BOK’s Shin Says AI-Driven Chip Boom Could Alter Korea’s Low-Growth, Low-Rate Path

Shin Hyun-song, governor of the Bank of Korea, said South Korea needs to watch whether an artificial intelligence-driven semiconductor boom can become a game changer for the country’s low potential growth rate and neutral interest rate, trends tied to aging and a low birthrate.

Shin made the remarks in a dinner speech for the Korean Finance Association on June 19 at the Westin Josun Seoul, where he explained the forces behind South Korea’s recent strong nominal growth and discussed AI’s implications for long-term growth.

Looking at the global economy over the past 1,000 years, growth was barely visible before the Industrial Revolution and then steepened sharply over the following 200 years, he said. Shin cited Paul Romer’s endogenous growth theory as a leading explanation for that pattern, saying ideas have the characteristics of a public good because one person’s use does not prevent others from using them at the same time. That, he said, can lift productivity and growth across the economy.

Shin said AI could be the force that reproduces the rapid expansion seen over the past two centuries. He also described South Korea’s recent unusual growth momentum as AI-based, noting that first-quarter nominal gross domestic product rose 17.1% from a year earlier, while real GDP growth was 3.8%.

Nominal GDP also surged in the 1970s, but that was driven by double-digit inflation, he said. The current episode is different because domestic prices are stable while rising semiconductor export prices are pushing up nominal growth.

Shin said nominal GDP will become a more useful gauge of the South Korean economy than real GDP alone. Real GDP by itself does not fully explain current economic conditions, he said, adding that policymakers should watch nominal GDP alongside real GDP.

He also said the improvement in the terms of trade has become clear. In the past, changes in global oil prices largely determined South Korea’s terms of trade. More recently, rising semiconductor export prices have been driving the improvement.

The shift is also visible in the gap between GDP and gross domestic income. In the first quarter, real GDP growth was 3.8%, while GDI growth reached 13.2%. Even with oil prices rising sharply, the terms of trade improved, which ultimately means semiconductor prices climbed significantly, Shin said.

If the AI-driven boom raises long-term growth, South Korea may also need to reassess low growth and a low neutral interest rate associated with population decline and aging, he said. Just as the Industrial Revolution broke a long period of stagnation after the year 1000 and changed the path of economic growth, AI could play a similar role. Shin said it is worth examining whether low growth and low neutral rates shaped by demographics could also change, and whether demographics necessarily determine the economy’s fate.

Shim Sung-mi, Korea Economic Daily reporter smshim@hankyung.com