Declining Fertility Rates in Korea: Exploring Further Mechanisms and Policy Implications

Minhyeon Jeong ; Chul-In Lee

Minhyeon Jeong, Ajou University mjeong@ajou.ac.kr
Chul-In Lee, professor, Seoul National University leeci@snu.ac.kr

JEL Classification: J13 and J18

Abstract

Previous studies analyzed the determinants of fertility primarily through empirical models that incorporate (i) opportunity costs and (ii) labor market conditions and drew policy conclusions within such frameworks. This study extends the conventional approach in an international comparison context to explain Korea’s extremely low fertility rates by using multiple databases and a set of variables expected to be relevant in the Korean context. The empirical analyses on the new factors, such as expectations about future economic conditions, evolving social norms, political orientations, social conflicts, and fertility-related policies, show that (i) the traditional factors and new variables have a statistically significant effect on fertility, and (ii) the impact of the policy variables is generally substantial across the examined countries. Nevertheless, (iii) such factors cannot fully explain the sharp fertility decline in Korea, which indicates that conventional policy measures based on large-scale fiscal spending may be ineffective. By building on a theoretical explanation of policy ineffectiveness through the lens of social norm models, we suggest redesigning fiscal policy combinations tailored to Korea’s unique frictions (e.g., structural and sociocultural characteristics), as a promising strategy.

Keywords:

fertility rate, opportunity cost, culture, social norms, political polarization, expectations, policy ineffectiveness

Acknowledgments

The authors are grateful to C. G. Park, S. K. Hur, J. H. Kim, and the anonymous referees of this journal for their useful comments and suggestions. The remaining errors are the authors’. Jeong and Lee acknowledge financial support from KIEP and the SNU Finance and Economy Research Institute, respectively.

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