Construction Industry Total Factor Productivity Growth Rate -0.72%... "Need for Management Innovation and Regulatory Relief"

[Provided by Korea Research Institute for Construction Industry]

[Asia Economy Reporter Noh Kyung-jo] The total factor productivity (TFP) growth rate of the construction industry was found to be significantly lower compared to other industries. Total factor productivity is an indicator that explains an industry's efficiency, growth potential, and technological advancement.

According to the Construction Trend Briefing (No. 872) recently published by the Korea Construction Industry Research Institute on the 11th, the average value-added growth rate of the domestic construction industry over the past 20 years (2001?2020) was 1.53%, while the total factor productivity growth rate recorded -0.72%.

During the same period, the average value-added growth rate across all industries was 3.57%, with manufacturing and service industries at 4.14% and 3.66%, respectively?more than twice that of the construction industry. The total factor productivity growth rates were also 0.53% for all industries, 0.34% for manufacturing, and 0.63% for services, showing a significant gap compared to the negative growth rate in the construction industry.

Total factor productivity refers to the efficiency of production factors other than the direct contributions of labor and capital in an industry's value-added. Unlike developing countries, advanced countries where labor and capital inputs have reached their limits require increases in total factor productivity for sustained economic growth.

The total factor productivity growth rate in the construction industry remained low except for certain years (2013 and 2016). Coupled with macroeconomic conditions, it fell as much as -10% during the 2000 IT bubble burst and the 2008 global financial crisis. The same trend was observed in 2020 when COVID-19 occurred.

The problem lies in the fact that the contribution of capital input to value-added growth in the construction industry has gradually decreased, and with labor shortages expected to worsen, the contribution of labor input is also likely to decline.

The capital input growth rates were ▲1.82% from 2001 to 2005 ▲1.41% from 2006 to 2010 ▲0.87% from 2011 to 2015 ▲0.73% (estimated) from 2016 to 2020, showing a downward trend. Amid severe recruitment difficulties in shipbuilding, root industries, agriculture, and services, the construction industry, which suffers from chronic labor shortages, is also expected to face intensified labor supply issues.

Therefore, the Korea Construction Industry Research Institute anticipates that increasing total factor productivity, which signifies qualitative growth and efficiency improvement of the industry, will become even more important in the future.

Seong Yu-kyung, a research fellow at the institute, said, "With the global economy expected to slow down, domestic construction investment is also predicted to show negative growth this year. Efforts to improve efficiency across the construction industry are necessary, including technological advancement, management innovation, resolving regulations that cause inefficiency, and improving the industry's small-scale structure."

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