National Competitiveness Ranking: Korea 26th, Japan 34th
Korea Surpasses Japan in Various Economic Indicators
Japan Leads in Basic Science and Core Technology Competitiveness
Global R&D Investment Companies: '5 Times More in Korea'
[Asia Economy Reporter Su-yeon Woo] Although South Korea has surpassed Japan in national competitiveness rankings due to rapid economic development over the past 30 years, it still lags behind in terms of technological competitiveness. Experts suggest that bold research and development (R&D) investment focused on basic science is necessary for Korea to achieve true economic advancement beyond Japan.
On the 12th, the Federation of Korean Industries released an analysis titled “Comparison of Changes in Economic Competitiveness Gap between Korea and Japan” in commemoration of Liberation Day. The results showed that Japan still leads Korea in various indicators reflecting competitiveness in materials and components technology. While Korea has significantly caught up with Japan in terms of external economic scale over the past 30 years since the 1990s, the gap in basic science and technology competitiveness has hardly narrowed.
Materials and Components Deficit with Japan Deepens... Japan Leads in R&D Investment
South Korea’s trade deficit in materials and components with Japan nearly doubled from $8.3 billion in 1994 to $15.4 billion last year, and the proportion of materials and components in the overall trade deficit with Japan has steadily increased.
It is natural that the deficit with Japan has grown as trade volume increased over the past 30 years, but analysis shows that imports of Japanese products in the materials and components sector have risen significantly compared to exports. This indicates that Korea’s dependence on Japan in the materials and components field has been steadily increasing.
In the global top 1000 R&D companies ranking, Japan has five times as many companies as Korea. In 2019, 140 Japanese companies were listed among the R&D 1000, while Korea had only 25. There is also a large gap in Nobel Prize winners in science, which demonstrate competitiveness in basic science and fundamental technology. Korea has yet to produce a single laureate, whereas Japan has produced as many as 24 winners up to last year.
Korea Surpasses Japan in National Competitiveness, Credit Ratings, and Manufacturing
It is encouraging that Korea is rapidly catching up with Japan in macroeconomic aspects such as nominal Gross Domestic Product (GDP) and export-import scale. In some indicators like national competitiveness, credit ratings, and manufacturing, Korea has already overtaken Japan.
In the International Institute for Management Development (IMD) World Competitiveness Ranking, Japan ranked 4th and Korea 26th in 1995, but 25 years later in 2020, Korea ranked 23rd, surpassing Japan, which was 34th. IMD annually publishes national competitiveness rankings based on comprehensive analysis of key areas such as economic performance, government and business efficiency, and infrastructure.
In international credit rating agencies’ national credit ratings, Korea is rated higher than Japan. In 1990, S&P rated Japan (AAA) higher than Korea (A+), but in this year’s evaluation, Korea (AA) is two notches above Japan (A+). Credit rating agencies noted Korea’s effective management of the COVID-19 pandemic and economic recovery driven by strong exports, while pointing out fiscal outlook risks for Japan due to the pandemic’s spread.
(From left to right in the table) IDM National Competitiveness Ranking, CIP Manufacturing Competitiveness Ranking, GDP per Capita Based on PPP / Source=Federation of Korean Industries
In manufacturing competitiveness, a key industry for both countries, Korea has long surpassed Japan. According to the Competitive Industrial Performance (CIP) index published by the United Nations Industrial Development Organization (UNIDO), Korea ranked 17th in 1990 but rose to 3rd in 2018, while Japan fell from 2nd to 5th.
In terms of GDP per capita based on Purchasing Power Parity (PPP), which reflects the real purchasing power of citizens, Korea surpassed Japan in 2018 with $43,001 compared to Japan’s $42,725, and this lead has continued. PPP-based GDP per capita accounts for price and exchange rate differences, showing the actual living standards of each country. This means that with the same $1, Koreans can buy more goods than Japanese, indicating that Korean citizens enjoy a wealthier lifestyle than Japanese citizens.
Experts point out that despite remarkable growth in various sectors of the Korean economy, the gap in basic science and technology with Japan remains a challenge that Korea must address. Kim Bong-man, head of international cooperation at the Federation of Korean Industries, said, “Korea’s economic achievements over the past 30 years have been remarkable, but there is still a gap with Japan in investment and competitiveness in basic science and technology,” emphasizing, “Active and long-term government support for R&D investment is necessary.”
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