KISDI Publishes Report Diagnosing the Korean Economy in the AI and Digital Era (detail)

※ URL(Korean): https://www.kisdi.re.kr/bbs/view.do?bbsSn=114852&key=m2101113055776&pageIndex=1&sc=&sw=

KISDI Premium Report 26-3: Diagnosing the Korean Economy in the AI and Digital Era—Productivity Innovation for Sustainable Growth

Despite continued low growth, recent signs of improvement in total factor productivity (TFP) have emerged

Investment strategies aligned with the AI and digital era are needed to support sustainable growth and productivity innovation

Structural reforms are required to expand domestic value added within global value chains (GVCs)

The Korea Information Society Development Institute (KISDI, President Sangkyu Rhee) has published KISDI Premium Report 26-3: Diagnosing the Korean Economy in the AI and Digital Era—Productivity Innovation for Sustainable Growth.

Korea faces structural low growth due to factors including low fertility, population aging, and external uncertainties, which constrain quantitative inputs of labor and capital. The report assesses current growth conditions and challenges in the Korean economy and presents policy agendas for sustainable growth.

To evaluate recent trends, the report analyzes changes in productivity and the growth contributions of input factors. It finds that although Korea’s overall growth rate has declined over time, productivity shows signs of recovery in 2022–2024 following a slowdown in the 2010s. In particular, total factor productivity in manufacturing—especially in ICT industries, which had been central to the earlier slowdown—has recovered and contributed to growth. However, disparities in TFP growth across industries have widened in the 2020s compared with the 2010s.

The report also examines the potential of AI and digital transformation as new growth engines. Previous studies indicate that AI adoption can improve resource allocation efficiency and contribute to GDP and TFP growth by reducing production costs, enhancing R&D efficiency, and lowering decision-making costs. However, firm-level data analysis in Korea suggests that AI adoption does not yet show statistically significant productivity gains in practice. This may reflect time lags between adoption and measurable outcomes, as well as insufficient investment in complementary knowledge-based intangible assets such as organizational capital.

The report proposes two policy agendas for sustainable growth in the AI and digital era.

The first agenda is restructuring investment strategies to align with the AI and digital era. Korea’s investment share of GDP ranks among the highest relative to G7 countries, and investment in knowledge-based intangible assets has increased. While investment in innovation assets such as R&D ranks high internationally, investment in organizational capital—an important complement to AI and digital investment—remains relatively low. The report notes that while the scale of investment is substantial, its composition remains similar to the past. It emphasizes the need for qualitative improvements, including strengthening human capital and organizational transformation alongside continued R&D investment.

The second agenda is structural reform to expand domestic value added within global value chains. Global value chains are shifting from efficiency-centered structures toward those shaped by security and values considerations. Korea benefits significantly when supply chains operate smoothly but remains vulnerable to disruptions. The report emphasizes that securing stable value added within GVCs supports productivity growth and sustainable development. Even as overseas production bases expand, Korea should establish feedback mechanisms that channel value added back domestically through investments in planning, R&D, and design, while strengthening high-value-added industrial structures in sectors such as semiconductors.

Hyunjoon Jeong (Fellow, KISDI) stated that although AI and digital transformation present new challenges, they also hold potential to address Korea’s economic difficulties through productivity gains. He emphasized the need to upgrade investment structures toward knowledge-based intangible assets and pursue structural reforms that enable stable value creation amid GVC restructuring.

KISDI News

KISDI Publishes Report Diagnosing the Korean Economy in the AI and Digital Era