Industrial Research Institute: "Korean Industrial Dynamism Falls to Less Than Half of 1970s Level... Prompt Restructuring of Insolvent Companies Needed"

Report on the Vitality of Korean Industry Through Structural Change Index, Continuously Declining

Trends in the Structural Change Index of Korean Industry.

[Sejong=Asia Economy Reporter Joo Sang-don] The structural change index, which shows the vitality or dynamism of Korea's industry, has fallen to less than half the level of the 1970s since the 2010s. The Korea Institute for Industrial Economics and Trade (KIET) suggested that multifaceted policy efforts are needed to improve productivity across the industry along with rapid restructuring of insolvent companies.

On the 23rd, KIET released a report titled "The Vitality of Korean Industry Seen Through the Structural Change Index, Continuously Declining," containing these findings.

As a result of calculating the structural change index to specifically observe the degree of industrial structural change, the speed of structural change in Korean industry has continuously slowed, remaining on average at less than half (46.2%) of the 1970s level during the 2010s.

KIET speculated that the decline in the structural change index is related to the fact that since the 1990s, Korea's high economic growth centered on manufacturing ended and entered a stable growth phase, with growth rates trending downward. In particular, it diagnosed that the slowdown in productivity growth was caused by a combination of factors including reduced corporate dynamism due to market regulations such as high entry barriers, delayed exit of marginal companies, and accelerated low birthrate and population aging, which collectively slowed the pace of structural change.

Comparing the structural change index of G7 countries and Korean industry, during the period from 1990 to 2018, Korea had the highest average level of the structural change index, followed by Canada, then the UK, Japan, and Germany. The structural change index of Korean industry maintained a very high level on average until the 1990s but has continuously declined since then, eventually falling to a level similar to that of G7 countries by the late 2010s.

A KIET official said, "The continuous decline of the structural change index is likely to reduce the efficiency of resource allocation, thereby lowering the vitality of Korean industry overall and negatively affecting productivity and economic growth rates. To enhance the vitality of industries and companies, it is urgent to implement multifaceted policy efforts to improve productivity across the industry along with rapid restructuring of insolvent companies."

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