Raising productivity requires addressing a wide range of policies that affect resource allocation, the creation and diffusion of technology, human capital and the creation and financing of start-ups. The greatest gains can be achieved in the service sector and in SMEs, where productivity has fallen to less than a third of large firms. Regulatory reform, increased international openness and labour flexibility would support such reallocation and technology diffusion. Korea's large investment in R&D and education should be leveraged to raise productivity by enhancing university and public research and strengthening its links with the business sector and global innovation networks. To take advantage of innovation, the relatively low skill levels of workers above age 35 calls for increased lifelong learning. Perhaps most important, it is essential to shift SME policies away from promoting the survival of firms and towards productivity gains. Given market failures in indirect financing, developing capital markets, including venture capital investment, is a priority to boost firm creation. This Working Paper relates to the 2016 OECD Economic Survey of Korea (www.oecd.org/eco/surveys/economic-survey-korea.htm)