The Peninsula

Increasing Exports of Services Would Help Sustain South Korea’s Economic Growth

South Korea’s manufacturing prowess has propelled it to the ranks of the world’s largest exporters, but a global merchandise export slowdown and surging trade protectionism dim its outlook. While trade in services has accelerated, Korea’s share of global trade in services is relatively low and has fallen in recent years. Enhancing service exports has great potential to sustain Korea’s economic growth in an uncertain global environment.

International trade in goods played a key role in promoting economic growth during the decades prior to the 2008 global financial crisis. Merchandise trade growth surpassed world GDP growth by an average of 3.5 percentage points during the period between 1985 and 2008 (Figure 1), driving globalization. However, merchandise trade as a share of global GDP peaked during the Great Recession of 2008 to 2010.  During the past fifteen years, the growth of merchandise exports has slightly lagged global GDP, leading some to argue that the world economy is experiencing deglobalization.

Figure 1. Global merchandise export growth rate has lagged global GDP growth since 2010  

 

However, some economists argue that globalization has not ended but instead is evolving from goods-centered trade to service-sector-centered trade. In contrast to merchandise trade, global trade in services has increased by an average annual rate of around 6 percent since 2005—about twice as fast as merchandise trade—in volume terms. Consequently, services, which once were considered to be mostly untradable, have risen from around one-fifth of global trade in 2005 to around one-quarter.

Advances in information technology (IT) have driven the growth of trade in services. Exports of digitally deliverable services from education to video streaming have increased at an average annual rate of 7.4 percent since 2005, increasing their share of global services from 43 percent to 55 percent in 2023 (Figure 2). In contrast, non-digitally deliverable services have risen at a slower 4.7 percent rate. In short, IT is driving the shift from manufacturing-centered to services-centered globalization.

Figure 2. Digitally deliverable services accounted for 55 percent of global services trade in 2023

 

Korea’s Service Exports Have Grown Slowly, Despite Impressive Growth in Intellectual Services

Korea’s service exports have increased at a 3.1 percent annual pace since 2010, reducing their share of global service exports from 1.9 percent to 1.6 percent in 2023. Korea ranked seventeenth globally in service exports in 2023, compared to eighth in merchandise exports (Figure 3). Services accounted for only 15 percent of Korean exports during the past thirty years, and its service trade balance has been in a deficit every year since 2000. In contrast, service exports of the United States and the United Kingdom grew by around 12 percent and 8 percent, respectively, on an annual basis. The growth rates in India and China were between 4 and 5 percent, making them the seventh and eighth-largest service exporters, respectively.

Korea’s service exports lack sufficient competitiveness to participate actively in global value chains, according to a recent Bank of Korea (BOK) study. Instead, they tend to be linked to merchandise exports, such as providing transportation and sales support. Korea primarily imports high-value-added services, such as legal and consulting services, intellectual property, and research and development (R&D), from advanced countries. At the same time, emerging economies, such as India and China, have taken the lead in lower-cost services, notably information and communication services.

In March 2025, a joint government study compiled data on intellectual services, which the BOK defines as services that are knowledge-intensive and primarily traded in digital forms. In contrast to the modest growth of Korea’s total service exports, intellectual service exports have increased at an average annual rate of 13.4 percent since 2010, boosting its share of total service exports from 7.6 percent in 2010 to 26.5 percent in 2024 (Figure 4).

Table 1 shows the three sub-categories that accounted for 95 percent of the growth: i) intellectual property usage charges, primarily R&D-based intellectual property and trademarks and franchises; ii) professional and business services, such as R&D services, legal and accounting services and management and consulting; and iii) information and communication services, notably IT development and operation services.

Figure 3. Korea ranks eighth in the world in merchandise exports but only seventeenth in services

Figure 4. Intellectual services have accounted for much of the growth in Korea’s service exports

 

Two important developments have driven the growth of intellectual service exports. First, the convergence of manufacturing and services—the so-called “servicification of manufacturing”—has linked services to Korea’s thriving manufacturing sector. Manufacturers have created additional value-added by offering a range of services associated with their products. For example, IT manufacturers enhance their product competitiveness by providing AI services and software alongside sales of their mobile devices, such as smartphones.

Second, Korean manufacturing firms have established overseas subsidiaries to enter foreign markets, reduce costs, and increase exports, thereby promoting a range of transactions between domestic headquarters and their overseas subsidiaries. Consequently, service exports are highly correlated with goods exports.

Table 1. Contribution to the Growth of Korea’s Intellectual Service Exports by Category

	Total intellectual services	Of which:
		Intellectual property usage charges	Professional and business services	Information and communication services	Cultural and leisure services
Growth rate1	13.4	12.9	12.3	18.1	15.7
Contribution rate	100.0	53.2	26.2	15.4	5.2

 

Cultural and leisure services, the fourth category of intellectual services, are the smallest at 5.2 percent but had the second fastest growth from 2010 to 2024 (Table 1). Moreover, the annual growth rate has accelerated to 30.8 percent since 2020, partly due to the growing popularity of Korean media, food, and culture.

The Future of Korean Service Exports

In 2023, the Korean government announced a target to nearly double service exports, from about USD 130 billion to USD 250 billion in 2030. The objective is to enable services to match the competitive level of Korea’s manufacturing sector.

To achieve this target, the government plans to provide some KRW 64 trillion (USD 462 billion) between 2023 and 2028, focusing on content creation, medical care, and tourism. The BOK this year called for deregulation and other measures to boost exports of animation and various high-value-added services, a move partially inspired by the success of the U.S.-made KPop Demon Hunters movie. To continue building on this momentum, the Korean business sector must move away from its traditional focus on manufacturing and expand investment in services. This requires them to recognize the value of intangible assets and the growth potential of the service sector.

 

 

Randall S. Jones is Distinguished Fellow at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from Shutterstock.

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