(Intro)
Hello. My name is Kyung-in HWANG, Director of the Office of Public Relations and Media at the Korea Institute for Industrial Economics and Trade (KIET).

As KIET marks its 50th anniversary, we are hosting a series of dialogues with leading international scholars
in which they share their insights on rapidly changing industrial conditions and major policy issues.

Today we will be speaking with Shujiro URATA, Professor Emeritus at Waseda University.

Professor Urata is also chairman emeritus at the Research Institute of Economy, Trade, and Industry (RIETI) in Tokyo,
a Specially Appointed Fellow at the Japanese Center for Economic Research (JCER),
a Distinguished Senior Fellow at the Institute of Developing Economies (IDE-JETRO),
and chairman of the East Asian Economic Association (EAEA).


Q1.
Professor, you spoke about the global resurgence of industrial policy, including in Japan.
My first question is whether you could briefly walk us through how Japan's industrial policy has evolved since the end of World War II.

Q2.
As a leading authority on the Japanese economy, how would you assess Japan's industrial policy over the years?

Q3.
You have argued that the race among major countries to roll out competitive industrial subsidies could have unintended consequences.
What implications do you see this carrying for Japan?

Q4.
The semiconductor industry is arguably the single most important industry for both Korea and Japan.
And so I can’t can’t help but ask you the policies the Japanese government has pursued to foster its semiconductor industry.
Could you give us a brief overview?
What should Korea do to strengthen its own semiconductor industry?

Q5.
Lastly, I’d like to ask about the relationship between Japan and Korea.
These two countries find themselves caught between the United States and China,
occupying a dual role as both competitors and allies.

What does the future hold for this dyad?


(Outro)
So far, I have been talking with Professor Shujiro URATA.
The 50th Anniversary Special Project: Dialogues with International Scholars will continue in the future,
so please show your interest and watch.
Thank you. 
 

(Intro)
Hello. My name is Kyung-in HWANG,
Director of the Office of Public Relations and Media at the Korea Institute for Industrial Economics and Trade (KIET).

As KIET marks its 50th anniversary,
we are hosting a series of dialogues with leading international scholars in
which they share their insights on rapidly changing industrial conditions and major policy issues.

Today we're talking with ITIF President Rob Atkinson.

Rob Atkinson is the founder and president of ITIF,
one of the world’s leading science and technology policy think tanks

He also serves as a nonresident senior fellow at the Brookings Institution,
and as a member of the Science, Technology, and Innovation Council under the Canadian Academy of Sciences.

In the past, he was the first executive director of the Rhode Island Economic Policy Council.


Q1.
In your Industrial Economic Review article, you characterize China as a country pursuing a state-led, winner-takes-all strategy,
and you argue that this strategy could pose an existential threat to the South Korean economy.

Could you explain in greater detail how we got here and led our current moment?

Q2.
You point explicitly to weak productivity in the service sector as one of the culprits behind Korea’s stagnant growth, especially compared to years past.
You also argue that Korea needs to formulate a new, state-led productivity innovation strategy,
noting that could Korea could reference a similar strategy ITIF proposed in the American context.

Could you briefly go over its key features and point to some of the implications for Korea?

Q3.
In your article you briefly touch on how Korea’s zeal for private, after-school cram schools may actually hinder social and economic innovation.
How do you think reforming the current system, which is characterized by a preference for a handful of prestigious, “name-brand” universities,
to create a more flexible and autonomous learning environment could contribute to promoting innovation in Korea?

Q4.
Korean society has long been somewhat averse to taking risks and starting a business. 
Youth entrepreneurship in particular is declining,
and one public opinion survey has identified fear of failure as the biggest obstacle to entrepreneurship.

What policy tools should be considered to help address this issue?


(Outro)
So far, we've been talking with Chairman Rob.
The 50th Anniversary Special Project: Dialogues with International Scholars will continue in the future,
so please show your interest and watch.
Thank you. 
 

(Intro)
Hello. My name is Kyung-in HWANG,
Director of the Office of Public Relations and Media at the Korea Institute for Industrial Economics and Trade (KIET).

As KIET marks its 50th anniversary,
we are hosting a series of dialogues with leading international scholars in
which they share their insights on rapidly changing industrial conditions and major policy issues.

In this inaugural episode, we will be speaking with Professor Gary Gereffi,
one of the world’s foremost experts on global value chains.

Professor GEREFFI currently serves as Director of the Global Value Chains Center at Duke University,
and has previously served as an adviser to the World Economic Forum.

One of pioneers of the global value chain (GVC) analytical framework,
he has provided advisory support to a range of international organizations,
including the United Nations, the World Bank, and the International Labour Organization (ILO).

He is widely recognized as one of the foremost authorities in his field.

Q1. 
Professor, in your work, you have argued that a year-long global economic crisis has eroded the long-standing free trade regime
and has given rise to a new economic order that is fragmented and multipolar.

Could you briefly explain what this new economic order entails, and how it differs from the system that preceded it?

Q2.
Professor, in your article published in Industrial Economic Review (IER) (available at KIET’s homepage),
you emphasized that advancing green industries and building sustainable value chains can provide not only advanced economies
but also emerging economies with opportunities to enhance their economic standing.
At the same time, the Trump administration in the United States has signaled an unfriendly stance toward the broader green policy agenda.

How should countries that are seeking to foster green industries interpret and respond to this direction in US policy?

Q3.
In your earlier research, you have often analyzed cases in which trade policy produced unintended outcomes
that diverged from policymakers’ original intentions.
Recently, major countries have been pursuing trade policy more assertively.
Do you think there is a possibility that these countries’ trade policies could backfire and generate adverse effects?

For a country like Korea, which is highly dependent on trade,
what risks or pitfalls do you think policymakers should be especially careful to guard against when designing and implementing trade policy?

Q4.
Professor, in your IER article you also referenced the concept of “weaponized interdependence.”
Many countries are now working actively to build more resilient domestic supply chains.

In your view, how will these supply-chain policies affect the ability of states to sustain or intensify strategies of weaponization?

Q5.
As strategic competition between the United States and China has recently intensified,
as a relatively open economy dependent on trade with both Korea finds itself in an increasingly difficult position between the two.

Under these circumstances, what realistic options does Korea have when it comes to industrial strategy?

(Outro)

The 50th Anniversary Special Project: Dialogues with International Scholars will continue in the future,
so please show your interest and watch.
Thank you. 

 

Hello. I’m Jae Yoon Lee,

Research Fellow and Director of the Office of Carbon Neutrality and Industrial Transition Research at the Korea Institute for Industrial Economics and Trade.

I’ll be discussing the outlook for South Korea’s 13 flagship industries in 2025.

For 2025, production is set to slow down in many of Korea‘s 13 flagship industries, saving only for a handful of IT-driven sectors,

due to escalating trade risks, a sluggish global economic recovery, and increased outsourcing overseas.

We expect export growth to fall and weak growth in domestic demand.

Overall, robust global demand for IT products should to support healthy production and exports of ICT devices, semiconductors, and displays.

The biotech and shipbuilding are likely to slow down in the second half of the year,

but are nonetheless slated to post positive growth year-over-year (YoY).

The automotive, machinery, steel, oil refining, home appliances, and secondary batteries sectors are expected to remain in recession during the first half of the year due to sluggish domestic and global demand.

We do however anticipate a modest improvement in the petrochemicals industry in the second half of the year, and a full-scale recovery could be in the cards post-2026.

Now, let's take a closer look at the outlook for each of Korea’s 13 flagship industries in the second half of 2025 through detailed graphs.

First, let’s examine each industry’s export outlook for the second half of 2025.

Despite continued export growth in emerging industries such as IT and biotech,

exports of the 13 flagship industries in the second half of 2025 are expected to decline by 2.3% year-on-year

due to prevailing negative factors, such as high US tariffs, intensifying external uncertainties, and increased outsourcing of production abroad.

Due to the reverse base effect and other contributing factors, by the time the first half of 2025 comes to a close,

overall exports are likely to have tumbled by 1.9%, resulting in an annual export decline of 2.1% compared to the previous year.

Among the machinery industries, the shipbuilding sector should expected maintain its growth trajectory in exports (3.4%) in the second half thanks to deliveries of high-value LNG carriers.

However, exports of automobiles (-11.4%) and machinery (-5.8%) are expected to decline further in the second half of the year due to US tariffs and sluggish global demand.

As a result, annual exports in the machinery sector — which grew by 0.6% last year — are expected to fall by 5% in 2025.

In the materials sector, lower oil prices, higher US tariffs,

and weakening global demand are expected to result in weak exports across all subsectors throughout the year.

Overall, sectoral exports look set to plummet by -9.4% in 2025, after falling by -1.2% in the previous year.

After a 29.4% surge in 2024, exports for the IT industry and emerging new sectors are expected to continue growing by 4.7% in 2025,

supported by strong global IT demand driven by AI adoption, an increasing share of high-value semiconductors,

and the growth of promising sectors such as biosimilars and energy storage systems (ESS).

However, risks such as tariffs, rapid Chinese growth, and expanded outsourcing are expected to act as constraints on export growth.

Next is the domestic demand outlook for Korea’s 13 flagship industries for the second half of 2025.

The overall decline trend in domestic demand for the 13 flagship industries should soften somewhat in the second half of 2025, aided by improved consumer sentiment.

However, sluggish construction investment and weak domestic and global growth will continue to constrain demand growth.

In the machinery sector, domestic demand for automobiles (2.1%) is expected to increase in the second half of the year as domestic automakers turn their focus to the domestic market.

But domestic demand for general machinery (-1.7%) is expected to decline in the second half of the year due to the slump in the construction and manufacturing sectors.

In the materials sectors, domestic demand for petrochemicals is expected to rebound by 6.3% in the second half.

However, overall annual demand growth is likely to be negative (-0.2%).

And due to weak construction investment, steel demand is also expected to fall (-4.7%). Domestic demand for textiles should remain flat (0.7%).

In the IT industry and emerging new sectors, new product launches and improved electric vehicle (EV) sales are expected to drive a rebound

in domestic demand for ICT devices (5.5%) and secondary batteries (6.8%) in the second half of 2025.

However, domestic demand growth in the biohealth sector is projected to decline by nearly three percentage points in the second half of 2025 due to the base effect,

but overall expanded policy support will allow the sector to see continued annual demand growth of 2.2%.

Next is the production outlook for the Korea’s 13 flagship industries in the second half of 2025.

Production in most sectors should continue to tumble in the second half of 2025,

following downturns observed in the first half of the year as exports stumble and domestic demand recovers only modestly.

In the machinery sectors, annual production is expected to decline for the second consecutive year,

as the decline trend in production of automobiles (-4.4%) and general machinery (-3.5%) worsens in the second half amid sluggish exports and domestic demand.

Although production in the shipbuilding sector is projected to drop by 5.8% in the second half of the year,

the industry should post positive overall annual growth (5.0%) as production is normalized.

In the materials sector, continued export sluggishness and a restrained domestic recovery are expected to result in further production declines

in the steel (-1.3%), refining (-2.2%), and textiles (-1.4%) subsectors during the second half of the year.

However, the petrochemicals (-0.4%) industry could see an uptick in production (3.5%) due to improved product spreads and higher capacity utilization.

Although production growth in the emerging IT industries is expected to slow in the second half of 2025 compared to the first,

increased exports should bolster production in the ICT devices (2.1%), semiconductors (2.3%), and biotech (3.1%) subsectors.

On the other hand, production in the home appliances (-0.5%) and secondary batteries (-2.2%) sectors is expected to fall again in the second half of the year as firms outsource production abroad.

Finally, let’s take a look at outlook for imports in Korea’s 13 flagship industries for the second half of 2025.

Despite rising imports of IT products, total imports in the 13 flagship industries are expected to decline by 0.5% YoY

due to slack domestic demand in the machinery and materials sectors and falling unit prices caused by an increase in low-cost imports.

In the machinery sectors, overall imports of automobiles are expected to tick downward due to increased imports of low-cost EVs,

while imports of general machinery should remain flat amid weak recovery in the manufacturing sectors.

However, shipbuilding imports are projected to increase due to localization of equipment.

In the materials sectors, imports of steel are expected to plunge as domestic demand falters and new restrictions on imports take effect.

Imports of refined oil are also likely to dip as unit prices fall.

However, with improving domestic demand and an increasing influx of low-cost imports, imports of petrochemicals and textiles are expected to grow slightly.

In the emerging IT industries, imports of IT products and home appliances are expected to increase in the second half of the year,

driven by improved consumer sentiment. Imports of semiconductors used in the development of advanced technologies are also projected to continue,

while the decline in secondary battery imports is expected to slow significantly due higher domestic demand for imported batteries.

Hello.

I’m Sung Wook HONG, Senior Research Fellow and Director of the Office of Economic Outlook at the Korea Institute for Industrial Economics and Trade.

I’d like to discuss the current economic conditions in South Korea and the world and the macroeconomic outlook for 2025.

Recently, Korea’s real economy has entered a downturn, driven by a decline in exports due to weak unit prices of major export items early in the year,

sluggish demand amid intensifying global uncertainties, and a reverse base effect from strong performance during the same period last year.

In addition, heightened domestic political uncertainty has dampened consumption and investment, resulting in sluggish performance across all sectors.

As the global economy enters a transitional phase driven by changes in US trade policy,

global economic growth in 2025 is expected to fall off from its 2024 performance.

Assuming an average annual oil price of around USD 67 per barrel and a 3.6% increase in the KRW/USD exchange rate compared to the previous year,

Korea’s economy is projected to grow by around 1% in 2025.

Domestic demand should tick up modestly, with private consumption increasing by 1.0%

and facility investment by 1.8%. Construction investment, on the other hand, is set to contract by 4.7%.

Exports and imports are forecast to decline by 1.9% and 2.1%, respectively.

Now, let’s take a look at a few graphs for more details.

First is the outlook for economic growth in 2025.

In 2025, Korea’s economy is expected to grow at around 1% year-over-year (YoY).

This weak figure owes to sluggish exports and lower trade volumes triggered by uncertainties surrounding US tariff policy.

Despite the launch of a new government and supplementary budget effects, recovery in domestic demand is projected to remain quite mild.

Domestically and globally, key variables will include the ripple effects of the US-China trade conflict,

uncertainties surrounding trade and monetary policy, and the potential for increased financial market volatility.

On the domestic front, additional variables include consumer and investment sentiment,

and the extent of any decline in exports due to worsening trade conditions.

An easing of US-China trade tensions and a more favorable trade environment might prompt an upward adjustment to Korea’s economic prospects this year.

Also, the launch of the new administration and its economic stimulus policies could have a positive impact on the Korean economy.

Next up is the outlook for private consumption.

Overall, private consumption is expected to grow by around 1.0% compared to the previous year,

aided by the launch of a new government and easing political uncertainties,

likely interest rate cuts, and expectations for economic stimulus from the new administration.

But overall consumption growth will be capped due to persistently high levels of household debt,

rising perceived inflation, and only a modest recovery in consumer sentiment.

Next up is the outlook for investment.

Despite rising prices of imported capital goods and heightened uncertainty in major countries’ trade policies dampening investment sentiment,

overall facility investment should actually increase by about 1.8% YoY supported by continued strength in the semiconductor industry driven by robust demand for high-value memory chips.

Construction investment, however, is expected to tumble by 4.7% compared to the previous year,

as leading indicators for the construction market remain weak,

with growing unsold housing inventories and sluggish trends in permitting and groundbreaking.

Finally, let’s take a look at the outlook for exports and imports.

Exports in 2025 are expected to decline by 1.9% YoY.

Although exports of AI-related semiconductors, ICT devices, shipbuilding, and biotech products should remain strong,

the continued US-China trade conflict, uncertain U.S. tariff policy under the Trump administration,

and a global trade contraction are likely to weigh on overall exports.

Imports are also expected to decline by about 2.1% compared to the previous year despite a weaker won,

as oil prices fall and demand for intermediate goods contracts amid a sluggish export environment.

Overall, the balance of payments for 2025 is projected to sit at USD 52.4 billion, a slight increase over 2024.

[REPORT]
https://www.kiet.re.kr/trends/ecolookView?ecolook_no=52&skey=&sval=

Hello,

I’m Jae Yoon LEE, Director of the Materials & Sustainability Division at the KIET Center for Growth Engine Industries.

I’ll be discussing the outlook for Korea’s thirteen flagship Industries in 2025.

For 2025, despite intensifying global competition and the rising tide of protectionism, 

we expect Korean exports to maintain their growth momentum, driven by improved domestic and international demand resulting from the spread of AI and expanded investments in IT infrastructure. 

We also anticipate a partial recovery in domestic demand, which had been sluggish throughout 2024.

Overall, we expect the information and communication devices, semiconductors, and bio-health industries to post solid growth in exports, domestic demand, and production. 

On the other hand, growth seems likely to stagnate in the shipbuilding, home appliances, and display industries, 

and the automotive, steel, textile, and battery sectors are not likely to improve upon their 2024 performances. 

But the general machinery, petrochemical, and refinery sectors should gradually bounce back after a rough 2024. 

Now, let's take a more detailed look at the outlook of the thirteen flagship industries through detailed graphs.

First, let’s look at the outlook for exports in the 13 flagship industries in 2025.

In 2025, we project exports from the 13 flagship industries will increase by 2.2% compared to 2024, 

, buoyed by a gradual recovery in global demand following, lower interest rates, and continued growth in IT exports such as semiconductors and information communication devices. 

However, the expansion of overseas production, ongoing stagnation in China, and the base effect of last year’s robust growth temper expectations. 

In the machinery industries, the shipbuilding sector is expected to sustain its export momentum, expanding by 4.1% year over year. 

But increased production overseas and slack demand from China mean that automotive exports are likely to contract by 2.75 percent, while exports of general machinery will remain flat, at just 0.2 growth.

As a result, overall exports in the machinery industries are projected to decrease by 0.8% compared to 2024.

In the materials industries, we expect steel exports to bounce back by 5% and exports of petrochemicals to return to a growth trajectory (albeit at just 0.1%) following a decline in 2024. 

However, falling oil prices mean the value of refined petroleum exports is likely to contract by 7.5%, weighing on overall materials sector exports,

which year over year look set to fall by 1.5% in 2025 compared to 2024, continuing last year’s skid.

Exports in the emerging IT industries, which recorded a substantial 28% increase in 2024 compared to the previous year,

are expected to sustain their growth trend, driven by rising AI demand and improved consumer sentiment fueling greater stronger demand for IT devices. 

We anticipate the export growth to continue in semiconductors (8.5%), information communication devices (8.4%), and biotech (4.9%). 

Overall, we forecast 6.9% growth for IT industry exports in 2025. 

However, stagnant demand for electric vehicles and fierce competition from China will constrain export growth.

Next, we will cover the domestic outlook for Korea’s 13 flagship industries.

Despite strong export performance, we expect continued sluggishness in domestic demand in 2025. 

Despite this, we do anticipate a return to a growth trajectory for most industries in 2025, driven by improved consumer sentiment and the launch of new products.

In the machinery industries, we project higher domestic demand in the general machinery (1.1%) and automotive (3.6%) sectors in 2025. 

This is attributed to expanded investments in the manufacturing sector and sales strategies better tailored to the domestic market.

In the materials industries, domestic demand for petrochemicals (4.2%) is expected to rebound, while demand for refined petroleum products should remain steady amid a recovery in forward industries.

However, we do expect the steel industry to pull back for the second consecutive year, as construction demand as yet to pick back up.

In the emerging IT industries, domestic demand in key IT sectors such as information and communication devices (4.3%) and semiconductors (17.3%) should rebound, driven by strong IT exports and domestic replacement demand. 

Biotech (13.3%) looks set to continue its winning streak, supported by the impact of new drugs. But the forecast for the secondary batteries sector looks grim (-21.8%) again in 2025, as battery electric vehicle production and sales continue to slump. 

Next, let’s look at the production outlook for the thirteen flagship industries in 2025.

In 2025, we expect continued production growth, primarily driven by growth in emerging IT industries that heavily depend on exports.

But production in other sectors looks set to remain flat, and automotive production is likely to fall year over year. 

We expect that greater production in overseas manufacturing facilities will continue to weigh on domestic automotive production, which is set to decline again, this time by 1.5%. 

Production should also fall off somewhat in the shipbuilding (-1.5%) industry, but this is due largely to the base effect.

Production of general machinery (0.2%) should see a slight uptick driven by stronger domestic demand.

In the materials industries, we expect production to fall again in the steel (-0.6%) and textile (-1.0%) industries, reflecting weak domestic and export demand. 

However, production in the petrochemicals (0.8%) industry should return to a growth trend as the oversupply problem eases.

In the emerging IT industries, we anticipate increased production in the information and communication devices (5.6%), semiconductors (11.1%), and biotech (12.7%) sectors, driven by sustained export growth and robust domestic demand. 

However, production in the battery industry is set to contract again in 2025 due to slack domestic and foreign demand, 

though the rate of decline is expected to moderate somewhat, supported by higher battery prices and the expansion of domestic facilities. 

Finally, let’s take a look at the outlook for imports in Korea’s 13 flagship industries in 2025. 

In 2025, we expect imports for the thirteen flagship industries to grow by 3.6% year-on-year.

This increase can be attributed to strong demand for imports in the emerging IT industries, driven by a recovery in domestic demand, as well as sustained imports in the electric vehicle and general materials sectors.

In the machinery industries, we expect higher imports of electric vehicles to drive an overall increase in automotive imports.

General machinery imports are anticipated to continue rising, reflecting growth in the manufacturing sector. 

Similarly, shipbuilding imports are poised to continue their upward trajectory, driven by increased imports from China and the expansion of LNG carrier construction.

In the materials industries, imports of steel, petrochemicals, and textiles are expected to increase year-on-year, driven by higher imports of general-purpose products.

However, growth in terms of volume looks likely to stay flat due to slack domestic demand. 

Meanwhile, imports of refined petroleum products are poised to fall as unit prices slip.

In the emerging IT industries, imports in key IT sectors are expected to continue rising, driven by a recovery in domestic demand, new product launches, and more re-imports. 

We also project higher imports of biotech products. However, imports of secondary batteries are set to fall as domestic demand has yet to pick back up.

 

Hello,

I’m Sung Keun Park, Research Fellow and Director of the Economic Outlook and Analysis Division at KIET.

I’d like to discuss the current economic situation in Korea and the macroeconomic outlook for the country in 2025.

The domestic real economy continues to experience robust growth in exports led by the semiconductor sector amid a modest expansion in capital investment. 

But the recovery is slowing down due to slack consumption and a slump in construction investment.

In 2025, assuming the global economy maintains the modest pace of growth observed in 2024,  

international oil prices should slide to USD 75 per barre. 

The won should rise against the dollar, with the exchange rate settling at KRW 1,340,

Overall, we project the Korean economy will expand grow by 2.1% in 2025, a slight decrease compared to 2024. 

Construction investment is not likely to pick back up, and indeed should fall by an additional 0.9%.  

Private consumption, however, should bounce back by 1.9%. 

Investment too is projected to rise by 2.9%, 

as are exports, which we project to climb by 2.2% year over year, continuing the upward trajectory they enjoyed in 2024.

The following graphs offer a more complete picture of the economic prospects in 2025. 

First up: the overall economic outlook for 2025.

In 2025, the Korean economy is projected to grow by 2.1%. 

While construction investment is expected to remain sluggish, exports should continue their upward trajectory.

Consumption and investment should also recover somewhat, buoyed by robust export performance and the effects of likely interest rate cuts.

However, significant uncertainties remain. 

These include potential changes in major economic policies in the United States, ongoing geopolitical tensions, and the pace of growth in the global IT sector.

Unfavorable changes in any of these variables could exert considerable downward pressure on the Korean economy.

Next, we’ll discuss our projections for private consumption in 2025.

Private consumption is expected to grow by 1.9%, up 1.3 percentage points over 2024, reflecting a modest recovery. 

This can be attributed to the anticipated effects of a likely interest rate cut, increases in real income, and more stable prices.

Now, on to investment.

The increase in facility investment will be driven by improved performance at major corporations supported by an anticipated recovery in the global IT sector, 

alongside the effects of likely interest rate cuts. 

But construction investment looks to remain in freefall.

We expect construction investment to slip by continue by a further 0.9% following a -1.6% drop in 2024. 

Lower interest rates should mitigate the damage, but leading indicators are stubbornly pessimistic and the downtown seems likely to persist through 2025.

Finally, we’ll discuss the outlook for trade.

The projected 2.2% export growth rate for 2025 is slightly down from 2024, but this is due largely to the base effect. 

We anticipate that growth in upstream IT industries will help sustain the expansion in exports, particularly in the semiconductor sector.

Imports are expected to increase by 2.1%.

While the won should strengthen somewhat against the greenback and international oil prices are set to stabilize, 

we project that increased demand for intermediate inputs used in products intended for export will contribute to a slight rise in imports.

The trade surplus is expected to reach USD 48.7 billion, a slight increase compared to 2024, reflecting strong export growth outpacing growth in imports.

However, the election of Donald Trump as the 47th president of the United States complicates projects. 

Trump has pledged to impose a universal tariff on all goods imported into the US; this could significantly impact Korean exports to the States, 

and particularly automotive exports. If such tariffs do go into effect, a drop in auto shipments could exert significant downward pressure on overall Korean exports.

 

Hello, this is announcer Ye-dam CHO.

Today, I’m going to speak with Jaehan Cho, Senior Research Fellow at the Korea Institute for Industrial Economics and Trade (KIET) 

and director of the Industrial Policy Innovation Division at KIET.

He’s going to introduce a major KIET research project from last year: Creating Future Growth Engines for Dynamic Innovative Growth. 

Are you ready, Dr. Cho?

I sure am.

Hello Dr. Cho!

Hello! I'm Jaehan Cho, head of KIET’s Industrial Innovation Policy Division.

I study various aspects of industrial policy.

So you’re an industrial policy researcher, right? 

Well, recently, Korea’s industrial competitiveness is getting weaker and weaker, and it seems like new engines for economic growth are nowhere to be found.

Could you elaborate on this, and talk a bit about what motivated your research?

Sure. Since the 2010s, Korea’s flagship industries have matured. 

Their growth as slowed down and they are becoming less competitive.

But as this has happened, we’ve collectively struggled to identify and nurture new, high-growth successor industries.

To illustrate, let’s compare Korea’s main exports from the years 2000 and 2022.

In 2000, the country’s export basket was dominated by semiconductors, computers, automobiles, and petroleum products.

and in 2022...the country’s export basket was dominated by semiconductors, computers, automobiles, and petroleum products.

Not much has changed; these items still account for nearly 60% of all Korean exports.

This tells us that Korean industries are in need of a major structural overhaul. But we’ve seen little progress on this front.

The lack of new growth in Korea is a major reason that not long ago the OECD predicted a 0% growth rate for Korean per capita GDP.

It was after this that the new government, inaugurated in 2022 promulgated the “materialization of a dynamic economy” as a key national goal,

emphasizing the importance of a private sector-led economy backed by government support and bolstered by fundamental economic reforms.

But despite longstanding concerns about declining economic and industrial dynamism, few studies have analyzed this issue in depth and offered policy suggestions.

So for this project we sought to objectively analyze the current state of domestic industrial dynamism and 

devise policies specifically designed to strengthen it, with the ultimate goal of fostering future growth drivers.

OK, so it sounds like economic dynamism is really important. 

So how can we assess the current state of our economy and industrial dynamism?

I’ll explain how we did just that very briefly.

We analyzed dynamism from two perspectives: corporate entries and exits, and industrial structural change using a indicator called the Modified Lilien Index (MLI).

This comprehensive approach provides a very clear picture of the state Korea’s industrial dynamics.

All right, so let’s with corporate entries and exits. 

What did you learn?

Basically, in our analysis of corporate entries and exits — the number of firms getting into and out of a any given line of business —

we found evidence of decline in domestic industrial dynamism, particularly in the manufacturing industries.

Entry and exit rates have been steadily decreasing across most manufacturing subsectors,

which points to an overall slowdown in industrial dynamism.

That makes me wonder what the dynamics are like in other industries. 

Did you uncover any other notable trends?

You know that Modified Lilien Index (MLI) I just mentioned? 

That indicator too shows an across-the-board decline in domestic industrial structural dynamism.

The trend is not industry-specific, and holds across a swath segments in the the manufacturing sector.

This tells us that new industries are emerging at a very slow rate in Korea.

Using the MLI, we also found that aftermath of the 2008 global financial crisis led to a temporary increase in industrial dynamism,

whereas the more recent COVID-19 economic shock did not. 

The recession following the financial crisis actually served to accelerate structural change in Korean industry; the pandemic-induced recession produced no such virtuous cycle.

Finally, our analysis revealed a strong correlation between industrial dynamism and corporate exits, but not necessarily with new entries. 

This suggests that even if new companies enter the market, they do not tend to birth new industries. 

And moreover, the recent decline in overall corporate exits seems to have contributed to the weakening of overall Korean industrial dynamism.

So it sounds like making our industries more dynamic is necessary for innovative and sustainable growth.

What policies do you suggest to achieve this?

We proposed a suite of policies to stimulate industrial dynamism and enable sustainable, innovative growth, grounded in the OECD’s industrial policy framework.

First, qualitative improvements in the investment system are needed to ensure that new corporate entries produce real industrial dynamism and structural change.

 A comprehensive investment support system focused on new industries should be established, 

 and to implement this the patchwork of various programs administered by different ministries should be streamlined and consolidated.

All right, so it sounds like we need to reform and improve the entire system of investment and investment support so that new corporate entries generate actual results. 

What about the financial sector?

In the financial sector, we need to focus on institutional reform and improvements that can help create new industries and secure core technologies.

We should benchmark leading global companies’ investments in new industries and technologies,

and establish a kind of “mother fund” that encourages and facilitates investment in venture firms looking to break into new industries.

And we should also consider raising the current limits on overseas investments set by the Monopoly Regulation and Fair Trade Act, and also add exemptions for investments made in venture firms in new industries. 

These measures could help encourage domestic flagship companies to up their investments in venture firms operating in new industries.

All right, so we need institutional improvements in the financial sector that to help the economy creating new industries and develop major technologies.

Can you talk a bit about about the corporate ecosystem, and what we need to do there? 

We need to simultaneously build a social safety net to enhance the effectiveness of policies related to the normalization of so-called “zombie firms” while mitigating the potential side effects of said normalization

Expanding the scope of the Special Act on Corporate Revitalization and strengthening competitiveness measures can help prevent firms from ever becoming zombies surviving on debt, 

and later on the same Act could be used to normalize or eliminate zombie companies, streamlining the process and facilitating the smooth exit of low-performing firms. 

But this will require expanding and enhancing the social safety net to help workers that lost their jobs at zombie firms.

That covers what to do with zombie companies.

Now what about industrial technology?

So, for industrial technology, the government needs to embrace and support market-oriented R&D. 

We need to reform performance evaluation and project selection systems to tolerate risk and failures and encourage pursuing high-impact technological breakthroughs. 

Such a mission-oriented approach also requires us to totally revamp the structure of governance in the fields of science and technology in a way that allows us to better leverage the capabilities of various ministries and integrate strategies. 

Essentially, we need to design systems and incentives that enhance government expertise, encourage risk-taking,

and grant greater levels of organizational flexibility, while expanding the private sector’s role in setting and implementing government R&D strategies.

Thanks for the detailed explanations of your recommendations for each sector. 

I hope that some of these become a reality going forward.

Now, could you take a moment to talk about some of the challenges you encountered as you and your team carried out this project?

This study was one of the biggest projects that KIET’s Center for Industrial Policy Research undertook in 2023, and the topic was set by the top brass.

KIET researchers typically propose their own methods and subjects, but in this case we were tasked with studying specific issues. 

The main subject of this report -- economic and industrial dynamism — was an especially challenging one.

 We spoke with experts and policymakers at length about declining industrial dynamism in Korea, 

but performing empirical analysis on this somewhat abstract concept presented a significant research challenge.

These days, policy research is dominated by empiricism and the hunt for real concrete evidence of various phenomena.

But reliable methodologies used to analyze domestic economic and industrial dynamism are few and far between, and the availability of practical data presented another major obstacle to overcome.

But in the end, we that’s just what we did.

Our final report features comprehensive policy recommendations covering virtually all aspects of industrial policy, including investment, technology, finance, and the corporate ecosystem.

Our research team continues to build on this study, conducting follow-up research on specific policy tasks. 

And the methodologies we used to analyze dynamism are set to serve as the foundation for future assessments of domestic trends in industrial dynamics.

Thanks for talking about the Creating Future Growth Engines for Dynamic Innovative Growth research project with us, Dr. Cho.

I look forward to what you and your team will discover in the future! 

Your insights into Korean dynamism and innovative growth were valuable.

Do you have any final thoughts?

I’m glad to have had the opportunity to discuss my research in detail. Thank you for your questions.

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