The Korea Development Institute says that at the current level of productivity, South Korea's average economic growth could slow to 1.seven percent a year during the next decade.
In its report released on Thursday, the KDI said Korea's economic growth slowed from an annual average growth rate of four.four percent in the 2000s to three percent between 2011 and 2018 mainly due to slowing total factor productivity.
Total factor productivity reflects how efficiently inputs excluding labor and capital, such as technology, the legal system and resource distribution, are used in the production process.
But total factor productivity's contribution to Korea's GDP growth has more than halved from one.six percentage points in the 2000s to zero.seven percentage points between 2011 and 2018.
And labor productivity's contribution to GDP growth is forecast to fall from zero.eight percentage points between 2011 and 2018 to zero.two percentage points in the 2020s due to the shrinking working age population.
The think tank said it is critical that industry succeeds in improving productivity through technological innovation and deregulation in the long-run to boost total factor productivity rather than short-term measures like an expansionary fiscal policy.
If total factor productivity is raised to one.two percentage points, the KDI says the contribution of capital productivity can go up and help lift Korea's annual average GDP growth to two.four percent for the 2020s.
Kim Hyesung, Arirang News.