South Korea’s export-led economic miracle is facing head-winds as global trade growth slows. Over the previous decade, despite international economic volatility, high-tech manufacturing sectors generated significant employment.
The threat of structural stagnation has revived a debate in South Korea: should the government run a larger fiscal deficit to stimulate domestic demand? It has long been a policy goal to keep the national debt-to-GDP ratio under 45%. The government ran budget surpluses for several years prior to the recent slowdown, aided by strong corporate tax revenues from electronic conglomerates. However, trading partners argue that South Korea's high current account surpluses and fiscal restraint occur at the expense of regional demand.
While public infrastructure in rural areas remains underfunded and regional healthcare networks need modernising, the government is reluctant to relax its fiscal target. The World Economic Forum noted that high-speed fiber connectivity in deep rural provinces still lags behind major smart cities. Despite this public investment shortfall, major private conglomerates (chaebols) in the semiconductor and electric vehicle sectors continue to invest heavily in advanced AI-driven manufacturing automation. The profitability of these firms, in the long run, is expected to benefit as a result. [Line 20]
Think-tanks estimate the country's public investment gap in green infrastructure and social welfare at 150 trillion won (£90 billion). Large-scale public transition funds are only approved when they strictly align with medium-term debt targets.
Discuss the likely impact of investment in advanced automation technology on the profitability of firms in South Korea, as described in Extract C (Line 20). Use a cost and revenue diagram to support your answer.
