The Effectiveness of International Knowledge Spillover Channels in Korea

This study constructs an extensive dataset at the level of the Korean manufacturing industry for the period from 2006 to 2019 to assess the relative effectiveness of knowledge spillover channels on domestic productivity. Unlike previous studies, we consider both embodied and disembodied knowledge channels by analyzing both the aggregated and disaggregated manufacturing sectors. Utilizing a first-difference model, we demonstrate that knowledge spillovers from the inward FDI channel have a strongly positive impact on the productivity growth of domestic manufacturing at both the 1-digit and 2-digit levels. In contrast, while disembodied channels, such as technology imports, do enhance domestic productivity growth, their effect is less pronounced than that of the inward FDI channel. Furthermore, we find that the positive effects of inward FDI vary according to international partners (North America, Asia, and Europe) and the technological intensity of the industry. Specifically, FDI from Europe and inflows into high-technology industries significantly contribute to the diffusion of knowledge spillover effects. These empirical findings provide important policy implications for the Korean government, suggesting the need to encourage and support domestic R&D activities and inward FDI, particularly from Europe and in high-tech industries.