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How Much of South Korea's Growth Miracle Can Be Explained by Trade Policy?

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  • Michelle Connolly
  • Kei-Mu Yi

Abstract

This paper assesses the importance of trade policy reforms in South Korea, as well as the General Agreement on Tariffs and Trade (GATT) tariff reductions, in explaining Korea's growth miracle. We develop a model of neoclassical growth and trade in which lower tariffs lead to increased gross domestic product (GDP) per worker via comparative advantage and specialization, and capital accumulation. We calibrate the model and simulate the tariff reductions that occurred between early 1962 and 1989. The model can explain 17 percent of South Korea's catch-up to the G7 countries in value-added per worker in the manufacturing sector. These gains, as well as most of the welfare gains, are driven by two key transmission channels: multistage production and imported investment goods. (JEL F13, F43, L60, O47)

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  • Michelle Connolly & Kei-Mu Yi, 2015. "How Much of South Korea's Growth Miracle Can Be Explained by Trade Policy?," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(4), pages 188-221, October.
  • Handle: RePEc:aea:aejmac:v:7:y:2015:i:4:p:188-221
    Note: DOI: 10.1257/mac.20120197
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    1. Ravikumar, B. & Santacreu, Ana Maria & Sposi, Michael, 2019. "Capital accumulation and dynamic gains from trade," Journal of International Economics, Elsevier, vol. 119(C), pages 93-110.
    2. Mariarosaria Comunale & Giulia Felice, 2019. "An empirical investigation of the relationship between trade and structural change," Bank of Lithuania Working Paper Series 62, Bank of Lithuania.
    3. Caroline Betts & Rahul Giri & Rubina Verma, 2017. "Trade, Reform, and Structural Transformation in South Korea," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 65(4), pages 745-791, November.
    4. Gao, Yanyan & Zheng, Jianghuai, 2020. "The impact of high-speed rail on innovation: An empirical test of the companion innovation hypothesis of transportation improvement with China’s manufacturing firms," World Development, Elsevier, vol. 127(C).
    5. Francisco J. Buera & Ezra Oberfield, 2020. "The Global Diffusion of Ideas," Econometrica, Econometric Society, vol. 88(1), pages 83-114, January.
    6. Murat Ungor, 2017. "Productivity Growth and Labor Reallocation: Latin America versus East Asia," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 24, pages 25-42, March.
    7. Fabio Monteforte & Mathan Satchi & Jonathan R. W. Temple, 2021. "Development priorities: the relative benefits of agricultural growth," Oxford Economic Papers, Oxford University Press, vol. 73(3), pages 1122-1152.
    8. Betts, Caroline & Giri, Rahul & Verma, Rubina, 2017. "Trade, Reform and Structural Change in South Korea," MPRA Paper 79072, University Library of Munich, Germany.
    9. Douglas A. Irwin, 2019. "Does Trade Reform Promote Economic Growth? A Review of Recent Evidence," Working Paper Series WP19-9, Peterson Institute for International Economics.
    10. Teignier, Marc, 2018. "The role of trade in structural transformation," Journal of Development Economics, Elsevier, vol. 130(C), pages 45-65.

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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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