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BOK Working Paper No.2020-13, The Effects of Industrial Restructuring on Employment and Growth

Economic Research Institute (82-2-759-5349) 2020.06.23 1546

Title : The Effects of Industrial Restructuring on Employment and Growth

Author : Byeongseon Seo(Korea University), Taekyung Kim(BOK)


In this research, we explored the effects of changes in industrial structure due to industrial restructuring on employment and growth in the Korean economy. To that end, we first checked 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, it was found that changes in the industrial structure had a short-term effect of increasing unemployment, and that the effects of industrial restructuring were even greater during the economic downturn. In light of these points, Lilien’s sectoral shift hypothesis seems to be valid in Korea. Next, we examined the effect of industrial restructuring on economic growth in Korea by analyzing which one between Kuznetz hypothesis and Baumol effect is dominant. As a result of this analysis, the medium- to long-term effects of changes in the industrial structure on the GDP growth rate were revealed to be significant. This shows that Kuznetz hypothesis that the growth rate will improve as the efficiency of resource allocation through industrial restructuring increases holds good in case of the Korean economy.