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Korea's Demographic Transition and Long-Term Growth Projection Based on an Overlapping Generations Model

Kyoo Ho Kwon

KDI Journal of Economic Policy, 2017, vol. 39, issue 2, 25-51

Abstract: This paper employs an Overlapping Generations Model to quantify the impacts of Korea's demographic transition toward an older population on the total output growth rate. The model incorporates the projected population through 2060 according by Statistics Korea. The effects of the low fertility and increased life expectancy rates are studied. The model is considered suitable for analyzing the effects of demographic changes on the Korean economy. Under the assumption that the TFP growth rate will not slow considerably in the future, remaining at 1.3% per annum, the gross output growth rate of the Korean economy is projected to slow to 1.1% per annum in the 2050s, from 4.0% in the 2000s. The shrinking workforce due to the decline in fertility plays a significant role in the deceleration of the Korean economy. The increased life expectancy rate is expected to mitigate the negative effect, but the magnitude of its effect is found to be limited.

Keywords: Computable General Equilibrium Models; Life Cycle; Aggregate Supply; Population Aging (search for similar items in EconPapers)
JEL-codes: C68 E21 J11 (search for similar items in EconPapers)
Date: 2017
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