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The Decline of Korean Industrial Vitality as Shown by the Structural Change Index

Author Lee Geonwoo Date 2021.05.24 Issue No 111
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○ The proportion of added value in Korean manufacturing has remained stable without major changes since the 1990s, and the same was true for the nation’s service sector in the 2010s.

 

 The structural change index (SCI), which measures the vitality or dynamism of industry as a whole, shows that the extent of structural change in domestic sectors has steadily declined over time.

- During the 2010s, the SCI of Korean sectors fell to under half their levels of the 1970s. Recently, however, levels have remained consistently similar to those of the Group of Seven (G7) economies.

 

 An assessment of absolute and relative SCI values shows that structural change in manufacturing since the 1990s no longer resembles “expansion” but rather “restructuring.”

 

 The continued decline in the indexes could sap Korean industry of its vitality and have a negative impact on productivity and economic growth through lower efficiency of resource distribution.

- An empirical analysis of the 30 member countries of the Organization for Economic Cooperation and Development (OECD) showed a relatively strong positive correlation between SCI levels and the rate of economic growth.

 

 Raising the efficiency of resource distribution and boosting industrial and corporate vitality will first and foremost require the swift restructuring of underperforming companies, along with diverse policy actions to raise productivity throughout all sectors.