The Hindu Business Line : S. Korea's per capita income rises to two-thirds of OECD average: Survey

SOUTH Korea's rapid economic development has lifted its per capita income from one-third to two-thirds of the OECD average over the past two decades but brought increasing labour costs in its wake, according to the OECD's `Economic Survey of Korea: 2005' that was released on Wednesday.

However, the delayed recovery of domestic demand, first after the 1997 balance of payments crisis and then from the recession in 2003 has created concern about Korea's growth prospects over the medium term.

Although there are signs of a rebound in domestic demand, the survey says, this by itself will not be sufficient. With foreign exchange reserves surpassing $200 billion, more than three times short-term foreign debt, authorities should continue to relax restrictions on foreign exchange outflows.

The R&D system should be upgraded by enhancing links between business, Government, academic and foreign research institutes. Flexibility in allocating R&D funds, the survey says, is important to avoid excessive emphasis on areas that have already established themselves as future growth engines. The emphasis should be on opening up newer horizons in the medium and long-term.

Competition should be strengthened, particularly in the service sector where labour productivity is only about half of that in manufacturing. The tertiary education sector should be restructured, based on increased competition between institutions, including those from abroad, so as to improve quality.

Funding for education, too, needs to be reallocated, taking into account the fact that during the period of rapid expansion, Korea's tertiary education sector has seen a significant deterioration in quality. The survey concludes by noting that while large business groups (Chaebol) have improved their soundness, it is important to increase competition, further tighten the corporate governance framework, and improve financial supervision so as to strengthen market forces and prevent corporate misconduct.

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