Title : Eighty Years of the Korean Economy (1970-2050): The Past and a Future Growth Strategy

Author : Taehyoung CHO(Bank of Korea)

The Korean economy showed an annual growth rate of 6.4%p from 1970 to 2022. Among the contributing factors, capital input contributed more than half of that, 3.4%p, and labor inputs and TFP contributed 1.4%p and 1.6%p of that, respectively. While its highest decade of growth was the 1980s, at 9.5% annually, after hitting 8.7% annually in the 1970s, the annual growth rate has continued to fall by 2%p to 2.5%p every decade afterward. This resulted in an annual growth rate of 2.7% in the 2010s and it further declined to 2.1% in the 2020-2022 period after the global pandemic. In the 1990s, declining growth was mainly attributable to a reduction in labor input growth, and in the 2000s after the Asian foreign exchange crisis, the slump in capital investment was the main reason for the fall in growth. In the 2010s, contrastingly, stagnant total factor productivity was the main cause of declining growth.

For the next 30 years, through to 2050, the Korean economy will face negative labor input growth and slumping capital input growth. Therefore, the role of productivity will become more and more important. If TFP growth, on the basis of the medium population projection by Statistics Korea, is maintained at a relatively high level, the economy is expected to grow annually at 2.4% in the 2020s, 0.9% in the 2030s, and 0.2% in the 2040s. However, if TFP growth stays at a low level, it is expected to show 2.1%, 0.6%, and -0.1%, respectively, over the same decades. In order to restore Korea’s economic growth from the long-term perspective, policies to enhance its productivity are, above all, needed by continually shifting toward more high value-added industries and by securing new engines of economic growth, thereby strengthening the economy’s responsiveness to and economic resilience from any future uncertainties. Additionally, measures are also required to increase the qualitative level of labor and capital input by expanding broad intangible assets and human capital, and by upgrading the knowledge accumulation system.