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The Bank of Korea said Monday that the nation's potential economic growth rate has dropped to the four percent level from the six percent level in the 1990s. The potential growth rate means the maximum level of economic growth that the government can achieve using all available resources, such as human resources, technology, and capital.
Because the Korean economy should grow at some five to six percent given its current size, the four percent-level growth rate means that it is aging prematurely due to excessive regulation, shrinking investment and weakening entrepreneurship. The government has claimed that the economy maintains five percent-level potential growth, while private institutes have warned against the possibility of falling to the four percent level.
Korea's central bank said in its report that the potential growth rate fell 1.7 percentage points to 4.8 percent for the period between 2000 and 2006 from 6.5 percent during the 1990s, and warned that if the country fails to improve the rate it will not be able to narrow the income gap with advanced nations. Other Asian rivals like Singapore and India still maintain high growth with real growth rates of 7-9 percent in 2006.
The report cited as a major reason for the falling potential growth rate a sharp decrease in the capital expenditure growth rate, which plunged from 9.5 percent between the 1980s and mid-1990s to 4.6 percent between 2002 and 2006. Other reasons cited include over-dependence on imports for components for IT products like memory chips and mobile phones and soaring overseas spending on education services and high value-added products.
(englishnews@chosun.com )
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