Bank of Korea: "Our Economy Sees Decline in Manufactured Goods Share and Expansion in Services"

Bank of Korea 2020 Benchmark Input-Output Table
Increase in Service Sector Share Raises Value-Added Induction Effect

Foreign tourists visiting Myeongdong in Jung-gu, Seoul are enjoying sightseeing. Photo by Jinhyung Kang aymsdream@

The share of manufactured goods in our economy has been decreasing, while the share of services has been on the rise. As the proportion of services increased, the value-added generation effect also improved. However, compared to major advanced countries overseas, the value-added generation effect remained relatively low.

According to the "2020 Benchmark Input-Output Table" released by the Bank of Korea on the 29th, in 2020, the share of manufactured goods declined due to a decrease in goods exports, but the share of services expanded, centered on medical and non-face-to-face services.

Looking at the industrial structure of Korea, the output share of manufactured goods decreased from 47.4% in 2010 to 40.2% in 2020, while the output of services increased from 41.6% to 49.3% during the same period.

A Bank of Korea official explained, "At the time of the COVID-19 pandemic in 2020, non-face-to-face medical services expanded significantly, and non-face-to-face consumption increased mainly online, which raised the share of services."

As the share of the service industry expanded, the value-added generation effect also increased.

Korea's value-added generation coefficient rose from 0.728 in 2010 to 0.806 in 2020. The value-added generation coefficient indicates how much value-added is generated when final demand such as consumption, investment, and exports occurs. A Bank of Korea official said, "The increase in the consumption and investment share of the service sector contributed to the rise in the value-added generation effect."

Examining the composition ratio of how much Korea's total value-added (2,036 trillion won) in 2020 was generated by each final demand item such as consumption, investment, and exports, consumption accounted for 52.8%, exports 23.9%, and investment 23.3%. By expenditure entity, private consumption accounted for 37.2% and government consumption 15.6% of consumption, while private investment was 19.1% and government investment 3.9% of investment.

Consumption has a higher value-added generation effect than exports and investment because spending on services, which have a high value-added rate, is high. Compared to 2015, the value-added creation share of consumption and investment expanded by 2.3 percentage points and 2.0 percentage points respectively, while exports shrank by 4.3 percentage points.

However, compared to major foreign countries, Korea's value-added generation coefficient was low, and the production generation coefficient was high. The value-added generation coefficients of the United States, Japan, and Germany were 0.944, 0.903, and 0.838 respectively, all higher than Korea's 0.806.

A Bank of Korea official said, "The reason Korea's value-added generation coefficient is low is that the output share of services, which have a relatively high value-added rate, is lower than that of major countries. On the other hand, the high production generation coefficient is due to the high output share of manufactured goods, which have a large proportion of intermediate inputs."

Additionally, Korea had a relatively high share of foreign trade such as imports and exports in total supply and total demand compared to major countries. Korea's import and export shares were 12.7% and 13.7% respectively, higher than those of major countries except Germany (13.4% and 15.8% respectively). In particular, the import dependency was 10.7%, significantly higher than other countries. This is interpreted as Korea being more vulnerable to changes in the external environment than other countries.

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