Potential Growth Rate
The Hyundai Research Institute announced on August 7 that the potential growth rate of the South Korean economy fell from 3.9% to 3.2% between the period of 2006 to 2010 and the following five-year period.
According to the institute, the manufacturing sector’s potential growth rate was 4.4% in the five-year period starting in 2011. For reference, the rate of the domestic manufacturing sector was 8.9% between 1991 and 1995, 7.9% between 1996 and 2000, 6.9% between 2001 and 2005 and 5.8% between 2006 and 2010.
Likewise, the contribution of total factor productivity to economic growth in this sector, which shows the pace of technological advancement in the sector, fell from 6.0 percentage points in 2001 to 2005 to 4.3 percentage points in 2006 to 2010 and then to 2.1 percentage points in 2011 to 2015. In contrast, the labor input in the manufacturing sector has increased since 2011. This implies that the inefficiency of the industry is on the rise.
The potential growth rate of the service sector is dropping as well. Specifically, it plummeted from 7.8% to 2.9% between the five-year periods starting in 1991 and 2011, respectively. Growth based on labor input is continuing with labor input on the increase in low value-added segments. In the service sector, the contribution of total factor productivity to economic growth edged up from 38.8% to 40.2% between 2001 to 2005 and 2011 to 2015.