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How much of South Korea’s growth miracle can be explained by trade policy?

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Listed author(s):
  • Michelle P. Connolly
  • Kei-Mu Yi

Abstract

South Korea’s growth miracle has been well documented. A large set of institutional and policy reforms in the early 1960s is thought to have contributed to the country’s extraordinary performance. In this paper, we assess the importance of one key set of policies, the trade policy reforms in Korea, as well as the concurrent GATT tariff reductions. We develop a model of neoclassical growth and trade that highlights two forces by which lower trade barriers can lead to increased per worker GDP: comparative advantage and specialization, and capital accumulation. We calibrate the model and simulate the effects of three sets of tariff reductions that occurred between the early 1962 and 1995. Our main finding is that the model can explain up to 32 percent of South Korea’s catch-up to the G7 countries in output per worker in the manufacturing sector. We find that the effects of the tariff reductions taken together are about twice as large as the sum of each reduction applied individually.

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Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2008-23.

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Date of creation: 2008
Handle: RePEc:fip:fedfwp:2008-23
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Find related papers by 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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Cited by:

  1. 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.
  2. Betts, Caroline & Giri, Rahul & Verma, Rubina, 2017. "Trade, Reform and Structural Change in South Korea," MPRA Paper 79072, University Library of Munich, Germany.

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