|dc.description.abstract||Korea has experienced unprecedentedly rapid decline in fertility rate. The total fertility rate (TFR) in Korea dropped below the level of population replacement (2.1%) in 1983, and recorded 1.08% (in 2005) which is the lowest in the world. Compared with the OECD average of 1.6, it is not likely to change for the considerable length of time. Furthermore, the low TFR in Korea will be a serious problem in the future for the massive accumulation of government burden, sustainability of social security system, and so forth.
Low TRF inevitably causes aging in society, which causes the increase in the average age of the working population. Furthermore, decline in productivity is expected at the end. Also, in the long-run, decline in savings, reduction in tax revenues with increase in government expenditure altogether make the growth potential to decline.
Some of the findings from Granger causality can be summarized as follows: (1) fertility has both short- and long-run effects on the productivity. But productivity does not affect fertility. (2) Fertility and income distribution affect each other mainly in the short-run. (3) Fertility affects growth but economic growth does not affect fertility. In addition, fertility might have long-run effect on economic growth. (4) Productivity and income distribution are mutually dependent. (5) Economic growth and income inequality are mutually dependent.
In this study, we investigated the macroeconomic effects of the low fertility in Korea. With the help of vector autoregression (VAR) and Granger causality analysis techniques, the short- and long-run effects of fertility on income, income distribution, and productivity are investigated. According to the three-variable VAR analyses, fertility affects productivity in the shorter lag (1~5 years), but the effect on income inequality is varied. In the short lag up to four years, the effect is marginally positive, whereas it has negative effects for 5~13 years. Fertility has variable effect on the economic growth up to 4 years, but shows marginally negative effects after 5 years.
There is no immediate policy remedy for the low fertility because fertility has long-run effects on productivity, economic growth and income distribution. The social consideration for the reduction in private child-bearing costs might be a good candidate if it does not require massive government expenditure. Also, job creation for the aged can be a good strategy for the reduction in government burden as well as an increase in the supply of the labor force with good quality.|