Consequences of Lack of Policy Assistance for Korea's GDP Falling Short of Taiwan
Key Highlights :
Korea's per capita gross domestic product (GDP) of $32,237 (43.22 million) in 2022 fell short of Taiwan's $32,811, the first in 18 years since 2004, in what market watchers say was a consequence brought on by a lack of long-term policy assistance to foster semiconductors and broader manufacturing industries. Propelling Taiwan's outperformance was years of its industrial competitive edge fortified by the country's TSMC.
The figures from Central News Agency, a news organization in Taiwan, showed that the country's per capita GDP in 2022 amounted to $32,811, higher than Korea's $32,237. Taiwan was able to register an annual average growth of 3.2 percent over the past 10 years, faster than Korea's 2.6 percent in the same period, as underpinned by stronger competitiveness in the semiconductor industry. Most pronounced was the widening gap between the two in the growth of manufacturing. Added value created by manufacturing came to 34.2 percent of Taiwan's total GDP last year, up 5.1 percentage points from 29.1 percent in 2013. The figures for Korea slumped to 25.6 percent, down by over 2.2 percentage points from 27.8 percent in the same period.
Taiwan's manufacturing was powered by the annual growth of electronics and precision equipment combined averaging 8.7 percent from 2013 to 2021, far faster than its overall manufacturing industry's growth of 5.5 percent in the same period. The rapid growth is also explained by the two leading sectors' combined share of 54.8 percent in the country's manufacturing in 2021, up 9.4 percentage points from 2013. Also anchoring Taiwan's growth was committed government investment, as illustrated by annual growth of 5.7 percent in fixed investment from 2013 to 2022, far greater than Korea's 2.8 percent in the same period. The long-term investments led to Taiwan's exports registering an annual growth of 4.6 percent from 2013 to 2022, the news organization said. The figure is not only higher than Korea's 2.2 percent in the same period, but also the global average of 3 percent.
The lack of policy assistance to foster semiconductors and broader manufacturing industries in Korea is one of the key reasons for the country's GDP falling short of Taiwan. There has been a lack of investment in the semiconductor industry, which has been a major growth driver for Korea in the past. This lack of investment has been compounded by the sharp depreciation of the Korean currency, which has weakened the country's fundamentals and made it more vulnerable to external uncertainties.
Moreover, the rise of Taiwan's TSMC has been a major factor in the country's outperformance. TSMC is a global logic chip powerhouse that has benefited from the growing demand for digitization around the world. Furthermore, Taiwan has been able to increase its exports due to its commitment to government investment and its focus on the electronics and precision equipment sectors.
Lee In-ho, former president of the Korean Economic Association, said the government should outline a growth strategy for local chipmakers as soon as possible. "The government should invest in the semiconductor industry and make research and development commitments," he said. "The later the measures, the bigger the consequences for Korea's neglect in competition review over the past few decades, as left unmonitored due to Korea's lead in the IT boom in the early 2000s and the rise of China as a new manufacturing powerhouse thereafter."
In order for Korea to close the gap with Taiwan, the government needs to take immediate policy measures to bolster the semiconductor industry and other manufacturing sectors. This includes investing in research and development, increasing exports, and focusing on the electronics and precision equipment sectors. Additionally, the government needs to take steps to strengthen the country's fundamentals and make it more resilient to external uncertainties. Only then can Korea close the gap with Taiwan and regain its position as a major global economic power.
