South Korean Economic Growth Hindered by Slow Corporate Exit, Study Finds
Seoul – A new analysis reveals that South Korea‘s economic growth has been substantially hampered by a sluggish corporate “purification” process – the failure to efficiently remove struggling companies and replace them with healthier ones. According to Deputy Director Lee of the Korea Advancement Institute (KDI), had high-risk companies been successfully replaced, investment could have increased by 2.8% and Gross Domestic Product (GDP) by 0.4% between 2022 and 2024 alone.
The study, examining data from 2014-2019, found that 3.8% of companies were identified as being at high risk of exit. Though, the actual exit rate was only 2.0%, less than half of those identified.This insufficient “purification” effect meant a potential 3.3% improvement in domestic investment and a 0.5% boost to GDP during that period went unrealized. The post-COVID-19 period (2022-2024) showed a similar trend, with 3.8% identified as high-risk, but only 0.4% actually exiting.
“The slowdown in the growth of our economy after the crisis was caused by a slump in investment due to worsening corporate profitability, but the slowdown in the growth trend deepened as the economic purification mechanism that can improve this did not work smoothly,” Deputy Director Lee stated. he emphasized the need for policies that support both innovation and the smooth entry and exit of companies, even when providing financial support.
The analysis suggests that selective financial assistance should prioritize short-term relief for companies facing temporary difficulties and support for innovative start-ups.Together, fostering demand for new products and services through deregulation and investment in emerging industries is crucial for expanding South Korea’s economic future, particularly as key industries maintain technological superiority.
Kim Yu-ri, yr61@asiae.co.kr
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