Trend Korea risks sliding back to middle-income status as low growth meets demographic and trade headwinds

Summary

Korea achieved compressed growth from one of the poorest countries after the Korean War to the threshold of advanced status, driven by strong state-led growth policy and an export-oriented, manufacturing-centred economy. Since the start of the twenty-first century, however, low growth has become entrenched and discovering new growth engines has proved difficult. Population decline now coincides with technology-hegemony rivalry and a clear return to protectionism. The earlier conditions that favoured state-led industrial upgrading, when advanced economies offshored production and free trade enabled an international division of labour, have turned hostile. The author warns that without new growth engines Korea cannot avoid regressing to middle-income status. Policies under the growth-engine label began in earnest under the Roh Moo-hyun government, but efforts to pick and build flagship industries go back to the first five-year economic development plan of 1962 to 1966.