Social services dragged down GDP

The service industry, not the manufacturing sector, is responsible for the nation’s slower gross domestic product growth since the 1997-98 financial crisis, according to a state-run think tank.
The Korea Development Institute said yesterday that growth in service businesses, especially in high value-added areas such as law, finance and telecommunications, was lower after the financial crisis than in the mid-1990s.
The think tank divided service businesses into four categories: producer support services such as law, accounting, design and finance; social services such as medicine, education, welfare and government services; distribution services including logistics, wholesale and retail sales; and consumer services such as restaurants, hotels, culture and entertainment.
The growth of producer support services declined sharply to 5.3 percent on average between 1998 and 2006 from 6.7 percent between 1993 and 1998, the think tank said. Growth in social services also slowed slightly.
On the other hand, growth of distribution services rose sharply to 4.9 percent in the 1998-2006 period from 3.1 percent in the 1993-98 period, as large-size discount stores were introduced. Growth in consumer service also climbed slightly.
Mainly due to the two sluggish categories, the nation’s GDP growth slowed from 7 to 8 percent in the 1990s before the financial crisis to 3 to 5 percent in the 2000s, though manufacturing sector growth accelerated in the 2000s, the think tank said.
“The producer support and social services, showing slow growth, are commonly determined by the various government regulations rather than consumers’ choice,” said Kim Joo-hoon, research fellow at the institute.
“Dramatic relaxation of regulations, introduction of market competition and nurturing of human capital for those service industries are needed,” he added.

By Moon So-young Staff Writer [symoon@joongang.co.kr]