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Study on the Characteristics and Determinants of High-Growth Regions in the Era of Population Aging

Author Huh Mungu et al. Date 2016.12.28 Page
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The rapid aging of the population is a serious issue for South Korea, as the sudden decline in the size of the working-age population is leading to a shortage of labor necessary to sustain local and national economic growth, while the increasing average age of workers is resulting in decreases in labor productivity. As population aging can pose a serious threat to the competitiveness of a regional or national economy, it is critical for policymakers to intervene in a timely manner by implementing effective measures.  

 

There is indeed a close correlation between demographic structures and economic growth. Population aging is always inversely related to economic growth, at both the local and national levels. The increasing proportion of the elderly in given populations is irrefutably negatively correlated to the rates of growth of the gross domestic product (GDP) and gross regional domestic product (GRDP) of the 205 cities, counties, and boroughs of Korea, and the same goes for the 34 member states of the Organization for Economic Cooperation and Development (OECD). On the other hand, there is a positive correlation between the size of the working-age population and GDP or GRDP growth. Changes in demographic structures, in other words, often serve as decisive factors of national and regional economic growth.  

 

Putting the generality of this phenomenon aside, there are certain Korean cities, counties, and boroughs that are experiencing remarkable economic growth despite the aging of their populations. In this study, our main objective is to identify the characteristics and determinants of the economic growth experienced by these special municipalities, with a view to developing a guideline for other similar regions.  

 

Most of the literature on population aging focuses on how the aging of the population affects the societies and economies of certain nations or communities. There are almost no studies prior to this one that analyze the correlation between population aging and economic growth at the level of basic municipalities.  

 

This study identifies basic municipalities in Korea that are showing clear patterns of growth with respect to three main structures? industrial, demographic, and spatial?and have achieved significant economic growth despite the aging of their populations. In doing so, this study identifies the different types and characteristics of economic growth experienced by these “aged” municipalities, and examines the factors that have contributed to offsetting the losses in labor productivity and thereby raised the rates of these municipalities’ economic growth above those of other regions.  

 

In our analysis, we employ a Solow production function. The (super)high-growth and (super)old municipalities we examine show increases in total productivity, (Y) despite the decline in labor productivity (L) caused by population aging, thanks to increases in technological innovation (A) and/or capital (K). Acknowledging that certain local resources (α) could also be involved besides A and K, on which little statistical information is available, we also conducted a thorough survey of local characteristics and conditions to identify and analyze such resources.