Potential Growth Rate at the Level of 4% for the Next 10 Years

The analysis was reported that the potential growth rate for the next 10 years will decline to the level of 4% if Korea does not improve the degree of external openness. .

The KDI predicted in the report for `the forecast of potential growth rate during the period from 2003 till 2012` announced on the 17th that the potential growth rate of Korean economy would stay at the level of 5% even under the optimistic scenario. The forecast of KDI, the most renowned government research institute, gets the attention since it has a substantial difference with the declaration and the economic goal of Mr. Noh Moohyun, President-elect “that I will enhance the potential growth rate to 7%.” .

The KDI announced that the potential growth rate was forecasted to indicate a 4.8% and 4.5% during the period between 2003 and 2007 and between 2008 and 2012 respectively in accordance with the results of analysis by `the production function approach` if the improvement of rule and the expansion of external openness would not be made. In addition, if Korea improves the rule and expands the external openness, the potential growth rate is forecasted to indicate 5.4% during the period from 2003 till 2007 and 5.1% during the period from 2008 and 2012, both of which are 0.6% increases compared to the 1st forecast.

The potential growth rate has been in the continuously declining trend at △7.8% in the 1980s, △6.6% during the first half of 1990s, and △6.0% during the second half of 1990s.

The KDI explained, “The results have not been changed much even when other method of analysis was applied.” and added, “It would not be an exaggerated analysis that the potential growth rate of Korean economy would maintain the level of around 5% for 5 years from this year and decline to the level of between 4.0% and 4.5% for 5 years from 2008.”

Mr. Han Jin-hee, Researcher of the KDI, said, “Korea will have to invigorate the production activity and liberate the market for the investment and the service more aggressively.”

Kwang-Am Cheon iam@donga.com