South Korea's Economic Freedom Ranks 22nd Among 38 OECD Countries... Quality of Life Index Below OECD Average
1% Increase in Economic Freedom Boosts GDP Growth by 0.1 Percentage Points
Hankyung Research Institute: "Need to Enhance Private Economic Vitality Through Regulatory Reform and Tax Cuts"
Infographic on the Economic Freedom Status of OECD Countries [Source=Korea Economic Research Institute]
[Asia Economy Reporter Kim Pyeonghwa] An analysis has emerged suggesting that less government intervention or regulation leads to more active private economic activities, which not only increases economic growth rates but also helps improve the quality of life for citizens. Since South Korea ranks relatively low in economic freedom among OECD (Organization for Economic Cooperation and Development) countries, there is a call to raise this level.
On the 18th, the Korea Economic Research Institute (KERI) announced that South Korea's economic freedom ranking was 22nd out of 38 OECD countries, placing it in the lower-middle tier. This result was derived by averaging the economic freedom scores from the U.S. Heritage Foundation (2022) and the Canadian Fraser Institute (2021).
Economic freedom is an indicator that reflects how well a country's institutions and policies align with economic freedom. A higher ranking means less government intervention or regulation restricting private economic activities.
South Korea ranked 22nd in economic freedom. Japan was one rank lower at 23rd. At the top of the rankings were Switzerland (1st), New Zealand (2nd), and Ireland (3rd), while the lower ranks included Colombia (36th), Greece (37th), and T?rkiye (38th).
KERI explained that higher economic freedom positively influences economic growth by enabling free private economic activities and efficient allocation of resources. It argued that when the private sector operates freely, human and technological innovation is enhanced, which can improve productivity across companies and the overall economy.
KERI stated, "Countries with high economic freedom have higher levels of talent competitiveness, R&D performance, and total factor productivity than South Korea." It added, "South Korea's talent competitiveness and R&D performance are low, causing its total factor productivity to lag behind the top 10 countries in economic freedom." Total factor productivity is an indicator that measures how much invisible factors such as technological development, labor-management relations, and managerial innovation affect production."
Difference Between the Top 10 OECD Countries and Korea Based on Quality of Life Index Using 11 Indicators [Source=Korea Economic Research Institute]
KERI conducted a regression analysis on the relationship between economic freedom and economic growth rate, claiming that a 1% improvement in economic freedom leads to a 0.1 percentage point increase in GDP growth rate. If South Korea's economic freedom improves to the level of Finland, ranked 10th in the OECD, the economic growth rate could increase by 0.5%, and if it reaches the level of Denmark (5th), it could rise by 0.6 percentage points. Regression analysis is a statistical method used to examine causal relationships between dependent and independent variables.
KERI also emphasized a clear correlation between economic freedom and quality of life indices. It argued that higher economic freedom promotes economic growth, which in turn enhances qualitative aspects of life such as environment, health, and education across society. KERI reported that South Korea scored particularly low in areas like life satisfaction, work-life balance, and environment compared to the top 10 countries in economic freedom.
Choo Kwang-ho, head of economic policy at KERI, said, "For South Korea, which ranks in the lower-middle among OECD countries, to raise its economic freedom to the top tier, it must enhance private economic vitality through regulatory reform, labor market flexibility, and tax cuts."
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