"Our Country's Economic Growth Relies More on Factor Input Increase than Total Factor Productivity"

Korea Productivity Center Announces Results of Total Factor Productivity International Comparison

[Asia Economy Reporter Kim Cheol-hyun] It has been revealed that the growth of South Korea's economy relies more on the increase in factor inputs than on total factor productivity (TFP). TFP is an indicator representing the overall efficiency of the production process considering all measurable input factors such as labor and capital inputs, and is generally interpreted as the effect of technological progress and managerial innovation.

The Korea Productivity Center announced the results of an international comparison of total factor productivity on the 12th, including this information. According to the Productivity Center, South Korea's TFP growth rate is higher compared to major countries, but its contribution to value-added growth is relatively low. From 2011 to 2017, the estimated TFP growth rate across all industries in South Korea (0.83%) was lower than Germany (0.97%) but higher than the United States (0.11%), Japan (0.58%), and the 12 EU countries (0.50%).

During the same period, South Korea's value-added growth rate was higher than that of major countries, but the contribution rate of TFP to output was 28.1%, which was lower than Germany (54.4%) and the 12 EU countries (40.5%). Comparing the contribution of TFP to value-added growth by country, it was explained that the growth of our economy relies relatively more on the increase in factor inputs than on total factor productivity.

Accordingly, the Productivity Center pointed out that for sustainable growth of our economy, it is necessary to implement a growth strategy led by total factor productivity. The 'Korean New Deal' policy is expected to promote digital transformation across society and industry, and to utilize this as an opportunity to enhance the total factor productivity of our economy, it is necessary to expand investments in software (SW) and research and development (R&D), and to foster digital convergence talents.