Productivity innovation based on artificial intelligence (AI) and digital technology is urgently needed to help the Korean economy escape its structural low-growth trajectory, a new report says. Expanding investment in knowledge-based intangible assets to upgrade the economic structure is among the proposed solutions.
The Korea Information Society Development Institute (KISDI) recently published the policy report (25-10), “A Study on National Growth Strategy in Response to Economic Structural Changes in the Digital Era (II),” outlining these findings.
The report concluded that improving total factor productivity (TFP), which reflects efficient resource allocation and technological progress, is the only fundamental solution for achieving sustainable growth at a time when the quantitative expansion of production inputs such as labor and capital is constrained. It emphasized that the role of AI and digital technology is paramount in this process.
The report constructed industry-level productivity accounts covering the period from 1981 to 2024 and conducted a growth accounting analysis that incorporated knowledge-based intangible assets in a broad sense. The analysis identified several key characteristics of the Korean economy in terms of productivity and growth. First, the overall industry growth rate has continuously slowed since the 2000s. The 2000s saw a decline in capital investment, the 2010s experienced a productivity slowdown, and the 2020s saw a combination of weakened investment, labor and productivity during the recovery from the COVID-19 shock. Recently, however, the TFP growth rate has gradually recovered, indicating that the economy is rebounding in a healthy manner.
On the capital input side, the contribution of intangible assets such as research and development and software to growth has expanded since 2020, leading to a positive shift in asset composition toward intangible assets. However, the report noted that the strategic importance of facility investment must also be considered, as major economies have been expanding domestic production facilities amid the post-COVID-19 reorganization of global value chains (GVC). By industry, the ICT sector has been leading growth, posting significantly higher growth rates and TFP gains than non-ICT sectors.
The report presented four core policy directions: strategic government support for new growth drivers such as AI and digital technology; upgrading the economic structure through expanded investment in knowledge-based intangible assets, including organizational capital; cultivating human capital tailored to AI and digital environments; and strengthening the internalization of Korean value-added across the entire GVC.
“AI and digital transformation are the key foundation for driving productivity innovation in the Korean economy, where the quantitative input of labor and capital is constrained,” said Jung Hyun-jun, a research fellow at KISDI. “To reap the benefits of AI and digital transformation, we must upgrade our investment structure around knowledge-based intangible assets and build an economic framework capable of stably generating domestic value-added amid the U.S.-China hegemonic rivalry and the GVC realignment.”
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