Korean per capita trend growth rate’half-cut’ in 10 years… “Technology limits are hit”

Enter 2021.01.21 12:00

Per capita trend growth rate: 3.6% in the 2000s → 2.0% in the early 2010s
Effect of slowing total factor productivity… “Concentrating on new technologies such as AI and renewables”

Korea’s per capita trend growth rate has dropped by about half in 10 years, and a research result by the Bank of Korea has shown that technology development has reached its limit and cannot drive growth. If the growth rate had declined due to a sharp decrease in working hours in the past 1980s and 1990s, the IT boom was extinguished after that, and the effect of technology development hit a wall. In the future, there were also suggestions that advances in technologies that can affect the overall economy, such as artificial intelligence (AI) and new and renewable energy, need development.

According to the BOK Economic Research’Declining and Causes of Trend Growth Rate of the Korean Economy’ published by the BOK on the 21st, the decline in the trend growth rate per capita in Korea fell from an annual average of 3.6% in the 2000s to 2.0% in the early 2010s. It has fallen 1.6 percentage points (p) in 10 years.

Per capita trend growth rate refers to a kind of trend line created by extracting only mid- to long-term factors excluding economic, irregular, and seasonal factors from the per capita growth rate considering working hours.

The BOK analyzed that 75% of the slowdown in the trend growth rate over the past 10 years was due to a slowdown in the total factor productivity factor (-1.2%p) and 25% due to a slowdown in the capital stock factor (-0.4%p). Total factor productivity refers to various factors necessary for production, and academic circles refer to the decrease in productivity increase during this period as a so-called’productivity paradox’. The view is that it is difficult to drive further growth as IT technology reaches its limit. The capital stock factor is related to the sluggish corporate investment activities due to increased uncertainty after the financial crisis.

This clearly differentiates it from the slowdown in the trend growth rate in the past. From the late 1980s (7.7%) to 1998 (4.0%), the first decline in the trend growth rate, the slowdown in total factor productivity and the decrease in average working hours were significant. Following the end of the third boom in 1989, legal working hours were reduced from 48 hours to 44 hours due to the revision of the Labor Standards Act. Although working hours have decreased in the last 10 years, it is analyzed that the increase in female employment rates has offset this.

The second decline in the trend growth rate ranged from 2001 (4.4%) to the early 2010s (2.0%), which appeared when the IT boom in the early 2000s ended. This is because facility investment has slowed and the total factor productivity factor has also been sluggish.

The BOK proposed research and development (R&D) on new technologies such as AI and renewable energy as a way to increase the trend growth rate. In the past, policy capacities should be focused on general purpose technologies that could affect the overall economy, such as steam engines, electricity, railways, and computers.