The Impacts of Exports on the Structure and Productivity of Korean Manufacturing

Exports, once the main driving force of the Korean economy, have contracted recently, deepening concerns about the nation’s economic future. The splendid growth in manufacturing from the 1960s was a strong foothold for economic development, but now the outlook for the industry does not appear to be promising. What should be a vital impetus in the future is not the input of productivity factors such as labor or capital, but an increase in the total factor productivity (TFP). Enhancement of a nation’s FTP can be achieved through several, diverse policies: R&D policies aiming at heightening corporate productivity through more R&D infrastructures and commercialization; larger freedom of market entry and exit; competition policies aiming at boosting the market; and trade policies, too. International trade since the 1990s exhibited an unprecedentedly high growth, going through seismic changes, such as the rise of China and developing countries and the expansion of the global value chains (GVCs). These changes caused Korea’s trade to rise by a large margin, and Korea’s dependence on trade has deepened more and more after the Asian financial crisis in 1997. Its exports accounted for only 22% of the nominal GDP in the early 2000s, but expanded to approximately 42% in 2011. In addition, it is true there are concerns about that exports have not shown as strong a trickle-down effect of boosting employment and growth as in the past. Under this condition, it would be of great significance to look closely at what impacts have been brought to Korea’s economic productivity by the increased exports. This paper intends to analyze the impacts that Korea’s exports after the 2000s caused on the increase in exporting firms’ productivity through a learning-by-exporting mechanism. Unlike its precedents, this study focuses on interpreting the significance that Korea’s rising exports to China and developing countries—one of noticeable characteristics of Korea’s exports since the 2000s—have to do with its economic productivity. To that end, the author used trade statistics to identify the characteristics of Korea’s export structure, and combined industrial statistics with trade statistics to track down changes in relevant industries. The analysis finds that manufacturing firms exporting to developing countries experienced less or almost zero increase in their TFP compared to those exporting to advanced countries. This finding implies that the strength of the trickle-down effect from exports has waned in terms of productivity as well as employment, and the waning was mostly driven by the increased exports to developing countries.