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BOK Working Paper No.2021-2, A slowdown in GDP Trend Growth in Korea

Economic Research Institute (82-2-759-5473) 2021.01.21 713

Title : A slowdown in GDP Trend Growth in Korea 

Author : Byoung Hoon Seok(Ewha Womans University), Nam Gang Lee(BOK)


Using an unobserved components model that features trend growth as a random walk, we find that GDP trend growth rates had gradually declined from the late 1980s to early 2010s in Korea. To uncover the underlying drivers of the slowdown, we use trend growth accounting. A major, common driver appears to be a significant decline in the growth rate of total factor productivity. In addition, the first gradual decline in trend growth, which started in the late 1980s and continued to 1998, is associated with a drop in working hours by the revised Labor Standard Act in 1989. Sluggish investment growth is behind the second period of the gradual slowdown, from 2001 to the early 2010s. This finding is inconsistent with the hypothesis that the slowdown in GDP trend growth can be attributed to the 1997-1998 Korean financial crisis.