From Capital-Driven to Knowledge-Driven Growth in Korea

Utilizing insights from new growth theory, Porter's competitive advantage theory, and Kojima's theory of DFI, this paper analyzes the overall growth mechanism of the Korean economy by integrating various dimensions, such as factor intensity changes, sectoral growth, trade performance, and direct foreign investment. This paper points out "knowledge accumulation" as one of the engines of growth in the Korean economy, and shows that although knowledge intensity has steadily increased over the last decade Korean industrial growth is still dominated by physical capital accumulation. Then, the problem with the Korean economy is that the fast growing sectors are mostly capital albeit not necessarily knowledge intensive sectors. This is not a desirable pattern of industrial change since high capital intensity eventually leads to declining profitability. Another problem is with weak national competitiveness, which is implied by the negative correlation between value-added per worker of sectors and their shares in world export.