Productivity and Patterns of Trade: The Experience of Korea in the 1990s

Abstract

This paper analyzes the industrial growth of Korea in the 1990s and its relationship with the nation's export performance. The result shows that total factor productivity (TFP) played a significant role in the growth of some industries, where in particular a sharp increase in TFP was observed in the electrics and electronics industry and the automobile industry in the late 1990s. While CEPII RCA indexes for the Korean industries such as IT industry and automobile industry significantly increased since 1998, only limited evidence was found that TFP or TFI influenced RCA. Investigating Korea's export performance in the Northeast Asian context, this paper shows that, in the 1990s, the growth of Korea's exports to Japan was led by industries that recorded relatively fast growth in total factor input (TFI). In contrast, that to China was almost equally contributed by industries that experienced relatively fast growth in TFP or TFI. This paper also investigates competition between Korea and China, and Korea and Japan in the world market. The competition between Korea and China was relatively stronger for the Korean industries to whose growth TFI made a more significant contribution. While no decisive evidence is found for the relationship between TFP growth in Korean industries and their competition against Japan in the world market, it is revealed that the competition between Korea and Japan became less intense for the Korean industries to whose growth TFI made a stronger contribution. In this regard, the paper supports the view of 'nut-cracking' that the Korean economy has lost its competitiveness in the sectors where it maintained comparative advantage, but failed to catch up more advanced countries such as Japan by gaining competitiveness in more capital or technology intensive sectors.