Panoramic view of the Bank of Korea. Provided by the Bank of Korea
There has been a warning that if Korea fails to quickly increase productivity, ‘negative growth’ will be inevitable in the 2040s. This means that as the population decreases and capital investment slows due to the effects of extremely low birth rates, there is no one to rely on other than technological innovation. The Bank of Korea suggested that we must urgently find new growth engines and increase productivity. The Bank of Korea published the report ‘80 Years of Korean Economy and Future Growth Strategy’ written by Cho Tae-hyung, Vice President of the Economic Research Institute, on the 17th. A country’s economic growth is usually decomposed into three factors: labor input, capital input, and total factor productivity (TFP). Total factor productivity is literally an indicator of the productivity of all production factors, including labor and capital, and improves when technological progress or management innovation occurs. The researchers pointed out that all the factors that led to Korea’s growth in the past are declining. The analysis showed that capital injection, which increased the growth rate by 5.9 percentage points in the 1970s, contributed only 1.7 percentage points in the 2010s. The contribution of labor input also fell from 2.3 percentage points to 0.6 percentage points over the same period. The contribution of total factor productivity, which was around 2 percentage points in the 1980s and 2000s, plummeted to 0.6 percentage points in the 2010s. Researchers believe that it will be difficult to sufficiently raise labor and capital in the future as ultra-low birth rates have continued recently and capital investment is difficult to significantly exceed the economic growth rate. This means that there is a high possibility that Korea’s economic growth rate in the future will be determined by total factor productivity. In fact, it was analyzed that if total factor productivity does not improve, the Korean economy will show negative growth starting in the 2040s. It is calculated that the growth rate will be 0.6% in the 2030s and -0.1% in the 2040s. This is estimated under the assumption that the contribution of total factor productivity is 30% of the contribution of capital input, and reflects the fact that the corresponding figure from 2011 to 2022 is actually 27%. Conversely, if it improves to 90%, the Korean economy is expected to record a growth rate of 0.9% in the 2030s and 0.2% in the 2040s. In the case of the United States, the proportion was around 80% in the 2000s, but has fallen to around 60% since 2010. The researchers diagnosed that there was a need to quickly transition to high value-added industries to increase total factor productivity. Digital transformation, cultural industry, and military industry were cited as examples of emerging growth engines. He also advised that business start-ups and exits should be more active and that climate change, energy issues, and supply chain issues should be actively responded to. In addition, he said measures were needed to delay the slowdown or decline in labor and capital input. Reporter Lee Jae-yeon jay@hani.co.kr
2023-12-17 10:01:54
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