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The future of the Korean Economy

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Title: The future of the Korean Economy


1
The future of the Korean Economy
  • Sehwa Lee, Taizo Suzuki, Wen-Ching Chuang

2
Overview of the Korean Economy
  • GDP/ Capita GDP

3
Overview of the Korean Economy (Cont.)
  • Inflation rate Unemployment rate

4
Challenges for the Future
  • Slowing GDP Growth

5
Challenges for the Future (2)
  • Fertility Rate Population Growth Rate

6
The 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

7
Sustainable growth rate (1)
Investment, Depreciation
8
Sustainable 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
9
Sustainable 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.
10
The 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)
11
The 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

12
The 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??

13
The change in the standard of living (4)
The historical changes in national savings rate
14
The change in the standard of living (5)
The relationship between population growth
rate and national savings rate from 1990
15
The 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)
16
The 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
17
The 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
18
The 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
19
The 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
20
The 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

21
What should the government do?
  1. Increase population growth rate
  2. Change the labor structure
  3. Improve the pace of technological advancement
  4. Increase savings rate

22
Increase population growth rate
  • Increase fertility rate
  • subsidy to families with children
  • laws friendly to working mothers
  • tax reductions
  • day-care system

23
Change 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

24
Improve the pace of technological advancement
  • Provide tax reduction in RD
  • Provide grants for universities or research
    institutes
  • Enforce patent laws, property right protection
    regulations

25
Increase 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

26
Questions?
  • Thank you
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