"South Korea's Semiconductor Industry Productivity 4.2 Times Higher Than Overseas"

KDI Global Economic Review on the 24th

A diagnosis has emerged that the overall productivity level of Korea's strategic industries is relatively high compared to other advanced countries. In particular, it is assessed that Korea's semiconductor, battery, and software industries maintain competitiveness at the forefront due to their high productivity.

On the 24th, KDI mentioned this in the KDI Global Economic Review (first half of 2023) in the article titled "International Comparison of Total Productivity in Strategic Industries: Focusing on the Relationship Between Firm Size and Productivity." Researcher Jo Garam diagnosed that Korea's semiconductor industry's total productivity in 2021 was 4.2 times that of overseas and 7.8 times that of China, indicating a very high level. This was analyzed to be possible because highly productive firms can grow significantly.

Researcher Jo explained, "The proportion of the relationship between firm productivity and size in total productivity is 62.6% in Korea, which greatly contributes to increasing total productivity," and added, "Conversely, in China, firms with high productivity are small in size, which constrains total productivity." The productivity of Korea's battery industry was also found to be 3.1 times higher than overseas.

However, analyzing firm productivity by size showed that the groups of firms that can improve total productivity in strategic industries differ by industry. Researcher Jo pointed out, "In the semiconductor industry, large firms, and in the battery industry, small firms have recently experienced declines in productivity and capital intensity, indicating a need for efforts to improve investment and productivity." He also explained that the productivity of large firms in the software industry is lower than that of medium-sized firms.

Researcher Jo stated, "To maintain the high competitiveness of Korea's strategic industries, it is necessary to selectively focus on the relationship between firm size and productivity to identify firms needing policy support and to ease unnecessary regulations that restrict firm growth," adding, "Policies that classify and support firms using artificial criteria distort decision-making of firms near the boundaries of these criteria and hinder efficient use of resources. Therefore, it is essential to accurately identify the groups of firms that need support from the perspective of improving the industry's total productivity."

Furthermore, he emphasized, "China's semiconductor industry is rapidly catching up with Korean firms across the entire productivity distribution, and the battery and software industries are rapidly pursuing Korean firms mainly among low-productivity firms. Therefore, efforts to identify and improve regulations that hinder firm growth are also necessary."