Human capital and productivity for Korea's sustained economic growth

This paper assesses Korea's growth experience and its prospects based on methods of 'level accounting' and 'growth accounting'. The level accounting method shows that the gap of output per worker between Korea and the US has rapidly decreased over the past three decades. However, this swift 'catch-up' process is attributed to physical and human capital accumulation for the most part, rather than to the total factor productivity (TFP) growth. Growth accounting shows that the productivity growth of the Korean economy, particularly the manufacturing industry, has accelerated in recent years. But, poor productivity performance in the service industries, including finance, insurance, and real estate, construction, and wholesale and retail trade sectors, hampers overall productivity growth. For sustained productivity growth, Korea needs to stimulate technological investment, and upgrade the quality of human capital.