Characteristics of Korea’s Industrial Structure through the Structural Change Index
The industrial structure is constantly evolving due to supply-side factors such as technological advancement, the labor force, capital accumulation, and international competition as well as demand-side factors such as changes in consumer needs due to increased income levels, and industrial policy factors that complement these two factors.
In general, in a more energetic and dynamic eoconomy, it can be expected that the industrial structure will change rapidly as the entry and exit as well as growth and extinction of enterprises that constitute each industry become more frequent. If domestic resources are reallocated from a relatively low-productivity sector to a high-productivity sector through smooth industrial restructuring, the overall productivity of the economy will increase and the growth rate will also rise. On the other hand, if resources cannot efficiently move from a low-productivity sector to a high-productivity sector due to the rigidity of the factor market or political and social resistance, the efficiency of the economy as a whole is likely to decrease and growth is also likely to stagnate.
There has been much debate about the relationship between changes in the industrial structure and economic growth. Research appears to show a close correlation between the two.1 However, the paths that define the relationship between the two are very diverse, and the direction of causality is not clear.