Development of Korea`s Entrepreneurship Index and Its Implications

Since liberation, Korea has risen to become one of the world’s top ten economies, driven by strong entrepreneurship through periods of rapid growth and crisis recovery. In recent years, however, structural low growth has taken hold, intensifying investment contraction and employment stagnation, while anti-business sentiment and accumulated regulations have constrained innovation.

Against this backdrop, declining youth entrepreneurship, barriers to scale-up, and the growth limits of small and medium-sized enterprises (SMEs) and mid-sized firms have become increasingly pronounced. This has led to growing recognition of the need to develop a Korea-specific Entrepreneurship Index that can objectively diagnose the state of entrepreneurship and be used to inform policy improvement. Existing international indicators, such as the Global Entrepreneurship Monitor (GEM), do not sufficiently reflect Korea’s institutional and cultural particularities, necessitating an independent index framework.

This study defines entrepreneurship based on three theoretical pillars: Knight’s concept of judgment and responsibility under uncertainty, Schumpeter’s creative destruction and innovation, and Kirzner’s entrepreneurial alertness to opportunity discovery.

Based on this framework, the study designs a Korean Entrepreneurship Index system consisting of five sub-indices and ten indicators: investment, labor, production, institutional environment (regulation), and attitudes. The investment sub-index includes capital investment, overseas investment, foreign direct investment, and R&D investment; the labor sub-index comprises employment and productivity; the production sub-index includes the number of firms and the all-industry production index. Regulation is measured using Korea’s Innovation Survey of domestic firms and the OECD Product Market Regulation (PMR) inverse index, while attitudes are reflected through results from the Global Entrepreneurship Monitor (GEM) survey.

Analysis of the sub-indices shows that investment experienced sharp declines during major crisis periods—such as the Asian financial crisis, the global financial crisis, and the COVID-19 pandemic—and has recently exhibited stagnation. In the labor dimension, employment has increased over the long term, but productivity improvements have been limited, leaving the overall labor index confined within a narrow range.

The production index has risen gradually but remains weak overall. In the case of regulation, international comparisons suggest improvement, while domestic firms’ perceived regulatory burden has worsened, revealing a notable discrepancy. The entrepreneurial attitude index declined for an extended period after 2008, rebounded after 2016, but has recently stagnated in the low-50s.

This study constructs four versions of Korea’s composite entrepreneurship index:

Index 1 (investment + labor + production),

Index 2 (Index 1 + attitudes),

Index 3-1 (investment + labor + production + regulation measure 1 + attitudes), and

Index 3-2 (investment + labor + production + regulation measure 2 + attitudes).

For Composite Index 1, which includes investment, labor, and production, consistent data are available from 2000 to 2024, allowing a 25-year time-series analysis.

The results show that Composite Index 1 (investment, labor, and production) has a statistically significant positive correlation with economic growth rates. Composite Index 2, which incorporates entrepreneurial attitudes, also demonstrates a significant positive relationship, supporting the conclusion that higher levels of entrepreneurship are associated with stronger economic growth. In contrast, Composite Index 3, which includes regulation, does not exhibit clear statistical significance due to data limitations; nevertheless, a qualitative interpretation suggests that worsening perceptions of domestic regulation constrain entrepreneurship.

These findings indicate that the weakening of entrepreneurship lies at the root of Korea’s declining economic dynamism. Accordingly, multi-dimensional policy reforms are required, including education and talent development, scale-up support and investment environment enhancement, labor market reform, regulatory innovation, tax and inheritance tax reform, and the cultivation of a supportive social climate.

In particular, entrepreneurship education should be strengthened within formal curricula, and a culture that reframes failure as a learning opportunity should be widely promoted. Financing across different stages of firm growth and private venture investment should be revitalized, alongside the establishment of a job- and performance-based labor market. Regulation should transition toward a negative regulatory system to enhance predictability, while excessive tax burdens should be eased to encourage long-term investment.

In conclusion, Korea’s Entrepreneurship Index goes beyond a simple quantitative indicator; it serves as a diagnostic tool for assessing the level of entrepreneurship that is closely linked to economic growth. For Korea to overcome structural low growth and establish a foundation for sustainable development, the recovery of entrepreneurship and comprehensive institutional reform are essential. Entrepreneurship should be reaffirmed not merely as a component of startup policy, but as a core value shaping national future competitiveness and social prosperity.

Table of Contents

I. Introduction

1. Background of the Entrepreneurship Debate

2. Research Objectives

II. Conceptual Analysis of Entrepreneurship and Index Development

1. Concept and Components of Entrepreneurship

2. Development of the Korean Entrepreneurship Index

III. Current Status and Implications of Korea’s Entrepreneurship Index

1. Trends and Status of Sub-Indices
1) Investment Index
2) Labor Index
3) Production Index
4) Institutional Environment (Regulation) Index
5) Attitudes (Positivity) Index
6) Composite Analysis of Sub-Indices

2. Trends and Status of Korea’s Composite Entrepreneurship Index

3. Implications: Entrepreneurship Index and Economic Growth

IV. Policy Recommendations for Enhancing Entrepreneurship in Korea

1. Education and Talent Development

2. Scale-Up and Investment Environment Enhancement

3. Labor Market Reform and Productivity Improvement

4. Regulatory Reform

5. Tax Reform

6. Cultivating a Supportive Social Climate and Comprehensive Institutional Reform

References

[Appendix] Annual Composite Entrepreneurship Index of Korea and Real GDP Growth Rates

Korean version: https://www.cfe.org/20251021_28217