"Slowdown in Private R&D Investment Growth... Impact of Reduced Large Corporation Investment and Government Differential Support"

[Asia Economy Reporter Jeong Hyunjin] It has been revealed that the growth rate of private research and development (R&D) investment has slowed down over the past five years. There are claims that this is due to a contraction in R&D investment by large corporations and a significant gap in government support rates for R&D between large and small-to-medium enterprises (SMEs) at the government level.

On the 6th, the Korea Economic Research Institute of the Federation of Korean Industries analyzed the average annual growth rate of private corporate R&D investment from 2000 to 2019 in five-year intervals and found that private corporate R&D investment increased at an average annual rate of 14.9% from 2000 to 2004, but this rate dropped by about half to 7.5% from 2015 to 2019. This is also lower compared to 10.5% from 2005 to 2009 and 12.2% from 2010 to 2014.

Data provided by Korea Economic Research Institute

The Korea Economic Research Institute pointed to the sluggish R&D investment by large corporations as the cause of the recent slowdown in private R&D investment growth. As of 2019, large corporations accounted for 76.7% of private corporate R&D investment, a much larger share compared to venture companies (12.1%) and SMEs (11.2%). Accordingly, private R&D is highly dependent on large corporations, but the R&D growth rate of large corporations from 2015 to 2019 was 7.3%, about half of the growth rate in the previous five years. Since large corporations hold a significant share in private R&D, the overall scale of private R&D is influenced by their R&D investment.

The Korea Economic Research Institute also pointed out that support for large corporations’ R&D investment is insufficient compared to major countries, which could be a reason why private R&D is not being revitalized. According to statistics from the Organisation for Economic Co-operation and Development (OECD), the total government support amount for R&D investment received by domestic large corporations last year, including tax credits and exemptions, was about 2% of their R&D investment. In contrast, the top five major countries (G5)?the United States, Japan, the United Kingdom, France, and Germany?provided large corporations with investment support averaging 19% of their R&D investment.

Data provided by Korea Economic Research Institute

The Korea Economic Research Institute stated, "In the case of SMEs, Korea’s support rate is 26%, which actually exceeds the G5 average of 23%," and added, "Among the G5, the United States, Germany, and France provide equal support to both large corporations and SMEs, while the United Kingdom and Japan provide differentiated support by company size, but the gap is smaller than in Korea."

The Korea Economic Research Institute also pointed out that while the G5 countries’ R&D support policy focuses on expanding support for all companies, Korea is reducing benefits for large corporations. Korea currently maintains a 25% tax credit rate for SME R&D investment (based on current investment) since 2011, but for large corporations, the tax credit rate, which was 3?6% until 2013, has been reduced to 3?4% in 2014, 2?3% in 2015, and 0?2% in 2018.

Choo Kwang-ho, Director of Economic Policy at the Korea Economic Research Institute, said, "G5 countries have strengthened R&D investment incentives regardless of company size by raising R&D investment tax credit rates and expanding credit limits," adding, "R&D is a key factor that promotes economic growth by enhancing corporate technological competitiveness and increasing productivity. There is a need to encourage companies to improve competitiveness through active government support for R&D investment."

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