Kyooho Kwon examines how Korea’s demographic structure resembles Japan’s, with a 20-year lag, and how productivity growth and solving structural problems are key to maintaining dynamism in the Korean economy. Japan’s “lost decades” and lethargy in Korea’s economy lead some Korean economists to worry that Korea may follow in the footsteps of Japan, with its declining growth rate. Japan’s stagnant total factor productivity growth depressed the demand for labor and capital; and the slower growth rate of the working-age population imposed a constraint on labor supply. These factors together caused the marginal product of capital to fall, dampening the demand for additional capital stock and impeding GDP growth potential. Korea’s demographic structure is evolving in a pattern similar to demographic change and unprecedented aging in Japan and is already playing a role in economic slowdown.
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