Intro
Demographic trends can be an important tool in determining the future of certain aspects of a country’s economy. By looking at a country’s population and birth data, we can draw many conclusions about its future demographic makeup. This includes the size, age, and reproduction of the population. The future demographic makeup of a country is closely tied to its economic output. Population trends directly correlate with the future outlook of a country’s labor force and its consumer base. These can have significant implications for the future of a country’s economy.
South Korea has one of the lowest birth rates in the world. Identifying demographic trends in South Korea’s population helps understand their impact on South Korea’s future economic growth.
Data
As recently as 2000, South Korea’s population was growing at an annual rate of 360,000 people. Today, the population is shrinking. In 2023, the population fell by 109,110 people
In 2000, the crude birth rate of South Korea was 12.8 births per 1000 people. By 2023, the number had fallen to just 4.6 births per 1000 people. It is also worth noting that the crude death rate has risen from 5.1 to 6.7 deaths per 1000 people in the same time-frame, consistent with an aging population.
In 2000, average age of first childbirth for South Korean women was 27, with 160.5 live birth per 1000 people. By 2024, the average age had risen to 32, with 73.3 births per 1000 people. As the average age of first birth trends upwards, family sizes will become smaller, contributing to population aging and shrinking.
These trends are not easily reversed. Since 2000, the female population of reproductive age has declined almost 15%, from 13.22 million to 11.39 million. The smaller the pool of potential mothers, the greater the required number of children per woman needed to sustain the crude birth rate. South Korea is clearly in a vicious negative cycle where lower births lead to lower births.
Finally, South Korea’s old-age dependency ratio, which is the ratio of the population aged 65+ and the population aged 15-64, rose from 10% in 2000 to 26% in 2023. This means that over a quarter of South Korea’s adult population has reached retirement age and are dependent on a declining working age population for support.
Conclusion
Looking at the data, it is clear that South Korea’s population has and will continue to decline. South Korea’s population is no longer growing, and the country’s crude birth rate is lower than the crude death rate.
Additionally, South Korean women are choosing to wait until their early-30s to have children, rather than in their late-20s, as shown by the fertility-rate-by-age graph. By starting later, the number of children they expect to have over their lifetimes naturally decreases, and this is also visible in the data. South Korean women are choosing to have less kids. While women had an average of 1.5 kids in 2000, the number was 0.72 in 2023.
Lower births and women generally having kids later in life has contributed heavily to the aging of South Korea’s population. This is clear with their old-age dependency ratio rising 16% since 2000. Considering that there are less South Koreans reaching working age each year and that high quality of life (Ranked 12th on Human Development Index) leads to longer lives, this number is bound to rise in the future, making this trend virtually irreversible.
Thesis
Lower births, an aging population, and a rising age of motherhood have significant implications for South Korea’s economy, specifically a decline in both their labor force and consumer population. This has many implications for South Korea’s economy.
Military
One of the most prominent is a reduction in military manpower. Presently, South Korea has 500,000 active-duty members, which is a sharp decline from 674,000 members as recently as 2006. The number is expected to decrease to below 400,000 members by 2038. For a country like South Korea, which shares a border with a hostile neighbor, maintaining a strong military is a high priority.
Decreasing military manpower forces the South Korean military to turn to other alternatives. Currently, after completing their mandatory military service, South Korean men become reservists for 8 years. This program has resulted in 3.1 million reservists in 2023. But South Korea’s main military policy is about transitioning away from a manpower-based military to a technology-based military.
The South Korean government has been implementing a force modernization program called Defense Innovation 4.0, announced in March 2023. The main goals of this program include developing homegrown technology and decreasing reliance on foreign technology, improving technology through advanced science like AI, and funding unmanned weapons systems to counter the future drop in troop size. This is reflected in South Korea’s defense spending, which rose 22% from 2019 to 2023. Defense capability (modernization) spending rose 14% in the same time frame. Additionally, South Korea has become one of the largest arms exporters in the world, accounting for 2.4% of global arms exports. This is a clear reflection of their government policy to boost domestic defense production.
Clearly, South Korean defense companies, especially cutting-edge weapons manufacturers, are in line for strong growth in the future.
Housing
Another important effect of lower births in South Korea is housing demand. The lower births a country has, the lower the number of kids will fulfill demand for housing when moving out of their parents’ homes. From 2019 to 2023, the number of residential buildings in South Korea declined, after which it stabilized. Additionally, since 2020, the volume of housing transactions has fallen by over 50 percent. But even after these massive declines, South Korea’s housing has become more affordable for citizens, which is clearly an effect of the reduction in population.
The majority of people aged 40+ in South Korea owns a home. But for people under 40 and especially for people under 30, most do not. This is because young workers in South Korea generally do not earn enough to buy a home. In 2019, the average age of home-buying in South Korea was 43.3. This means that South Koreans born in the 1980s will be the primary home-buying market for the upcoming decade. Using this information, along with the crude birth rate, we can predict how the demand for housing will change in the future. This is important, because from 1981 to 1988, the crude birth rate fell by almost 34%, indicating that the housing demand in South Korea and housing transaction volume will decline in the coming years.
Other factors of South Korea’s housing market include the location of housing development and the volume of housing permits. It is important to note that around 30% of housing construction permits in 2023 were granted in the province of Gyeonggi, which surrounds Seoul on almost all sides and includes most of its metro area. The next highest province is Seoul, with 9% of permits in 2023. This is a clear sign that most of South Korea’s future development will be done in the Seoul metro area, and that more Koreans are moving to the Seoul area and out of other cities in the country. The Korean government is currently implementing a program to replace detached homes and low-rise apartments in old Seoul neighborhoods with denser construction to boost affordable housing supply. Additionally, the number of housing construction permits has been steadily declining since 2015. South Korea is not building as many residential buildings as they used to. This will continue in the future, as population shrinks.
Based on this data, the demand for housing, especially non-apartment housing, will decline even more than it already has. However, as more Koreans move to the Seoul metro area and denser apartment complexes are built, housing demand and construction in these places will stay level or even rise in the future.
Imports
South Korea’s imports will also be affected as a result of their declining population. The lower a country’s population, the less goods they will import from abroad. The decline of South Korea as a trade market has significant implications for countries and industries that rely on the country as a consumer base. Historically, South Korea has maintained a trade surplus, fueled by a relatively stagnant import value. However in 2021, South Korea’s imports rose by over 30% before rising by another 18% in 2022, resulting in a deficit. This was a consequence of post-COVID economic rebound increasing spending, and a rise in value of energy imports in 2022, an important necessity for South Korea.
South Korea was the 4th largest importer of crude petroleum in 2022, buying just over 89 billion dollars’ worth from mainly Saudi Arabia, USA, Kuwait, UAE, and Iraq. Large exporters with diverse products like the US and the UAE are not reliant on Korean demand, but it is significant for other countries. Korean crude petroleum imports account for almost 9% of Saudi Arabian exports, 9.2% of Kuwaiti exports, and 5.9% of Iraqi exports. South Korea also commands a significant share of some other countries’ exports. Korean demand for integrated circuits account for just over 3% of Taiwanese exports. Petroleum gas accounts for 6.2% of Qatar exports, 5.3% of Oman exports, and 3.1% of Australian exports. Refined petroleum accounts for another 1.8% of Qatar exports and 3.77% of Algerian exports. Coal briquettes account for 2.7% of Australian exports.
Looking at the data, South Korea, specifically their energy consumption, accounted for close to 10% of total exports in 3 countries: Saudi Arabia, Kuwait, and Qatar. Combined with government subsidies on electric vehicles, the decrease in South Korea’s population will negatively impact these countries’ current accounts and export demand. Oman, Australia, and Algeria also export significantly to South Korea and will see a loss in demand for their products as well.
Another significant import market in South Korea is food. Topographically, South Korea is a very mountainous and hilly region. About 10-15% of the land is arable, which is one of the lowest in the world per capita. Besides rice, Korea is not self-sufficient in food production. As a result, the majority of food in South Korea comes from abroad, corroborated by the approximately 38 billion dollars’ worth imported in 2023. Additionally, many South Korean consumers want more food variety and lower prices, further driving food imports. But as the population shrinks, there will be less demand for importing these food and agricultural products. South Korea imports the majority of their food from the United States, China, and Australia, accounting for 4.9%, 6.3%, and 4.2% of their respective agricultural exports. As South Korea’s population declines, these countries will see a decrease in food products exported.
Consumer Spending
One of the largest disadvantages of a declining population to a country’s economy is that there is less consumer spending. As the population shrinks, there are less consumers spending their money on goods and services. This is important for South Korea, where private consumption accounts for nearly 45% of GDP. Private consumption includes spending on clothes, healthcare, vehicles, education, household products, alcohol, tobacco, and even entertainment and pets among other categories. Additionally, as the population ages, their priorities and spending behavior change. Older people need to spend more on their healthcare and other essential needs. So, spending on healthcare services, medicines, and medical devices will rise. Also, as they spend more time at home, the need for household products will also rise. But as senior citizens prioritize what they need to survive, they stop spending money on non-essential items like luxury fashion, entertainment, restaurants, and substances like alcohol and tobacco. Companies that enjoy a high market share of these products and services in South Korea will see a decline in revenue as less consumers exist to buy their products. This is already visible in South Korea’s consumer expenditures table, where miscellaneous goods and alcohol + tobacco consumption declined in the second quarter of 2024. Another sector that relies on young consumers is transportation. Since older people have less need to leave their homes, they spend less on cars and public transportation. Ride-share companies that are locally popular like Kakao T and Uber will see a loss in their consumer base as well.
Taxes and Pensions
Another way population decline will negatively affect the South Korean government is through taxes. Like consumer goods, the lower a country’s population, the less income their government can collect through taxes. This decrease in the government’s revenue creates a need to change/tighten fiscal policy and hampers their ability to fund programs and create subsidies that help boost the economy. South Korea’s tax-to-GDP ratio was 32% in 2022, which is a significant portion of their economy that is in danger of decreasing in the future. The breakdown of South Korea’s tax revenue is also important to consider. Compared to the OECD average, South Korea collects less money from individual and consumption (VAT) taxes, and collects more money from corporate, property, and social insurance taxes. As the population continues dropping, there will be a shift in tax policy to de-prioritize individual and consumption taxes. But this would create a burden on corporate tax, which is already one of the highest in the world. High corporate tax will disincentivize businesses from operating in South Korea, which would be highly detrimental to economic growth. Population decline also has a negative impact on pension funds. South Korea presently operates an $860 billion national public pension fund. This fund is expected to start losing money by 2041 and reach 0 by 2056, as payments to retirees become more than contributions from the working population. While the current administration has introduced reform, including raising the contribution rate by 4%, less retirees being replaced each year in the workforce could force a decline anyway. Many young South Korean workers also have lost confidence in the pension system, believing they can grow their money by investing in other financial instruments. As a result of this pension benefit decline, many future South Korean retirees will not reap the benefits of their pension contributions, and the Korean government will collect less revenue from pension taxes and investment returns.