Title: The future of the Korean Economy
1The future of the Korean Economy
- Sehwa Lee, Taizo Suzuki, Wen-Ching Chuang
2Overview of the Korean Economy
3Overview of the Korean Economy (Cont.)
- Inflation rate Unemployment rate
4Challenges for the Future
5Challenges for the Future (2)
- Fertility Rate Population Growth Rate
6The impacts of the changes in population growth
rates
- 1) The sustainable growth rate at the steady
state level - 2) The changes in capital accumulation and
income per worker
7Sustainable growth rate (1)
Investment, Depreciation
8Sustainable growth rate (2)
1996 2005 2010 2020 2030
Population growth rate (n) 0.96 0.44 0.30 0.30 0.00
Real GDP growth rate 7.00 3.96
Technological Progress (g) 6.04 3.52 3.52 3.52 3.52
Steady State growth rate of Y 7.00 3.96 3.82 3.82 3.52
Steady State growth rate of Y/worker 6.04 3.52 3.52 3.52 3.52
9Sustainable growth rate (3)
- Note As Y (y) ( of workers),
- ?Y ?y ?( of workers)
- The decline in the ratio of labor force per
population will have a further negative impact on
the growth rate.
10The change in the standard of living (1)
Assuming other things are all equal
Investment, Depreciation
f(k)
f(k2)
f(k1)
(n2d) k
(n1d) k
sf(k)
k1
k2
Capital per worker (k)
11The change in the standard of living (2)
MPK2
f(k)
Investment, Depreciation
MPK1
sf(k)
k2
k1
Capital per worker (k)
- Lower MPK
- But, still higher capital accumulation
- And, higher standard of living
12The change in the standard of living (3)
The possible consequences of lower population
growth
- Larger deficit w/ burden of social expense
- Growing population w/o income
- Smaller population of future generation
- Lower Savings Rate??
13The change in the standard of living (4)
The historical changes in national savings rate
14The change in the standard of living (5)
The relationship between population growth
rate and national savings rate from 1990
15The change in the standard of living (6)
- Scenario 1 leading to lower standard of living
(n2d) k
(n1d) k
Investment, Depreciation
s1f(k)
s2f(k)
k2
k1
Capital per worker (k)
16The change in the standard of living (7)
Scenario 2 leading to higher standard of living
(n2d) k
(n1d) k
Investment, Depreciation
s1f(k)
s2f(k)
Capital per worker (k)
k2
k1
17The change in the standard of living (8)
- Quantitative simulation 1 (w/o technology growth)
1996 2005 2010 2020 2030
Population growth rate() 0.96 0.44 0.30 0.30 0.00
Depreciation 0.114 0.154 0.143 0.143 0.143
Savings rate() 34.71 32.20 29.20 25.00 20.80
K/worker at the steady state 7.89 4.13 4.00 2.93 2.12
K/worker at the Golden rule steady state 16.36 9.96 11.73 11.73 12.23
18The change in the standard of living (9)
- Quantitative simulation 1 (w/o technology growth)
f(k)
f(k2005)
f(k2010)
f(k2020)
f(k2030)
(nnd) k
snf(k)
Capital per worker (k)
kn
19The change in the standard of living (10)
- Quantitative simulation 2 (w technology growth)
1996 2005 2010 2020 2030
Population growth rate () 0.96 0.44 0.30 0.30 0.00
Depreciation 0.114 0.154 0.143 0.143 0.143
Savings rate () 34.71 32.30 29.20 25.00 20.80
Technological progress () 6.04 3.52 3.52 3.52 3.52
K/ effective worker at the steady state 3.56 2.77 2.60 1.90 1.36
K/ effective worker at the golden rule steady state 7.38 6.67 7.61 7.61 7.87
Y/ effective worker at the steady state 1.89 1.66 1.61 1.38 1.17
Number of effective workers per worker (20051) 1 1.23 1.74 2.46
Y/ worker at the steady state 1.66 1.98 2.40 2.88
20The implications of our analysis
- A low population growth rate has an adverse
impact on sustainable growth at the steady state
level - A lowering population growth rate, accompanied
with a decreasing savings rate, has an adverse
effect on the level of the standard of living
21What should the government do?
- Increase population growth rate
- Change the labor structure
- Improve the pace of technological advancement
- Increase savings rate
22Increase population growth rate
- Increase fertility rate
- subsidy to families with children
- laws friendly to working mothers
- tax reductions
- day-care system
23Change the labor structure
- Now, only 47-50 women participating in labor
force - How to encourage more women to work ?
- Offer various training programs
- Again, day-care center
- Extend the retirement age
24Improve the pace of technological advancement
- Provide tax reduction in RD
- Provide grants for universities or research
institutes - Enforce patent laws, property right protection
regulations
25Increase savings rate
- Tax reduction may be an effective policy to
increase private savings - What kinds of tax should be reduced?
- capital gains tax
- estate tax
- and corporate income tax
26Questions?