by: Sonali Jain-Chandra ; Longmei Zhang