The new economy industries in Korea, including semiconductors and secondary batteries, have not only supported economic growth by taking leading positions in global markets, but have also greatly contributed to minimizing economic damage by the COVID-19 pandemic. In addition, these industries are likely to play a key role in the Korean economy in the coming post-COVID era. In this respect, this paper examines their global competitiveness and risk factors.
First, looking at their macroeconomic achievements, new economy industries have been leading Korea’s exports and investment, thanks to their strong competitiveness. The biggest example is the rapid growth of industries for non-memory semiconductor chips, electric cars, and secondary batteries. Also corporate data indicates that companies in these industries have shown higher growth and profitability, and faster R&D investment growth, compared to those in other industries.
In terms of global competitiveness, Korea’s new economy industries have been found to have advantages in market share and growth potential, over those in other major countries, while still having room for improvement in terms of profitability and innovation. By industry, the competitiveness of the semiconductors, electric cars, and secondary batteries industries has increased, as measured by export market share and by their Revealed Symmetric Comparative Advantage(RSCA). However, the bio-tech, health, and display panel sectors have not shown any clear improvement in their competitiveness. At the firm level, companies in the new economy industries have shown high growth, driven by active investment and market entry. Their profitability and innovation, however, were found to be weaker than that at similar companies overseas.
Future risks for Korean new economy industries include supply-chain-related vulnerabilities, which have risen during the pandemic, and reduced stability of commodity supply and demand caused by the war in Ukraine. As companies in these new economy sectors increase overseas production as we go through a process of realignment in the global value chain(GVC), their contribution to growth in domestic production, investment, and exports is likely to decline. Moreover, the narrowing technological gap with overseas late-movers, such as China, could also reduce their upper hand in global markets.
The new economy industries are expected to continue their rapid growth over the coming years, leading Korea’s economic growth. This would be helped by the accelerated digital transformation and the strengthened climate change responses that have been brought about by the pandemic. Korea’s new economy industries are deemed to have gained the first-mover advantage by achieving quantitative growth through increased global market share in the earlier stages. From now on, however, qualitative growth will also need to be pursued to ensure sustainable growth, through innovative investment and the accumulation of human capital. It will also be crucial to minimize any negative impact of global geopolitical unrest or supply chain realignments by reducing any vulnerability to the commodity supply chain through a diversification of import sources for key items. Efforts should also be made to ease the adverse side effects seen during the rapid development of these new industries, such as the decline of existing industries, jobless growth, and the worsening of sectoral imbalances.