The Korean Government has established and push forward the Master Plan of Aging Society and Population in 2005 to manage an aging population which is able to have any adverse impact on Korean society all. There have been little considerations, however, about the organizational change and the future of Korean economy that would be one root cause of aging population.

This research aims to conduct mid and long term projections about the organizational change in Korean economy and industry considering the trends of the aging population. This research develops the existing KIET-DIMM(KIET-Dynamic Interindustry Macroeconomic Model) to KIET-DIMM12 able to be conducted the politic simulations about aging population in Korea where macro economy block, individual industry block was restructured, and population？household block was reformed and expanded. The KIET-DIMM is basically designed to get the balance between industrial demands and supplies based on Walras’general equilibrium theory in microeconomics and the equilibrium over aggregate demand and supply in macroeconomics. The existing KIET-DIMM consists of 4 blocks, demand-supply, price-technology, foreign and macroeconomy blocks and the newly

developed KIET-DIMM12 have 5 blocks including the fifth population？

household block.

To build the KIET-DIMM12, industrial classifications are composed of 78 industries based on the System fo National Account from the Bank of Korea. The data-base is consists of current and real value from an inter-industry relation table and system of national account in the period 1985~2010. Futhermore, 764 industrial equations are estimated using the data-base and then simultaneous equation system is built on the results of estimation. RMSPE and Theil’s U are used to measure the predictive power for the simultaneous equation system so that the suitability of this model presents relatively high with RMSPE, around 5% and Theil’s U, about 0.1 excluding several parts such as aggregate export, interest rate, tax revenue, average income in macro block. It also seems to be little problematic to use this model by the test of predictive power for other blocks.

The scenarios of aging population consist of three types, high, middle(baseline), and low types based on the projections of population 2011 by National Statistical Office. The main results with the population scenarios are summarized as follow. The GDP growth rate is expected to 3.75% in 2010s, 2.87% in 2020s on average in the baseline and 3.82%, 2.99%(high) and 3.61%, 2.64%(low) where the differences of GDP among the scenarios is similar to the differences of growth rate of the population in working ages by scenarios. Private consumption growth rate on 2030 is expected to 52.9% in baseline, 53.3% with slight increments in high scenario, but 51.8% with slight decrement in low. Investment expected to decrease from 28.3% on 2010 to 26.3~26.5% on 2030. Current account surplus is expected to be downsized to 2.2% on 2030 from 2.6% on 2010 with quicker growth of import than export in the projection period. The structure of demand in Korean economy would deepen the gap between domestic demand and export.

In terms of the structure of industry, the share of manufacturing industry compare to whole industry would be downsized by deceasing relative prices while the share of service industry would persistently increase because of some diversified and gentrified demands and increment of leisure activities. The share of exports of manufacturing industry is expected to increase from 85.57% on 2010 to 88.82%(baseline), 88.99%(high), and 88.51%(low) on 2030, but on the other, service industry would decrease reflecting the characteristics of domestic oriented industry. On the contrary to the export, the import share of manufacturing industry is expected to decrease 61.6% on 2010 to 58.96%(baseline), 58.6%(high), and 61.33%(low) on 2030 and the service industry would increase 14.21% on 2010 to 14.67%(baseline), 14.8%(high), and 15.14%(low) on 2030.

Finally, the growth rate of labor demand is expected to slow down due to slowdown of GDP, improvement of productivity, and rise of flexibility of labor market. Especially, the automation of production equipment and expansion of overseas manufacturing facilities would lead the manufacturing industry to jobless growth so that labor demand would has a high level of dependence on service industry.

The policy implications suggested from the projection results are as in the following. First, the sooner policy to manage slowdown of the growth rate of population implements, the better the impact is going to be, because the effect on a decrease in population would be bigger than population growth. Second, the deepening imbalance between domestic demand and export needs solutions to vitalize domestic demand or investment. Third, the gap of growth between light industry and heavy chemical industry in manufacturing industry require to partly transfer R&D concentrated on heavy industry to light industry. Fourth, it is necessary to improve service industry competitiveness preparing for the expansion of service industry, especially, to promote senior-friendly service industry which would play an important role to the growth of service industry.