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KDI Warning Regulatory Reform • If technological innovation fails, the next 10 years the growth rate will fall to one year



KDI Warning

The Korean Development Institute (KDI), a national research institute, warned that economic growth would fall to 1 percent in the next decade without significant shifts in regulation and technology. The growth rate in 2017 and last year was 3.1%, or 2.7%. It was pointed out that the repeat of the fiscal expansion policy aimed at strengthening the short-term economy will not improve productivity and burden the state finances.

"If the current productivity trend continues, the rate of economic growth in 2020 will remain at an average annual rate of 1.7 percent," KDI said in a report on the slowdown in the Korean economy and long-term outlook after the global financial crisis. Korea is growing at an average annual rate of 3% in 2010. With the KDI Observatory, the next 10 years will be a low-growth country that has grown by more than 1 percentage point. 1.7 percent is lower than Korea's growth rate of 2.2 percent in 2020, as predicted by the International Monetary Fund (IMF) last year.

The main culprit of a gloomy look was productivity. Researcher Kwon Kho-ho, who conducted the research, analyzed the extent to which three factors contribute to the rate of growth, including the number of employees, the input of physical capital and TFP. As a result, the contribution rate of TFP fell from 0.7% in 2011-2018. At 1.6% in 2000. Productivity of TFP is an indicator of productivity, including the efficiency of technology and systems, education and human capital. The contribution of the number of employees in the same period amounted to 0.8 percentage points. The contribution of physical capital declined from 1.4% to 1.9%. "The decline in physical capital contributions is also attributed to the slowdown in overall factor productivity, not the decline in investment," said Kwon Kwon, a researcher at the Korean Institute for Industrial Economics and Trade. He said.

In other words, the main cause of the slowdown in growth in 2010 is the stagnation of productivity, and as long as this trend continues, it is concluded that 1% growth rate in 2020 is inevitable.

Korea's financial, business and business regulatory environment was in the 28th place out of 36 countries in the Organization for Economic Co-operation and Development (OECD) in 2016. The OECD and the Canadian Think Tank Fraser Institute have analyzed key indicators that determine total factor productivity across countries. It's worse than 26th of 2010. In particular, they received low ratings regarding the costs of layoffs, employment regulations and the level of minimum wage. International trade freedom (29.), protection of legal and property rights (24.) and productivity of labor (19.).

However, the report states: "If productivity growth is expanded through innovations across economies, a growth rate can be achieved in the early and mid-2020s." In 2020, the growth rate of total factor productivity increased from 0.7% to 1.2%, and the growth rate reached 2.4%.

It was also pointed out that fiscal policy, which is focused on short-term incentives, is dangerous. Kwon said: "The slowdown in growth rates in Korea is the result of structural factors such as low productivity and rapid aging." In such a situation, repeating an expansive fiscal policy aimed at boosting the economy in the short term, Stressed. "It's important not to be surprised at the rate of growth or the economic index going up and down, but to accelerate innovation with a long look."

Seo Min-joon reporter morandol@hankiung.com

● Total productivity

It is a productivity index that reflects a combination of technology, innovation in management, industrial relations and the legal system in addition to one factor such as work and capital. This is an indicator of efficiency that shows how many non-working and non-capital sectors have contributed to production, such as technological innovation and resource allocation.

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