Korea’s Economic Slow-Down “Unprecedented”

Korea’s economic growth is slowing down at an unprecedented pace, according to a report.

The LG Economic Research Institute (LGERI) said yesterday in its report, “Ways to Enhance Growth Potential with Lessons Learned from Advanced Countries,” that, “Korea’s economic growth rate has been 4.4% on average in the recent decade, which is 4.3% lower that the growth rate recorded in the previous 10-year-period, which is the biggest growth fall among advanced and moderately advanced countries.”

By citing countries with higher than $30,000 per capita GDPs, the report added that, “It is a myth to say that economic growth slows down as the economy grows larger.”

The report showed that in 19 countries with per capita GDP of more than $30,000, the average annual economic growth rate was 2.8% when per capita GDP was between $5,000-10,000, and 3.0% when the per capita GDP was between $20,000-30,000.

Seven countries with per capita GDP exceeding $40,000 registered growth rates of 2.8% when their per capita income was $5,000-10,000, 3.3% when the per capita income was $10,000-20,000, 4.1% when the per capita income was $20,000-30,000, and 3.0% when per capita income was $30,000-40,000. However in Korea, when per capita income was $5,000-10,000 (1989-1995), its annual economic growth rate was 8.0% on average, but took a nosedive to 4.4% for ten years (1996-2005) after that when per capita income was over $10,000.

Lee Cheol-yong, a researcher at LGERI, said, “The slowing down of the economy after posting dramatic growth is a common phenomenon for countries like Korea, but Korea among other countries has had the steepest fall in its growth rates.”

The report says that the rate at which Korean firms make capital investments grew between 1971 and 1980 (19.6%), but since then, it has been on the decline, with 12.1% between 1981 and 1990, 6% between 1991 and 2000, and 2.2% between 2001 and 2006.

The report, however, also said that the losing of steam of the Korean economy does not lie only in insufficient capital investment, but in the failure to establish new growth mechanisms that can help companies overcome structural investment sluggishness.

Lee also said, “Attempting to drive up the economic growth rate will cause adverse effects. Structural reforms, effective innovative policies, and proactive openness policies that facilitate competition and maximize the efficiency of resource distribution need to be pursued continuously.”

woogija@donga.com