In this paper, we investigate six channels through which population aging affects output growth per capita of 35 OECD countries where the old dependency ratio is already quite high. The six channels we consider are changes in: (i) physical capital; (ii) human capital; (iii) average working hours; (iv) labor participation rate; (v) age composition of 15–64 (the share of population aged between 15 and 64 years; and (vi) total factor productivity (TFP). We first confirm findings from previous studies that aging in OECD countries has negative effects on GDP growth per capita. We then find that the most important channel through which the negative effects of aging on economic growth operate is lowered TFP growth. Across our empirical specifications, lowered TFP growth associated with aging explains more than fully the lowered growth rate of GDP per capita. We also find evidence of demographic deficit (decreases in working age population share), but this negative effect of aging is more than nullified by compensating increases in the average working hours and the labor force participation rate. We conclude that because TFP growth rate can be permanently lowered, aging's negative effects on GDP growth per capita are expected to be permanent.

South Korea recently signed a free trade agreement (FTA) with Chile and is currently negotiating or studying bilateral FTAs with about 20 countries. However, some South Koreans oppose such agreements because they fear that trade liberalization would result in costly factor adjustment. Many researchers believe that intra-industry trade expansion generates smaller inter-industry factor adjustment (and therefore lower costs) compared with the costs associated with inter-industry trade expansion. This paper analyzes the extent and nature of intra-industry trade and marginal intra-industry trade in South Korea, to help predict the relative costs it might face upon opening its markets to various countries.