Country’s productivity levels lag other nations

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Country’s productivity levels lag other nations


Korea has received numerous accolades over the years for its rapid transformation into a developed country and a technology powerhouse. But the country lags far behind other developed economies in productivity, which could put a damper on future growth.

The Ministry of Knowledge Economy released data yesterday that show Korea is still heavily dependent on increases in labor and capital for economic growth as opposed to advancements in technology, procedures and other factors that boost productivity.

The ministry disclosed a study of the total factor productivity, or TFP, for Korea, the United States, Japan and 10 western European countries. The study, conducted with the Korea Productivity Center, focused on TFP in Korea between 1981 and 2007 and productivity of the other countries between 1981 and 2005. The periods examined differed due to the limited data available from other countries. TFP is a variable that helps measure the increase or decrease in total economic output that is not the result of additional labor or capital. Positive TFP is generated from technology advancement, improvement in the quality of human resources, labor-management relations and socioeconomic systems as well as innovation.

The ministry said Korea’s TFP grew by 0.20 percent annually between 1981 and 2007 - much slower than the 0.52 percent rate for France, 0.43 percent for German, 0.40 percent for the United States and 0.36 percent for the United Kingdom.

Of the 12 other countries included in the study, only Japan’s annual TFP growth between 1981 and 2005 was lower than Korea’s, at 0.17 percent.

Explaining the weak TFP growth here, the ministry said Korea is not responding effectively to the changes in its economy and industrial structure.

“Sluggish investment, such as in research and development, and the ineffective service industry also dragged down the pace of the TFP growth,” the ministry said in a statement.

Korea’s TFP deteriorated at a greater clip in the 2000s, the data showed.

Korea’s annual TFP growth between 2001 and 2007 was 0.08 percent, compared with 0.38 percent between 1991 and 2000 and 0.11 percent between 1981 and 1990. The Asian financial crisis in the late 1990s is the primary culprit for the recent downturn.

In comparison, annual TFP growth for the U.S. was as much as 0.91 percent between 2001 and 2005, followed by France at 0.21 percent, the U.K. at 0.20 percent and Germany at 0.19 percent. Even Japan’s annual TFP growth recovered to 0.08 percent between 2001 and 2005 from -0.15 percent between 1991 and 2000.

“This shows that many advanced countries have continued economic growth led by productivity, whereas Korea is still resorting to additional [labor and capital],” Han Yong-jae, an official of the ministry said.

Experts say the low TFP growth could pose a serious threat to Korea down the road.

“Considering that labor growth will be limited due to the low birthrate trend and the aging of the population, raising TFP is a prerequisite to improving our potential growth rate,” said Lee Geun-tae, an economist at LG Economic Research Institute.

By Moon Gwang-lip []

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