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Ms. Sonali Jain-Chandra and Ms. Longmei Zhang
Korea’s rapid growth has slowed in recent years, suggesting lower potential growth. This paper uses an array of techniques, including statistical filters, a multivariate model and the production function, to estimate Korea’s potential growth. The main finding is that trend growth has fallen from around 4¾ percent during 2000-07 to around 3¼ -3½ percent by 2011-12. Absent reforms, it is projected to fall further to around 2 percent by 2025, primarily due to declining working-age population. However, Korea’s potential growth can be maintained at a higher level by putting in place a comprehensive structural reform agenda, including increased female and youth labor force participation, liberalization of product and labor market regulation. Staff simulations suggest that such reforms could lift potential growth by around 1¼ percentage point over the next decade, maintaining potential growth at around 3¼ percent, counteracting the effect of population aging, and enabling Korea to continue to converge to income levels of the United States.
International Monetary Fund. European Dept.

the reform, further efforts will likely be needed to close the existing gap in the effective retirement age of around two and eight years compared with OECD average and OECD frontier, respectively. In this regard, the impact of the pension reform should also be assessed over time to ensure it is achieving its aims. In addition, to make sure that the pension reforms yield the expected result, it is key to remove the existing benefits incentive traps for effective early retirement. These include phasing out the extended period of eligibility to unemployment benefits

International Monetary Fund. European Dept.

/ Sources: OECD and Fund staff calculations. 1/ A higher level of PMR indicates more regulation. A negative change implies less regulations. 3. However, a regulatory gap remains between Denmark and the OECD frontier . To assess the regulatory burden in Denmark relative to peer countries, we use OECD indicators (scaled between 0 and 6) of PMR in individual sectors. While these OECD indicators are not perfect measures of the state of regulation in individual countries, they provide a useful cross-country perspective and are arguably the best measure available for

Mr. Derek Anderson

the euro area vis-à-vis the Organisation for Economic Co-operation and Development (OECD) frontier cases. Although some euro area countries (notably, Ireland) are among the OECD best-practice cases, product markets are, on average, more heavily regulated and less open to competition in the euro area than in other advanced economies ( Figure 7.1 , left panel), reflected also in higher price markups, which is a proxy measure for the degree of competition, especially in services ( Figure 7.1 , right panel). Figure 7.1 Selected Indicators of Product Market

International Monetary Fund. European Dept.

’sfinaldemand(backwardlinkages). Source: Fernández Corugedo E. and E. Pérez Ruiz, 2014, “The EU Services Directive: Gains from further Liberalization,” IMF WP 14/113. 3. Benefits of reform . The literature indicates that services sector reforms in France, in particular when combined with regulatory simplification and labor market reforms, would substantially benefit the entire economy, by boosting employment, investment productivity, and exports. A study by Bourlès et al. (2010) estimated that reducing regulation to the OECD frontiers could increase productivity by 3 percent after 5 years. IMF

International Monetary Fund. European Dept.
This Selected Issues paper analyzes structural shocks, productivity, and growth in Finland. Finland has gone from being a top-performing advanced economy to a growth laggard since 2007. The rapid decline of the (previously) high productivity information and communications technology sector in recent years has weighed on overall growth and productivity. An analysis of industry-level data indicates that shifts in the sectoral distribution of labor and capital toward lower productivity sectors are also contributing to slower aggregate productivity growth. Firm-level analysis suggests that the aggregate total factor productivity impact of reallocating resources within sectors is limited, although there is more scope to reallocate resources between sectors.
International Monetary Fund. European Dept.
This paper examines the selected issues related to the economy of Denmark: divergence in house prices, house prices in Denmark's cities, macroprudential policies, and product market reform and firm productivity. Recent house price developments in Denmark have been characterized by a growing divergence between different parts of the country, with big cities experiencing much more rapid price increases than other parts. House price booms and busts in Denmark, like in many other countries, are a big-city phenomenon. Macroprudential policies can help contain risks for households, the financial system, and the broader economy, but they should be carefully calibrated to avoid an undue drag on growth.
International Monetary Fund. European Dept.

will take several years to fully develop and implement. Structural Policy Gap: Finland vs. OECD Frontier (Index: 1=OECD frontier) Sources: OECD and Fund staff calculations. Note: For each indicator, OECD Frontier is set equal to 1, while the worst OECD performer is set equal to zero. OECD Frontiers for the indicators included in the table are defined as follows: the Danish level is used for ALMP per unemployed, OECD average for UI replacement rate and tax wedge, the average level of the three best-performing OECD countries for effective retirement age

International Monetary Fund. European Dept.

Product Market Reforms 8.6 5.5 Labor Market Reforms 26.3 27.6 ALMP 23.5 34.9 Unemp. Benefits ARR 20.2 28.8 EPL 33.6 28.1 Childcare Benefits 41.6 16.7 Pension Reforms 13.4 26.7 Overall Reform Gap 15.6 14.2 Sources: OECD and Fund staff calculations. Notes: OECD structural indicators are converted to indexes with the OECD frontier normalized to 100. Gaps are calculated as the difference between the country’s (or weighted average of countries

Ms. Sonali Jain-Chandra and Ms. Longmei Zhang

. Product Market Regulation in Upstream Network Industries The regulatory environment for upstream service sectors in Korea is very stringent, compared with the OECD frontier . This holds true across the range of network sectors such as telecom, air, electricity rail, road, retails, and banking, suggesting ample room for reforms to boost productivity. The regulation is also more stringent compared to OECD average, although the gap is smaller there. Indicators of regulatory conditions in the 7 key non- manufacturing sectors are from the OECD international product