Study on the Characteristics and Determinants of High-Growth Regions in the Era of Population Aging Mungu Huh et al.* Chapter 1. Research Background and Purpose The rapid aging of the population is a serious issue for South Korea, as the sudden decline in the size of the working-age pop- ulation is leading to a shortage of labor necessary to sustain local and national economic growth, while the increasing average age of workers is resulting in decreases in labor productivity. As pop- ulation aging can pose a serious threat to the competitiveness of a regional or national economy, it is critical for policymakers to intervene in a timely manner by implementing effective measures. There is indeed a close correlation between demographic struc- tures and economic growth. Population aging is always inversely related to economic growth, at both the local and national lev- * Mungu Huh, Hyunwoo Kim, Jeonghong Kim, Hayool Song, Sangho Lee, Doohee Lee, Junho Jeong, Daegi Min, Hideki Endo Study on the Characteristics and Determinants of High-Growth Regions in the Era of Population Aging 339 els. The increasing proportion of the elderly in given populations is irrefutably negatively correlated to the rates of growth of the gross domestic product (GDP) and gross regional domestic product (GRDP) of the 205 cities, counties, and boroughs of Korea, and the same goes for the 34 member states of the Organization for Eco- Figure 1. Population Aging and Economic Growth (A) 34 OECD member states (B) 205 cities, counties, and boroughs of Korea South Korea Rate of Rate of increase increase in GRDP in GDP (five-year average) Rate of increase in proportion of Proportion of elderly population elderly population (five-year average) Figure 2. Working-Age Population and Economic Growth (A) 34 OECD member states (B) 16 cities and provinces of Korea South Korea Chile Chungnam Gyeonggi Estonia Israel Turkey Rate of Rate of Chungbuk increase increase Mexico Gyeongbuk Incheon in GDP in GRDP Jeonnam Gwangju Jeonbuk Jeju Daejeon Ulsan Busan Seoul Gyeongnam Daegu Japan Gangwon Italy Rate of increase in working-age Rate of increase in working-age population population 340 nomic Cooperation and Development (OECD). On the other hand, there is a positive correlation between the size of the working-age population and GDP or GRDP growth. Changes in demographic structures, in other words, often serve as decisive factors of nation- al and regional economic growth. Putting the generality of this phenomenon aside, there are cer- tain Korean cities, counties, and boroughs that are experiencing re- markable economic growth despite the aging of their populations. In this study, our main objective is to identify the characteristics and determinants of the economic growth experienced by these special municipalities, with a view to developing a guideline for other similar regions. Most of the literature on population aging focuses on how the aging of the population affects the societies and economies of cer- tain nations or communities. There are almost no studies prior to this one that analyze the correlation between population aging and economic growth at the level of basic municipalities. This study identifies basic municipalities in Korea that are show- ing clear patterns of growth with respect to three main structures— industrial, demographic, and spatial—and have achieved signifi- cant economic growth despite the aging of their populations. In doing so, this study identifies the different types and characteristics of economic growth experienced by these “aged” municipalities, and examines the factors that have contributed to offsetting the losses in labor productivity and thereby raised the rates of these municipalities’ economic growth above those of other regions. In our analysis, we employ a Solow production function. The (super)high-growth and (super)old municipalities we examine Study on the Characteristics and Determinants of High-Growth Regions in the Era of Population Aging 341 Figure 3. Population Aging and Productivity under the Solow Production Function (Innovation) (Capital) Y=A×(L, K)+ α(?) (Local resources) (Aging) show increases in total productivity, (Y) despite the decline in la- bor productivity (L) caused by population aging, thanks to increas- es in technological innovation (A) and/or capital (K). Acknowledg- ing that certain local resources (α) could also be involved besides A and K, on which little statistical information is available, we also conducted a thorough survey of local characteristics and condi- tions to identify and analyze such resources. Chapter 2. Inter-Regional Comparison of Demographic Structures National demographic structures change due mainly to the two natural causes, i.e., birth and death, as well as the one social cause, i.e., migration. At the local level in Korea, however, migration is the most prevalent cause of change in the demographic structures of different municipalities. There are strong age-associated patterns of migration that are characteristic of the demographic structure in Korea. The young population, which plays a central role in the national economy, tends to be concentrated in the Seoul-Gyeonggi region. Aside from Seoul, Incheon, and Gyeonggi, the Chungnam and Jeju provinces 342 Table 1. Types of Migration Occurring in Korea Type Region Characteristics Incheon, Gyeonggi, Net inflow across age groups Chungnam, and Jeju High-growth regions Net inflow of young people Outflow of all other age (aged 15 to 29) Seoul groups Metropolitan cities Net inflow of children (aged 14 Busan, Daegu, and Gwangju experiencing outflow of all and under) other age groups Due to presence of Sejong Net outflow across age groups Daejeon City Net outflow of young people and children (aged 29 and Chungbuk and Gyeongbuk Inflow of most other age under) groups Gangwon, Jeonbuk, Jeonnam, Inflow of most other age Outflow of young people and Gyeongnam groups Outflow of young and middle- aged (50 to 65) people Ulsan Inflow of all other age groups also receive more young people than they lose. The net inflow of young people is an indication of the availability of quality jobs and existence of diverse cultural and social attractions. With the excep- tion of these five regions, all other regions of Korea are experienc- ing rapid population aging. The inflows and outflows of certain age groups cause dramatic changes in the structure of the local job market. Daejeon, Seoul, Chungnam, Gyeonggi, and Incheon are the regions in Korea with the highest proportions of young jobseekers in their 20s. Dae- jeon and Seoul offer relatively greater pools of R&D and knowl- edge-based jobs, which serve to attract and retain young people from other regions. The other three regions also attract young peo- ple with their relatively secure jobs in the manufacturing sector. Study on the Characteristics and Determinants of High-Growth Regions in the Era of Population Aging 343 Table 2. Employment Structure by Region and Age Unit : % 20s 30s 40s 50s 60s 15-29 15-64 Nationwide 14.2 21.9 25.7 23.1 14.1 15.2 92.1 Seoul 16.3 24.7 23.8 22.4 12.0 17.1 94.0 Busan 14.1 20.5 24.0 25.3 15.3 14.9 92.8 Daegu 13.7 21.1 26.7 24.6 12.8 14.9 93.8 Incheon 14.6 23.0 26.3 23.5 11.6 15.6 94.4 Gwangju 14.3 23.6 27.6 21.8 11.6 15.4 93.6 Daejeon 16.6 22.9 25.7 23.0 10.9 17.4 94.7 Ulsan 12.5 22.8 28.3 25.1 10.3 13.4 95.0 Gyeonggi 15.0 23.4 28.1 22.1 10.3 16.1 94.9 Gangwon 11.5 17.5 25.6 25.7 19.2 12.2 88.8 Chungbuk 14.0 19.8 24.6 23.9 16.5 15.2 90.3 Chungnam 15.6 20.7 23.5 21.9 17.6 16.4 88.7 Jeonbuk 11.7 17.6 24.5 23.8 21.6 12.5 85.6 Jeonnam 9.0 15.9 22.9 23.5 27.7 10.0 80.0 Gyeongbuk 12.7 16.9 23.4 23.7 22.7 13.4 85.4 Gyeongnam 11.1 21.2 27.1 24.2 15.8 11.8 90.9 Jeju 12.0 19.8 26.7 22.2 18.0 13.5 88.3 Aside from Chungnam, all other regions outside the Seoul-Gyeo- nggi region have 20-something populations that are smaller than the national average. In the meantime, the phenomenon where the number of deaths exceeds the number of births is occurring much earlier in provinc- es outside the Seoul-Gyeonggi region than in the Seoul-Gyeong- gi region and other metropolitan cities, indicating that population aging in the provinces outside Seoul-Gyeonggi and other metro- politan cities is taking place at a faster pace. However, the recent increase in population migration from the Seoul-Gyeonggi region 344 and metropolitan cities into other provinces could serve to offset or delay this process of aging and loss in the populations of the provinces. Another interesting characteristic to note is that, while the re- gions outside Seoul-Gyeonggi have relatively larger proportions of the elderly, the rates of population aging in these regions are slower than that of Seoul-Gyeonggi. This suggests that the regions outside Seoul-Gyeonggi are likely struggling with labor shortag- es, while the economies of the Seoul-Gyeonggi region and other metropolitan cities, which have larger young populations and fast- er-aging populations, are likely to lose their vitality more quickly. Chapter 3. Identification and Typology of High-Growth and Old Municipalities Setting the 25 self-governing boroughs of Seoul aside, we ex- Figure 4.