SEOUL, December 19 (AJP) -South Korea’s growth potential has slipped below a critical threshold.
According to the OECD, the country’s potential growth rate has fallen to 1.9% this year and is projected to drop further to 1.7% next year—less than half the pace recorded in the early 2000s. Among 41 OECD economies, South Korea is expected to rank only 24th next year, trailing not only the United States but also smaller, slower-growing peers such as Australia and Spain.
Such a decline would be unremarkable for a fully mature economy, were it not for the speed at which it is occurring.
Korea’s potential growth rate has fallen faster than that of most advanced economies, despite its relatively smaller economic size and higher historical catch-up capacity. The Bank of Korea has warned that without structural reform, the figure could fall towards zero by the 2040s.
Demographics explain part of the slide. A shrinking workforce and rapid ageing are eroding the labor input that once powered expansion.
But the data suggest another, less discussed culprit: the extreme concentration of people, capital and decision-making in the Seoul metropolitan area.
More than half of South Korea’s population is now clustered in the capital region. The share continues to rise even as the national population contracts. Since 2017, Seoul and its surrounding areas have recorded net population inflows every year, drawing in young adults and prime-age workers while provincial regions steadily empty out.
This spatial imbalance is no longer merely an issue of regional inequality. It is increasingly a macroeconomic constraint. Agglomeration once boosted productivity during South Korea’s industrial ascent, but at today’s scale it is generating congestion costs, housing inflation and labour misallocation—dragging on national efficiency rather than enhancing it.
The flip side is accelerating regional extinction. More than 60% of South Korea’s municipalities are now classified as being at risk of demographic collapse. Schools are closing, hospitals are disappearing, and local labor markets are thinning to the point where private investment becomes self-defeating. Once a region loses its young population, recovery becomes statistically improbable.
The economic consequences are visible in output data. Over the past decade, gross regional product in the capital area has grown nearly twice as fast as in non-capital regions. The Seoul area now accounts for over 52% of national GDP, even as it occupies just 12% of the country’s landmass. What appears as dynamism in the capital masks stagnation elsewhere.
This is not a benign concentration of excellence. It is a zero-sum geography in a shrinking nation. Talent flowing into Seoul does not raise overall fertility or productivity enough to offset what is lost in the regions. Instead, it amplifies housing stress in the capital while hollowing out the economic base beyond it.
In that sense, South Korea’s overconcentration problem has crossed a threshold. What once functioned as an engine of growth is now constraining the country’s long-term potential—turning large parts of the nation into economic periphery, and some into zones edging towards extinction.
*The feature article was published in Aju Business Daily, translated by AI, and edited by AJP.
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