The Korean Journal of Economic Studies
Growth Model with Declining Population and Its Application to the Korean Economy
Jong-Wha Lee (Korea University)Year 2023Vol. 71No. 1
Facing population decline, Korea is expected to experience a continuous fall in its economic growth rate in the future. This study analyzes the growth path of an economy with a negative population growth rate. The growth model implies that the equilibrium economic growth rate is not determined proportionally to the rate of population growth. Other important factors, such as physical and human capital accumulation, technological progress and elasticity of substitution between physical capital and labor, also play an important role in determining the growth rate. Assuming the future population projections of the National Statistical Office, we simulate the model to predict Korea’s economic growth rates until 2060. Depending on the parameter values, average annual GDP growth in 2050-2060 is estimated to be 0.2-1.5%, and per capita GDP growth is 1.5-3%. The Korean economy can grow on a higher growth path by improving the quality of the labor force and promoting technological progress and investment in physical capital.