Productivity Growth and Efficiency Dynamics of Korean Structural Transformation
This paper documents the sources of the Republic of Korea's economic growth, as well as the associated productivity growth and efficiency dynamics during its process of structural transformation from 1970 to 2016. The analysis includes land as...
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| Format: | Working Paper |
| Language: | English |
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World Bank, Washington, DC
2020
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| Online Access: | http://documents.worldbank.org/curated/en/216711592488286605/Productivity-Growth-and-Efficiency-Dynamics-of-Korean-Structural-Transformation http://hdl.handle.net/10986/33980 |
| Summary: | This paper documents the sources of the
Republic of Korea's economic growth, as well as the
associated productivity growth and efficiency dynamics
during its process of structural transformation from 1970 to
2016. The analysis includes land as a separate production
factor to sort out the significant effect of changes in
intersectoral land allocation, which makes significant
differences in measuring the magnitudes and directions of
change in sectoral total factor productivity (TFP).
Input-based growth and structural changes contributed to the
early take-off stage of growth in the 1970s. However, in the
following three decades, the source of growth switched to
productivity improvements, mainly engineered by the industry
sector. This was the reason behind the country's
sustained growth and escape from the "middle-income
trap." Furthermore, agricultural TFP growth also made
an important contribution to structural transformation by
pushing out factors from agriculture to industry. Since
2011, however, when the Korean economy seemed to reach a
steady state of constant capital-output ratio, TFP has
suddenly stagnated. The wedge analysis suggests that the
intersectoral allocation of labor was biased toward
agriculture while that of capital and land was biased toward
industry, compared to efficient levels. Meanwhile, the
inter-temporal wedge analysis suggests that the Korean
economy was in an over-investment mode throughout its
structural transformation. The analysis also shows that the
periods of productivity growth are not always associated
with the enhancement of allocative efficiency, while
growth-disturbing external macroeconomic shocks, such as
joining the WTO and the Asian financial crisis, led to
improvements in allocative efficiency. |
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