80th Liberation Day Revival of 'Dynamic Korea' crucial for economic breakthrough

“Dynamism” was once a term that captured the essence of economic success for Korea, a nation that, after being liberated from the 1910-45 Japanese colonial rule, rose from the ruins of the 1950-53 Korean War and pressed forward with rapid development.

Now, as Korea marks the 80th anniversary of its liberation, economists suggest that this sense of dynamism must be urgently rekindled to overcome the current economic headwinds.

They say Korea’s vibrant spirit, resilience and forward-looking vision were vividly demonstrated at critical moments in its modern history — from the era of compressed industrialization from the 1960s to the 1980s, to its recovery from the 1997 Asian financial crisis, the 2008 global financial crisis and more recently the COVID-19 pandemic.

However, they point out that Korea has gradually drifted away from this spirit of dynamism in recent years, citing sluggish economic growth, a shrinking and aging population, the absence of new growth engines and deepening social and economic polarization.

These domestic challenges are further compounded by a shifting global trade order, destabilized in part by U.S. President Donald Trump’s “America First” policy and the intensifying U.S.-China rivalry.

A commemorative arch stands at Gwanghwamun in central Seoul, Dec. 5, 1964, to mark Korea’s first Export Day, held in honor of surpassing $100 million in exports. Yonhap

Falling potential growth rate

“The crisis facing Korea today is a complex and multifaceted one, with multiple challenges intertwined and unfolding simultaneously,” said Jun Kwang-woo, chairman and CEO of the Institute for Global Economics (IGE). “Accordingly, a fundamental shift in thinking is urgently needed, as we are standing at a historic crossroads — an inflection point — in the Korean economy.”

Jun pointed out that the decline in Korea’s potential growth rate is “the central issue at hand,” noting that among the challenges being addressed, it is most directly tied to economic fundamentals.

Potential growth represents the maximum sustainable rate at which an economy can expand without triggering inflation. It’s a measure of an economy’s fundamental strength and long-term capacity.

For the first time since 2001, the Organization for Economic Cooperation and Development (OECD) has projected Korea’s potential growth rate to fall below the 2 percent threshold, estimating it at 1.9 percent for 2025 in its latest data released in June.

This projection marks a continuation of a long-term downward trend: Korea’s potential growth rate hovered around 5 percent in the early 2000s, declined to the mid-3 percent range throughout the 2010s and dropped further to the mid-2 percent range between 2016 and 2020.

Deputy Prime Minister for Economic Affairs Lim Chang-yuel, front row center, signs a bailout agreement prepared by the International Monetary Fund (IMF) as IMF Managing Director Michel Camdessus, left, looks on at Government Complex Gwacheon, Dec. 3, 1997. Yonhap

The IGE chairman emphasized that this trend is closely tied to persistent challenges in three key drivers of potential growth — labor, technology and capital investment.

“A rigid labor market has been a longstanding concern, along with the growing tendency of top experts to pursue more rewarding and stable career paths, such as becoming doctors, rather than entering engineering and high-tech fields,” he said.

Regarding labor, Korea ranked 33rd out of 38 OECD members in terms of hourly labor productivity in 2023, measured at approximately $44.40.

On the tech front, Jun highlighted a global industrial paradigm shift accelerated by the artificial intelligence (AI)-driven technological revolution.

“In today’s digital and online age, the pace of transformation is exponentially faster than in the past. This means we must move even faster than we did during the era of light and heavy industrialization,” he said.

He emphasized that Korea’s past experience remains relevant. “We successfully navigated previous industrial transitions, and now it’s time to draw on that legacy once again to stay ahead of the curve in this new era of high-tech, innovation-driven competition."

Two Samsung Electronics employees dressed in full cleanroom apparel walk through a semiconductor manufacturing facility at the firm's chip plant in Pyeongtaek, Gyeonggi Province, in this 2022 file photo. Yonhap

Lee Chang-keun, chair of development policy research at the Korea Development Institute (KDI) School of Public Policy and Management, named the global trade environment as “the most crucial factor” for Korea’s export-dependent economy.

He also cited the urgency of adapting to the rapidly evolving global industrial landscape, stating, “Korea is no longer just a follower — it must become a pioneer of new frontiers.”

However, Lee expressed concerns that the kind of dynamism once seen in Korea’s past, such as the emergence of new industries led by conglomerates, has significantly declined, raising questions about whether such economic growth is still attainable.

The KDI economist stressed that reviving economic vitality requires improving individual well-being, as many of the country’s structural issues, including the demographic crisis and growing polarization, are interconnected with quality of life.

“Korean society is increasingly struggling to reach a consensus on key transformational issues, whether it involves labor market reforms, education policy or broader socioeconomic restructuring,” he said.

Export-bound cars are lined up for shipment at a port in Pyeongtaek, Gyeonggi Province, July 31. Yonhap

Next growth engines

Hur Joon-young, an economics professor at Sogang University, stressed the need to foster Korea’s next growth engines — ones that can stimulate domestic demand more effectively than semiconductors.

His view reflected growing public sentiment that recent economic milestones, such as Korea’s record-high annual exports of $683.8 billion in 2024, have had little tangible impact on Koreans’ everyday lives.

“Of course, it’s valid to ask whether continued reliance on semiconductors as Korea’s top export item is problematic,” Hur said, noting that chip exports amounted to $141.9 billion last year, roughly 20 percent of the nation’s total exports.

“However, semiconductors, by their nature, are not labor-intensive. So, even if they help to lift Korea’s overall gross domestic product growth, their impact on domestic demand tends to be limited," he added.

Hur explained that for the same level of production, semiconductors generate only about one-sixth the number of jobs compared to the automotive sector. Korea’s car exports stood at $70.8 billion in 2024.

“In the past, even when certain sectors outpaced others, the overall economy was expanding, so those imbalances weren’t as problematic,” he said. “But now, with the pace of overall growth slowing, selective expansion in just a few sectors — while others stagnate — could lead to far more serious structural issues. That’s how I interpret the current situation.”

Shin Se-don, professor emeritus of economics at Sookmyung Women’s University, pointed to another structural challenge: companies’ reluctance to take risks by investing in research and development.

He cited data released in March by the Korea Chamber of Commerce and Industry, which showed that only 40 Korean companies were listed among the world’s top 2,000 R&D investors in 2023 — 14 fewer than in 2013.

Over the same period, the number of such firms increased by 13 in the United States and by a staggering 405 in China.

“Companies shying away from future-oriented, productive investments like R&D is a major reason behind Korea’s sluggish economic growth,” Shin said. “It also explains why we are no longer seeing the emergence of global champions like Samsung or Hyundai Motor, as we did in the past.”