Exports contribution to domestic demand weakens

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Exports contribution to domestic demand weakens

The Korean economy has witnessed its exports’ contribution to domestic demand weaken from 2000 onwards as the country’s growth was led by capital-intensive information technology (IT) firms and more companies went abroad, a report said Friday.

A coefficient of exports and domestic demand came to 0.149 in the 1991-97 period, according to the report published by the Bank of Korea (BOK).

Domestic demand here includes final consumption expenditure and fixed capital, which refers to plants, machinery and other production infrastructure.

A coefficient above zero means exports create a positive ripple effect on domestic demand, as brisk overseas sales encourages companies to increase facility investment and employment, which lead to households having higher income and spending more money.

But the coefficient dropped to 0.081 in the 2000-2007 period and to minus 0.014 in the 2010-2017 time frame.

On the other hand, exports account for 36.9 percent of the country’s gross domestic product in the latest seven-year period, up from 14.8 percent in the 1990s and 27.4 percent in the 2000s.

The BOK report noted that imports soared rapidly over the same period of time, as the IT sector emerged as the key export-leading industry after the 2008 global financial crisis.

Because IT firms depend highly on foreign capital and imported facilities, an increase in overseas sales of Korean-made semiconductors, smartphones and displays has resulted in a smaller spin-off effect on domestic demand.

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