Why Korea's economic growth has slowed since 1990s
Korea's structural growth slowdown since the 1990s has been driven by the prolonged survival of marginal firms during a series of financial crises, the Bank of Korea (BOK) said in a report Wednesday. The persistence of these underperforming companies has weakened corporate dynamism and disrupted the efficient reallocation of capital and labor, ultimately weighing on long-term growth, the central bank said. "Korea's economic growth rate has gradually declined after each crisis — the 1997 Asian financial crisis, the 2008 global financial crisis and the 2020 COVID-19 pandemic," the report said. "This contrasts with the post-oil shock rebound of the 1970s, when growth exceeded its prior trend." Firm exit rates in Korea remained low through multiple crises. The government continued to extend loans and support to distressed firms with little chance of recovery, and allowed them to survive to prevent a wave of corporate bankruptcies. While they helped ease financial constraints, low profitability led to a slowdown in private investment. For instance, both Korea and the U.S. saw fewer new busin
