Authour: Byeongseon Seo(Korea Univ.), Taekyung Kim(Bank of Korea)

In this research, we explore the effects of changes in industrial structure due to industrial restructuring on employment and growth in the Korean economy. To that end, we first investigate the impact of industrial restructuring on employment through Lilien’s sectoral shift hypothesis, considering the dependence of industrial restructuring on business cycles. As a result of the analysis, we find that changes in the industrial structure have exerted a short-term effect of increasing unemployment, and that the effects of industrial restructuring are even greater during the economic downturn period. In light of these points, Lilien’s sectoral shift hypothesis seems to be valid in Korea. Next, we examine the effect of industrial restructuring on economic growth in Korea by analyzing which one, between the Kuznetz hypothesis and the Baumol effect, is dominant. Empirical results reveal that the mid- to long-term effect of industrial restructuring on GDP growth is significant, which is in accordance with the Kuznets hypothesis, where resource allocation along with industrial restructuring to sectors with high productivity spurs economic growth.