Performance of the Services Sector in Korea: An Empirical Investigation

There is a widespread perception that Korea's services sector lags behind its dynamic world-class manufacturing sector. This paper empirically analyzes the past performance of Korea's services sector in order to assess its prospects as an engine of growth. The analysis resoundingly confirms the conventional wisdom of an underperforming service sector. In light of Korea's high income and development level, the poor performance of modern services is of particular concern. The authors identify a number of factors underlying the poor performance and set forth policy recommendations for addressing them. Overall, Korea faces a challenging but navigable road ahead in developing a high value-added services sector.