The Organization for Economic Cooperation and Development on Tuesday called on South Korea to reduce market regulations to boost start-ups and innovation.
While the country’s research and development spending was the highest among the OECD member countries at 4.4 percent of GDP in 2012, weaknesses in the innovation system limit the returns, the OECD said in its latest economic surveys report.
South Korea’s subdued growth during 2011-2012 revealed some structural problems, such as high household debt, a lagging service sector and weak small and medium-sized enterprises, according to the report.
The OECD pointed out that the productivity gap between large firms and small and medium-sized firms is widening in South Korea.
It recommended the Seoul government improve, in particular, the service sector by “strengthening competition by eliminating entry barriers.”
The OECD also called on to improve the innovation framework by expanding role of universities and enhancing state-run research institutes.
The report also called on the government to carefully consider the costs and benefits of further accumulation of foreign exchange reserves, which reached a record $355.85 billion at the end of April.
The OECD surveys, which are carried out in every two years, examine recent economic developments, policies and prospects and also the country’s structural policies and their interaction with macroeconomic policies.
This year’s report highlighted that the Park Geun-hye administration’s three-year economic innovation plan aimed at deregulation and bolstering corporate investment would help the country achieve balanced economic growth.
“This comprehensive Plan includes bold structural reforms that are needed to boost Korea’s growth potential and avoid falling into a low-growth trap,” the report said.
The Paris-based think tank maintained its forecast that the Korean economy would grow 4.0 percent this year and 4.2 next in 2015.
By Oh Kyu-wook