In order to escape from the’swamp of low growth’, it is analyzed that R&D investment in areas with high potential for development and active investment from startups with new ideas should proceed together.
“Why isn’t productivity increasing while technology is improving?”
This is a question that has been raised as the extent of increase in productivity of companies gradually decreased despite the rapid development of information technology (IT) such as computers, smartphones, and the Internet since the 2000s. Contrary to the prediction that technological advances will increase the production efficiency of enterprises, it has not had a significant impact. It is the’Productivity Paradox’ that experts refer to.
The’productivity paradox’ also appears in the Korean economy. Although IT technology innovation continues, the economic growth rate remains at a low level unlike the past. The trend growth rate, which reached 7.7% in the late 1980s, fell to 2% in the 2010s. In order to escape from such a’swamp of low growth’, an analysis has emerged that research and development (R&D) in areas with high potential for development and active investment in startups with new ideas must be carried out together.
This is the content of the paper “The Decline and Causes of the Trend Growth Rate of the Korean Economy (Suk Byung-hoon, Professor of Economics at Ewha Womans University, Lee Nam-gang, Associate Fellow of the Bank of Korea Economic Research Institute) published in the’BOK Economic Research’ published by the Bank of Korea on the 21st.
Concerns about slowing growth due to the ever-lowering growth rate
Source: Bank of Korea
The thesis looked at the growth rate of real gross domestic product (GDP) per capita of working-age population from 1981 to 2019 as an indicator. According to this, the growth rate in the 2010s was at an annual average of 2.3%. After recording 7.5% in the 1980s, growth continues to slow down through the 90s (5.5%) and 2000s (3.7%). Even compared to 1981-2009 (5.5%), the recent figure is very low. This is why there are concerns about the fixation of low growth.
‘Total factor productivity’ was the most influential factor in the decline in growth rate. Total factor productivity is the increase in output minus the increase due to increase in labor and capital, indicating that technology development and management innovation affect production. A lower growth rate due to total factor productivity can mean that technology development is slow or that management innovation is stagnant.
Indeed, the main reason for the two major declines in growth rate in the past was the slowdown in total factor productivity. In the case of the first downturn (late 1980s to 1998), the decline in total factor productivity due to the end of the’three lows (low exchange rate, low oil prices, low interest rates) boom’ had an impact. During the second downturn (2001~early 2010), the IT boom ended, and facility investment slowed, leading to a decline in productivity.
Growth rate falling even in IT innovation…’productivity paradox’
There are various analyzes on the reasons why the development of IT technology has not led to the improvement of productivity in the overall economy. Some view that it is difficult to drive further growth as the development of IT technology has reached its limit, or that the dynamics of the industry have diminished. yunhap news
Despite the low growth rate in the 2010s, the slowdown in total factor productivity is having an impact. It is also attributable to the passive change in investment activities of companies after the global financial crisis, but the biggest factor is the explanation of the’paradox of productivity’. Despite technological innovation, the pace of corporate productivity growth has been slow.
The analysis of the causes of the productivity paradox varies. There is also an opinion that it is difficult to drive further growth as the development of information and communication technology has reached its limit, or that the dynamics of the industry have decreased. The time difference it takes for new technologies to affect the economy as a whole is also a factor.
The view of the decline in startups as the cause is also striking. Since the 2000s, startups and startups with high productivity have disappeared from the market. On the other hand, the exit from existing companies with low productivity declined. It is a so-called’decaying phenomenon of deceased persons’.
“R&D investment and entry into the startup market should be activated”
There is a voice that calls for attention to R&D and support for start-ups in order to escape the confines of repeated low growth. Ewha Womans University student using Oculus Rift VR equipment to draw a picture in a virtual three-dimensional space. yunhap news
It is pointed out that in order to get out of the confines of such low growth, it is necessary to pay attention to R&D for technology with high social impact and support for startups. It means investing in artificial intelligence (AI) and deep learning development. In addition, the thesis pointed out that new companies with high productivity should be supported by increasing market access.
Nam-gang Lee, deputy researcher at the Bank of Korea Economic Research Institute, said, “As long as there may be a time lag until R&D investment leads to a tangible increase in productivity, we must strive to improve investment efficiency.” “We need to create an economic structure that enables innovation and investment in products and business models combined with technology to spread to the sector.”
Reporter Yoon Sang-eon [email protected]