"South Korea's Industrial Dynamism Among Lowest Levels in OECD Countries"

[Asia Economy Reporter Dongwoo Lee] It has been argued that Korea's industrial dynamism has recently been declining rapidly compared to countries in the Organisation for Economic Co-operation and Development (OECD), acting as a major cause of the sharp drop in potential growth rate.

According to the Korea Economic Research Institute's report titled "Diagnosis of Korea's Economic Dynamism, Industrial Structural Change, and International Comparison of Growth" released on the 9th, Korea's industrial dynamism from 2014 to 2018 ranked 30th out of 33 OECD countries, remaining at the lowest level.

When comparing the average values over five years, Korea ranked 29th out of 32 countries during 2009-2013 and 29th out of 31 countries during 2004-2008, also evaluated at the lowest level. However, during 1998-2003, Korea showed a relatively good ranking of 10th out of 31 countries, indicating that industrial dynamism has sharply declined compared to major OECD countries since the 2000s.

The report stated that economies where resource allocation to high-productivity sectors is smooth and innovation is active tend to have high industrial dynamism. It added that economies experiencing a sharp decline in industrial dynamism are likely to have low efficiency and sluggish creative destruction, i.e., innovation.

Researcher Taegyu Lee of KERI pointed out, "It is generally a common trend that as the economy grows, income rises, and the industrial structure matures, the speed of industrial structural change, that is, industrial dynamism, decreases," but added, "Cases like Korea, where industrial dynamism rapidly deteriorates, are not common and are concerning."

Furthermore, examining the relationship between real GDP and the speed of industrial structural change, it was explained that Korea's speed of industrial structural change relative to income is considerably lower compared to major countries. Researcher Lee analyzed, "Since the 2000s, the Korean economy has grown relying only on a few specific industries, and there is a lack of emergence of new industries beyond traditionally competitive ones, which is not unrelated to the sharp decline in industrial dynamism."

The report noted that the recent decline in the speed of industrial structural change in the service sector is much greater than in manufacturing. Comparing the average speed of industrial structural change over the past 10 years, the service sector declined by 38.4% compared to 10 years ago, while manufacturing declined by 29.6%.

KERI cited Korea's manufacturing-centered growth as a reason why the industrial dynamism of the service sector is lower than that of manufacturing, but pointed to strong regulations and innovation stagnation in the service sector as the fundamental causes. Examples such as regulations on large discount stores and bans on new mobility businesses like Uber and Tada highlight that Korea's service industry business environment is structured in a way that makes innovation very difficult.

Researcher Lee argued, "To enhance industrial dynamism and increase growth potential, it is urgent to activate market competition and implement bold structural reforms so that corporate and industrial innovation can be actively carried out."

This content was produced with the assistance of AI translation services.