Economic Experts Warn "If Population Declines and Technology Lags, South Korea's Growth Rate Will Plummet to 0.2% in 30 Years"

Lee Jong-hwa, President of the Korean Economic Association, Warns of Low Growth

[Asia Economy Reporter Seo So-jeong] As the population continues to decline due to low birth rates and aging, it is projected that South Korea's economic growth rate will fall to an average of 0.9% per year in 30 years. There is a warning that if the shortage of labor cannot be replaced by capital and technology, the GDP growth rate could plummet to as low as 0.2%.

On the 2nd, Lee Jong-hwa, President of the Korean Economic Association (Professor at Korea University), presented a paper titled "A Growth Model with Declining Population and Its Application to the Korean Economy" at the '2023 Joint Economics Conference,' revealing these findings.

According to the paper, assuming the future population projections by Statistics Korea and simulating the growth model, the predicted economic growth rate of South Korea until 2060 shows that in the baseline model, the average annual GDP growth rate from 2050 to 2060 is estimated at 0.9%, and the per capita GDP growth rate at 2.3%.

This diagnosis suggests that due to population decline, labor supply and capital investment will decrease, and technological innovation will also regress, potentially plunging the Korean economy into a low-growth trap.

According to the paper, in a model assuming that the rate of technological progress and human capital growth remain at current levels, the GDP growth rate from 2050 to 2060 rises to 1.5%, and the per capita GDP growth rate to 2.9%.

On the other hand, in a model assuming that the physical capital investment rate gradually declines, the GDP growth rate from 2050 to 2060 is analyzed to fall to 0.2%, and the per capita GDP growth rate to 1.5%.

Professor Lee emphasized, "If the Korean economy can maintain high levels of technological progress, qualitative improvement of labor, and physical capital investment rates, and replace the shortage of labor with capital and technology, it can continue to develop along a high growth path." He added, "While quantitative expansion of the labor force is important, it is equally necessary to strengthen human capital, technological innovation, and physical capital accumulation."