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

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  • 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.

Suggested Citation

  • Michelle P. Connolly & Kei-Mu Yi, 2008. "How much of South Korea’s growth miracle can be explained by trade policy?," Working Paper Series 2008-23, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfwp:2008-23
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    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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