Future of Economic Growth for South Korea

More than 80 percent of US growth between 1950 and 1993 can be attributed to transition dynamics (increases in R&D intensity and educational attainment), with less than 20 percent of growth deriving from population growth. Similarly, growth accounting shows that 80 percent of economic growth in Korea can be attributed to transition dynamics. However, the specific factors that have moved Korea far from its steady state are significantly different from the factors that have done so for the USA. In addition to the growth rates of the two countries, we also analyzed the (steady-state) level of output per worker to determine where the Korean economy is headed relative to the USA. In 1960, Korea was characterized as poor (0.111) relative to its own steady state (0.765), and incomes were at 11.1 percent of those in the USA. Since then, however, Korea has been growing more rapidly than the USA. In our analysis, we also consider the extreme case where total factor productivity levels converge completely. Interestingly, in this case, the USA and Korea exhibit unconditional convergence similar to what is generally observed in the OECD. As the economy approaches the steady-state income level, however, the growth rate of output per capita will decline.