"Urgent Need to Revitalize South Korea's R&D Mainly Through Large Corporations and Private Sector"

[Asia Economy Reporter Kim Jin-ho] South Korea's research and development (R&D) expenditure as a percentage of gross domestic product (GDP) ranks among the top in the Organisation for Economic Co-operation and Development (OECD) countries, but it has been pointed out that the growth rate of R&D has stagnated since 2001. There is an urgent call for policy support to expand R&D centered on large corporations to improve the insufficient investment outcomes.

According to an analysis by the Federation of Korean Industries (FKI) of R&D data from 36 OECD countries with comparable data from 2001 to 2020, South Korea's R&D investment as a share of GDP increased from 2.27% (9th place) in 2001 to 4.81% (2nd place) in 2020. During the same period, the increase in South Korea's R&D investment share was 2.54 percentage points, which is 4.8 times the OECD average (0.53 percentage points).

In 2020, domestic R&D investment totaled approximately 93.1 trillion won. By sector, the private sector invested 71.3 trillion won, while the government and public sectors invested 21.6 trillion won. As of 2020, the private sector accounted for 76.6% of total R&D investment.

However, despite the importance of the private sector in domestic R&D, the growth rate of private sector R&D has remained stagnant from 2001 to 2020. When divided into five-year periods, the growth rate was 11.4% in the 2000s but slowed to single digits after 2011.

Furthermore, while South Korea's R&D investment scale is among the global top ranks, its R&D outcomes are relatively insufficient. In 2019, South Korea recorded 3,057 annual patents, ranking 4th among 37 OECD countries. However, the number of patents per one million dollars of R&D investment was 0.03 in 2019, ranking 11th among the 37 OECD countries. The FKI analyzed, "Although the number of patents is high, the number is not large relative to the amount invested, indicating that the efficiency of domestic R&D investment is not good."

The ratio of income from intellectual property royalties to R&D expenditure, which indicates the economic performance of R&D investment, was 9.9% in 2018, significantly below the OECD average. Examining the gap with the OECD average over time, it was 9.8 percentage points in 2010 but widened to 17.8 percentage points in 2018.

Accordingly, the FKI pointed out the need to strengthen policy support for large corporations, which account for 61.4% of corporate R&D investment, to activate private R&D and improve R&D efficiency. According to the OECD, South Korea's small and medium-sized enterprises (SMEs) R&D support rate was 26% in 2021, exceeding the OECD average of 21%, but the large corporations' R&D support rate was only 2%, far below the OECD average of 17%.

In particular, examining the difference in government support rates for R&D between SMEs and large corporations, South Korea had a 24 percentage point gap in 2021 (SMEs 26% - large corporations 2%), the second largest among 37 OECD countries after Colombia (34 percentage points). In contrast, the average gap in government support rates among OECD countries was 4 percentage points, showing a significant difference from South Korea. The FKI estimates that the large gap in R&D support by company size in South Korea is mainly due to the reduction in tax credit rates for large corporation R&D investments that has continued since 2013.

Choo Kwang-ho, head of the FKI Economic Headquarters, stated, "Corporate R&D investment has a greater positive effect on total factor productivity than government and public R&D, so active support is required," adding, "In particular, it is necessary to revitalize domestic R&D by strengthening tax incentives and other support for large corporations leading private R&D."

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