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Diminishing role of young manufacturing plants as drivers of growth

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Diminishing Role of Young Manufacturing Plants as Drivers of Growth
Minho Kim, Fellow at KDI
“Korea’s aggregate productivity growth in the manufacturing industry is on the decline, considerably influenced by the slowing productivity growth of young plants. A particularly sharp decline has been observed in the high-tech industry over the past three years. As such, government support programs need to aim at promoting growth and driving innovation and the numerous targets for support programs should be streamlined towards young innovative firms. The criteria for such firms should involve private sector investment in order to enhance the effectiveness of the programs.”
Ⅰ. Issues
Korea’s manufacturing industry was the impetus behind the nation’s economic growth, and its competitiveness continues to rank high in the global market. The significance of manufacturing in the creation of value added and employment and as a driver of future innovation and growth has already been recognized by advanced countries such as Germany, Japan, the UK and the US who are making concerted efforts to strengthen the industry’s competitiveness and innovativeness. At the same time, the manufacturing environment is undergoing rapid changes as production technologies increasingly integrate with ICT and AI. However, Korea’s competitiveness in manufacturing has exhibited a decline in recent years, causing growing concern. In terms of the source, stagn


Full Text
Title Diminishing role of young manufacturing plants as drivers of growth
Similar Titles
Material Type Articles
Author(English)

Kim, Minho

Publisher

Sejong : Korea Development Institute

Date 2018-08
Series Title; No KDI FOCUS / No. 92, eng.
Pages 10
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Economic Conditions
Industry and Technology < Manufacturing
Holding 한국개발연구원; KDI국제정책대학원
License

Abstract

Korea’s aggregate productivity growth in the manufacturing industry is on the decline, considerably influenced by the slowing productivity growth of young plants. A particularly sharp decline has been observed in the high-tech industry over the past three years. As such, government support programs need to aim at promoting growth and driving innovation and the numerous targets for support programs should be streamlined towards young innovative firms. The criteria for such firms should involve private sector investment in order to enhance the effectiveness of the programs.

- Advanced countries are making renewed efforts to enhance innovation and competitiveness in manufacturing while concerns are growing in Korea over the industry’s waning competitiveness.

- This study analyzed the changes in the productivity growth of young manufacturing plants and proposed measures to improve the government’s entrepreneurship support policy.

- Young firms serve as a driving force for job creation and economic growth.

- The share of young plants in the manufacturing industry has continued to decline, pointing to a weakening of Korea’s economic dynamism.

- The manufacturing industry’s aggregate productivity growth has declined, particularly over the past three years.

- Young plants account for nearly half of the aggregate productivity growth on average in manufacturing while their value-added share is only 13%.

- The productivity growth of young plants has decreased over the past decade, diminishing its role as a growth engine.

- The stagnating growth of young plants is a bigger factor to their declining productivity growth than the falling number of new entries.

- The productivity growth of young plants in the high-tech industry, which has the highest R&D intensity, posted sharp decreases.

- Industries with high R&D intensity have been the driving force behind the productivity growth of the manufacturing industry for two decades. But, the last three years have seen a steep decline in the productivity growth of the high-tech industry.

- Although the average productivity of young plants is high, their contribution to aggregate productivity growth has declined due to their shrinking share of the industry.

- While streamling the targets for the support programs towards innovative firms, the government should refrain from selecting and supporting firms directly and reform regulations that hinder entrepreneurship and the growth of innovative firms.

- The government’s verification process should be abolished and innovative firms should be defined as young venture capital firms or R&D firms.

- Restructuring government programs should be based on objective project evaluations.

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