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Korea: Possible Decline in Growth Potential and Policy Implications

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Frame of Image  sentiment recover, the Korean economy is expected to post negative growth of -0.8 percent in 2009. Per capita GDP also fell to the US$16,000 range due to negative growth and won (KRW) depreciation.
For the Korean economy, this would be the third bout of negative growth since the 1970s. The first setback occurred in 1980 as a poor harvest, political instability, and the second global oil shock converged on the economy all at once, and GDP fell by 1.5 percent. This was followed by a second, more severe plunge of 6.9 percent in 1998 due to massive bankruptcies and layoffs in the wake of the Asian currency crisis. In 2009, negative economic growth is expected as protracted global financial instability saps the vitality of the
36 | www.seriquarterly.com
HWANG Inseong
|Figure 1
Trajectory of Economic Growth since 1970s
|Figure 2
15 10 5 0 -5 -10
(%) USD
Per Capita GDP since 1970s
21,65 19,70 19,09 17,55 16,63 20,000 15,05 25,000 15,000 Global Financial Crisis 10,000 5,000 0 ’71 ’73 ’75 ’77 ’79 ’81 ’83 ’85 ’87 ’89 ’91 ’93 ’95 ’97 ’99 ’01 ’03 ’05 ’07 ’09 ’04 ’05 ’06 ’07 ’08 ’09
The Second Oil Shock
Asian Currency Crisis
Source: Bank of Korea, ECOS DB; Samsung Economic Research Institute
nation’s economy. For example, facilities investment fell 20.2 percent year-on-year in the first half of 2009, and the number employed dropped by 141,000 in the same period. As the economy loses vitality, its potential growth rate is likely to fall significantly.
ciency of institutions). Such potenti


Full Text
Title Korea: Possible Decline in Growth Potential and Policy Implications
Similar Titles
Material Type Articles
Author(English)

Hwang, Inseong

Date 2009
Journal Title; Vol./Issue SERI Quarterly:Jan2009, Vol. 2 Issue 4
Pages 7 p.
Frequency Quarterly
Language English
File Type Documents
Original Format pdf
Subject Economy < General
Holding Business Source Complete

Abstract

The article discusses the factors that influence the decline of the potential growth rate of Korea. It states that the growth rate downturn is due to the lackluster improvement in productivity amid slowing labor and capital input growth. Meanwhile, the decline of potential growth rate after the 1990s is due to the little improvement in productivity and from the declining impetus of labor and capital inputs. Furthermore, the absolute amounts devoted to research and development (R&D) and knowledge competitiveness have fallen short and crimped productivity improvement through technological advances