(Yonhap Interview) More productive, attractive regions outside Seoul key to sustaining growth: OECD officials

By Kang Yoon-seung

SEOUL, Nov. 4 (Yonhap) -- South Korea needs to boost productivity in regions outside the capital area and make them more attractive places to live as it seeks to sustain economic growth and address demographic challenges, officials at the Organization for Economic Cooperation and Development (OECD) said Wednesday.

Lamia Kamal-Chaoui, director of the Center for Entrepreneurship, SMEs, Regions and Cities at the Paris-based institution, said in an interview with Yonhap News Agency that the OECD has seen "something very interesting" in South Korea.

Despite the concentration of people and economic activity in the capital region, the country's regional gaps in GDP per capita are among the smallest in the OECD, she said.

"Indeed, you have the largest concentration of the capital region across the OECD," Kamal-Chaoui said. "(But the economic growth of South Korea came with) a level of regional disparities in terms of GDP per capita that is the lowest among the lowest in the OECD."

Kamal-Chaoui said the debate over regional disparities goes beyond economic growth to the question of whether such concentration in the capital region is "sustainable," particularly as some regions face population decline.

Seoul itself is not the problem, she said, adding that the problem arises when other regions decline.

"And now with demographic decline affecting some of the regions, you may start to have some issues related to productivity growth," Kamal-Chaoui said. "So there is a need here to rebalance economic growth."

Relocating public institutions to the central city of Sejong and other areas and attracting investment from conglomerates could help revitalize regional economies, Kamal-Chaoui said.

She added that South Korea should take a broader approach to improving the "attractiveness" of regions outside the capital area as places to live.

"Regional attractiveness is not just about providing subsidies and tax breaks to companies to locate," she said. "It's a much broader concept, much more holistic, which includes many other components, housing, good infrastructure, good services, access to childcare."

The OECD official said efforts to promote balanced regional growth should take into account what would draw skilled workers and their families to those areas.

"You don't attract workers, you attract families," she said.

Asked about the possibility of Samsung Electronics Co. and SK hynix Inc. building chip plants in southwestern South Korea, Kamal-Chaoui said she was unfamiliar with the specific case. More broadly, however, she said, rebalancing economic growth involves more than attracting large companies to a region.

"What I mean by rebalancing economic growth is not just attracting large firms in places, which is great, but also is to make sure that you invest in the supply chain with the suppliers," she said, emphasizing the need to ensure that communities hosting such projects have the necessary "amenities."

She additionally called for investment in small and medium-sized businesses in the supply chain and in other areas of regional strength, citing "creative industries" as one sector with great potential.

Luiz de Mello, director of the Country Studies Branch in the OECD Economics Department, said South Korea would need to raise productivity to sustain growth as fewer people enter the labor market.

"The Korean economy is doing very well. If you look by any standard of growth over the last few quarters, the economy is booming," he said.

De Mello, however, said older workers remain underrepresented in South Korea's labor market and that this issue needs to be addressed in light of the country's demographic challenges.

"That's paradoxical because you're aging very fast. You should be attracting older workers to participate," de Mello said. "The challenge is how can you raise the level of productivity and spread that more equally throughout parts of the economy and throughout the regions of the country."

Turning to South Korea's planned Future Fund, de Mello said "the initiative is welcome."

The fund, set to launch next year, will use windfall tax revenue from the semiconductor supercycle to support younger generations, foster new sources of growth and promote regional development.

"There are other countries that have similar initiatives to save windfall gains. We often talk about countries that are rich in natural resources and they save those revenues," he said.

De Mello cited Ireland as an example, where the tech sector also accounts for a large share of government revenue.

The director, meanwhile, stressed the importance of setting clear rules on expenditures and focusing on a limited number of priorities. He also called for parliamentary oversight and said the fund should be part of South Korea's long-term fiscal strategy.

"Also, you (need to) make sure that you don't have too many objectives because it's always good to have one instrument and one objective," he said, advising South Korea not to "do too many things."

De Mello said South Korea should consider the long-term fiscal impact of demographic change when deciding how to allocate the fund's resources.

"So using part of the fund in the form of financial reserves for future spending demands is prudent," he stressed.

Kamal-Chaoui, meanwhile, added that regional development is a "transversal" issue that cuts across the fund's four pillars.

Accordingly, training programs supported by the fund, for example, could form part of a regional development strategy, helping South Korea coordinate spending across policy areas and avoid duplication, she said.

colin@yna.co.kr
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