Long-Term Projection for the Growth Pattern and Industrial Structure of the Korean Economy

This paper aims to conduct long-term projections about the organizational changes in the Korean economy and industry. The KIET–DIMM (KIET Dynamic Inter-industry Macroeconomic Model) was developed into KIET–DIMM12 to conduct this research. The KIET–DIMM is basically designed to achieve balance between industrial demands and supplies based on Walras’ general equilibrium theory in microeconomics and the equilibrium over aggregate demand and supply in macroeconomics. The KIET-DIMM12 is updated with population/household block based on KIET–DIMM consisting of demand-supply, price/technology, foreign, and macroeconomy blocks. The GDP average annual growth rate is expected to be 3.75% in the 2010s and 2.87% in the 2020s. The proportion of consumption to GDP is expected to increase from 67.8% in 2010 to 69.6% in 2030 and investment’s proportion to GDP is expected to decrease from 28.3% in 2010 to 26.4% in 2030. In terms of industrial structure, the ratio of the manufacturing industry compared to total industry would be downsized by the decrease in relative prices, while that of the service industry would persistently increase because of some diversified and gentrified service demands and increase in leisure activities. The ratio of exports of the manufacturing industry is expected to increase while that of the service industry would decrease, reflecting the characteristics of domestic oriented industry. On the other hand, the ratio of imports is projected to decrease in the manufacturing industry and increase in the service industry. The growth rate of labor demand is expected to slow down due to sluggish GDP growth, improvement of productivity, and rise of flexibility of the labor market. The policy implications from this research are as follows. It is necessary to narrow the gap between domestic demand and exports to establish countermeasures to alleviate the polarization between light and heavy and chemical industry. Finally, the competitiveness of the service industry must improve to prepare for a service industry-focused expansion of the economy.