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Trade, Reform, and Structural Transformation in South Korea

Author

Listed:
  • Rubina Verma

    (Instituto Tecnologico Autonomo de Mexico (ITAM))

  • Rahul Giri

    (International Monetary Fund)

  • Caroline Betts

    (University of Southern California)

Abstract

We develop a quantitative two country, three-sector model to measure the effects of trade policies for Korean structural change from 1963 through 2000. The model features non-homothetic preferences, Armington trade, proportional import tariffs and export subsidies, and is carefully calibrated to match sectoral value added production and value added trade between Korea and the OECD. We find that tariff liberalization increased imports and total trade, especially agricultural imports, accelerating de-agriculturization and intensifying Korean industrialization. Subsidy liberalization lowered exports and trade, especially industrial exports, attenuating industrialization. Thus, these effects of trade reform were individually powerful, but negated each other. Korea’s subsidy reform dominated quantitatively; relative to a “no reform” regime which maintains both 1963 tariff and subsidy rates forever, observed trade reform produces comparable but lower trade volumes, a larger agricultural and lower industrial employment share, and slower industrialization. “Complete reform”, lowering tariffs and subsidies to zero from 1963 onwards, would have substantially increased trade volumes and facilitated industrialization.

Suggested Citation

  • Rubina Verma & Rahul Giri & Caroline Betts, 2017. "Trade, Reform, and Structural Transformation in South Korea," 2017 Meeting Papers 1530, Society for Economic Dynamics.
  • Handle: RePEc:red:sed017:1530
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    References listed on IDEAS

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    Cited by:

    1. Cai, Wenbiao, 2015. "Structural change accounting with labor market distortions," Journal of Economic Dynamics and Control, Elsevier, vol. 57(C), pages 54-64.
    2. Sposi, Michael, 2019. "Evolving comparative advantage, sectoral linkages, and structural change," Journal of Monetary Economics, Elsevier, vol. 103(C), pages 75-87.
    3. repec:eee:wdevel:v:109:y:2018:i:c:p:483-496 is not listed on IDEAS
    4. Uy, Timothy & Yi, Kei-Mu & Zhang, Jing, 2013. "Structural change in an open economy," Journal of Monetary Economics, Elsevier, vol. 60(6), pages 667-682.
    5. Herrendorf, Berthold & Rogerson, Richard & Valentinyi, Ákos, 2014. "Growth and Structural Transformation," Handbook of Economic Growth,in: Handbook of Economic Growth, edition 1, volume 2, chapter 6, pages 855-941 Elsevier.
    6. Constant A Lonkeng Ngouana, 2013. "Structural Transformation and the Volatility of Aggregate Output in OECD Countries," IMF Working Papers 13/43, International Monetary Fund.
    7. 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.
    8. Murat Üngör, 2016. "Did the rising importance of services decelerate overall productivity improvement of Turkey during 2002–2007?," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 19(3), pages 238-261, July.
    9. Tomasz Swiecki, 2017. "Determinants of Structural Change," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 24, pages 95-131, March.
    10. Wenbiao Cai & B. Ravikumar & Raymond G. Riezman, 2015. "The Quantitative Importance Of Openness In Development," Economic Inquiry, Western Economic Association International, vol. 53(4), pages 1839-1849, October.
    11. Cavalcanti Ferreira, Pedro & Monge-Naranjo, Alexander & Torres de Mello Pereira, Luciene, 2014. "Education Policies and Structural Transformation," Working Papers 2014-39, Federal Reserve Bank of St. Louis.
    12. 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.
    13. Logan T. Lewis & Ryan Monarch & Michael J. Sposi & Jing Zhang, 2018. "Structural Change and Global Trade," International Finance Discussion Papers 1225, Board of Governors of the Federal Reserve System (U.S.).
    14. repec:spr:ijlaec:v:61:y:2018:i:4:d:10.1007_s41027-018-0148-x is not listed on IDEAS
    15. repec:sgm:wnwzuw:y:2019:v:1:ch:8:p:165-186 is not listed on IDEAS
    16. Wenbiao Cai & B. Ravikumar & Raymond Riezman, 2013. "The Quantitative Importance of Openness in Development," CESifo Working Paper Series 4412, CESifo Group Munich.
    17. Sen Gupta, Abhijit & More, Vishal & Gupta, Kanupriya, 2016. "Structural Change and Poverty Reduction at Sub-State Levels in India," MPRA Paper 72740, University Library of Munich, Germany.
    18. repec:fip:feddgm:00030 is not listed on IDEAS

    More about this item

    JEL classification:

    • F1 - International Economics - - Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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