South Korean Economic Growth Hindered by Slowโ Corporate Exit, Study Finds
Seoulโค – A new analysis reveals that South Korea‘s economic โgrowth has been substantially โฃhampered byโค a โขsluggish corporateโฃ “purification” process – the failure to efficiently remove strugglingโฃ companies and replaceโข them with healthier ones. According โขto Deputyโ Director Lee โof the Korea Advancement Instituteโ (KDI), had high-risk companies been successfully replaced, investment could โคhave increased by 2.8% and Gross Domestic Product โข(GDP) by 0.4% between 2022 and 2024โข alone.
The study, โexamining data from โค2014-2019, found that 3.8% of companies were identified as โbeingโข at high risk of exit. Though, the actual exit rate was onlyโ 2.0%, โฃless than half โขof โthose identified.This insufficientโข “purification” effect meant a potential 3.3% improvement โin โdomestic โฃinvestment and a 0.5% boost to GDP during that period went unrealized. The post-COVID-19 periodโ (2022-2024) showed a similarโค trend, with 3.8% identified asโฃ high-risk, โbut only 0.4% actually exiting.
“The slowdown in the growthโ of our economy after the crisis was โcaused โขby a slump in โinvestment due to worsening corporate profitability, butโ the slowdown in the growth trend deepened asโฃ the economic purification mechanismโฃ that can improve this did โขnot work smoothly,” Deputy Director Lee stated. he emphasized the need forโ policies that support โคboth innovation and the smooth entry and exit of โcompanies, even when providing โfinancial support.
The analysis suggests that selective โfinancial assistance should prioritize short-term relief for companies facing temporary difficulties and support for innovative start-ups.Together, fostering demand for new products and servicesโฃ through deregulation and investment in emerging industries is crucial for expanding South Korea’s โeconomic future, particularly as key โindustries maintain technological superiority.
Kim Yu-ri, โฃyr61@asiae.co.kr
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