Bank of Korea: "Han's Digital Potential Falls Short of Expected Productivity Effects"

[Asia Economy Reporter Eunbyeol Kim] Although South Korea possesses a high level of ICT infrastructure, the Bank of Korea revealed that investment and industrial structures rely on traditional tangible economy frameworks, limiting the productivity improvement effects of technological innovation.

On the 18th, the Bank of Korea stated in the 'BOK Issue Note - Digital Innovation and South Korea's Productivity Paradox' that "Despite South Korea's superior digital potential, including an advanced ICT industry and related infrastructure and high innovation capabilities, the productivity enhancement effects of this potential fall short of expectations."

It pointed out that although investment in ICT is increasing, a 'productivity paradox' is emerging where productivity at the corporate, industry, and national levels does not increase proportionally or even declines. South Korea's innovation index ranking rose from 21st in 2012 to 10th last year, but income levels remain at about 50% compared to high-income countries, and labor productivity has slowed at around 70%.

The Bank of Korea analyzed the structural characteristics of South Korea's economy causing the productivity paradox from industrial, investment, and financial perspectives. On the industrial side, it stated, "Global competition in ICT manufacturing is intensifying, and the competitiveness of ICT services is weak, acting as a constraint in the transition to a digital economy." It explained that South Korea's technological competitiveness in the ICT service sector is weak and that it shows a small-scale profit structure compared to global companies.

From the investment perspective, it explained that the ratio of intangible asset investment to tangible asset investment in South Korea was 38.9% (average from 2011 to 2015), which is low compared to the United States (74.9%), the United Kingdom (74.8%), and the Netherlands (73.1%).

From the financial perspective, it noted, "Although technology finance investment has been activated and greatly expanded quantitatively through public funds and government technology finance support policies," it advised, "it is now time to improve the structural limitations of systems and practices to enhance the qualitative growth of technology finance."

The Bank of Korea emphasized, "To appropriately respond to the acceleration of digital transformation and improve productivity, it is necessary to transform the current ICT industry and investment structure into a form suitable for digital innovation, creating an environment where companies can focus their capabilities on digital transformation." Furthermore, it stated, "For innovative technologies that are high-risk but have the potential to form new markets, government-led support and development are needed to help initial market formation, and the private sector should spread successful cases of ICT convergence." It also added, "policy support should be strengthened to resolve funding difficulties for innovation-based companies relying on intangible assets, and from a long-term perspective, a private-led technology finance ecosystem based on the capital market needs to be established."

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