The Korean economy has grown very fast over the last decades, but it was an uneven catch-up led by a big business and manufacturing. Now it is time for co-catchup led by both manufacturing and services. This paper analyzes the weight and productivity ...
The Korean economy has grown very fast over the last decades, but it was an uneven catch-up led by a big business and manufacturing. Now it is time for co-catchup led by both manufacturing and services. This paper analyzes the weight and productivity of the service sector in Korea and suggests for policies for its improvement in productivity.
The service sector in Korea is featured by low and declining productivity (both TFP and labor productivity), and a big trade deficits, which is in contrast to the trade surplus in manufacturing. This performance is worse, compared with the situation in Japan. For example, the ratio of labor productivity in service to that in manufacturing is only 14%, compared to 46% in Japan. Causes for the low performance in service include too much regulation and lack of competition due to the closed market. Thus, measures to boost up productivity in service include deregulation and market opening, which would open up the opportunity for learning from foreign companies. Industrial policy should also change from input-oriented one to network-oriented one emphasizing the unity of commodities and services.