Regulation of Korean Product Market 'Severe'... OECD Lower Tier (Comprehensive)

PMR Composite Index Ranks 33rd out of 38 Countries
High Entry Barriers and Significant Government Intervention in Business Activities Analyzed

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[Asia Economy Reporter Lee Hye-young] The regulatory intensity of the South Korean government on product markets was found to be the sixth highest among the Organisation for Economic Co-operation and Development (OECD) countries. There are calls to adjust various regulatory policies that undermine corporate competitiveness to the level of major advanced countries.

The Federation of Korean Industries announced on the 16th that according to the results of a country-specific survey conducted by the OECD, South Korea’s Product Market Regulation (PMR) index ranked 33rd out of 38 OECD countries. This means that South Korea’s regulation on product markets is the sixth strongest among the surveyed countries.

The PMR index is an indicator devised by the OECD to enable comparison between countries regarding the regulatory environment and market structure of product markets. It is compiled and analyzed based on country surveys conducted since 1998 and published every five years. A lower PMR index indicates relatively weaker product market regulation, while a higher index indicates stronger regulation.

South Korea’s overall PMR index was 1.71, showing a significant gap compared to the top-ranked United Kingdom (0.78). It was also higher than the average of the top five countries (1.0) and the OECD average (1.43). The entry barrier index placed South Korea at 35th out of 38 countries with a score of 1.72. Government intervention in corporate activities ranked 36th, placing South Korea near the bottom among OECD countries.

High Entry Barriers in Both Investment and Services in South Korea

South Korea received a poor score in the Product Market Regulation (PMR) index evaluation due to the excessively high overall level of domestic regulation on corporate activities.

In the ‘entry barriers’ category, one of the key components of PMR evaluation, South Korea ranked 35th overall. Particularly, in the subcategory of ‘trade and investment barriers,’ it scored 1.49, placing it near the bottom at 37th. This is about six times higher than the top-ranked Netherlands (0.26), and South Korea’s score far exceeded the average of the top five countries (0.32) and the OECD average (0.69).

Trade and investment barriers encompass evaluations of foreign direct investment (FDI) regulations, tariff barriers, discrimination against foreign companies, and trade facilitation barriers. This indicates that South Korea has high barriers related to trade and investment, making it difficult to activate corporate investment and transactions.

The ‘service and network barriers index’ was also low, at 2.59, ranking 36th near the bottom. This is more than four times higher than the top-ranked Lithuania (0.57). It significantly exceeded the average of the top five countries (0.68) and the OECD average (1.21). This means that access to various services and networks in corporate activities is limited, resulting in lower competitiveness compared to other countries.

High Government Intervention in Corporate Activities... “Strong Regulations Used as Policy Enforcement Tools”

The ‘distortions due to government intervention’ index, another major component of the evaluation, was 1.69, placing South Korea 23rd in the mid-range.

However, the ‘government intervention in corporate activities’ subcategory ranked 36th (1.92), near the bottom. This score was significantly higher than the top-ranked United Kingdom (0.50), as well as the average of the top five countries (0.57) and the OECD average (1.19). This subcategory evaluates price controls, command-and-control regulations by the government, and public procurement.

The Federation of Korean Industries pointed out that the high level of government intervention in corporate activities indicates that the government heavily controls prices and primarily uses strong regulations such as permits and prohibitions rather than incentives as policy enforcement tools. Yuh Hwan-ik, head of the Corporate System Division at the Federation, said, “This means our government mainly uses strong regulations as a means of policy enforcement,” adding, “It is necessary to eliminate entry barriers and minimize distortions caused by government intervention.”

The index related to nationalization and public ownership was 2.21, ranking 24th. This evaluates the scope of public enterprises, government intervention and control, and governance of public enterprises, showing a level similar to the OECD average (2.16). The regulatory simplification and evaluation index was 0.93, which was lower than the average (1.59).

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