How Much of South Korea's Growth Miracle Can Be Explained by Trade Policy?
AbstractThis paper assesses the importance of trade policy reforms in South Korea, as well as the General Agreement on Tariffs and Trade (GATT) tariff reductions, in explaining Korea's growth miracle. We develop a model of neoclassical growth and trade in which lower tariffs lead to increased gross domestic product (GDP) per worker via comparative advantage and specialization, and capital accumulation. We calibrate the model and simulate the tariff reductions that occurred between early 1962 and 1989. The model can explain 17 percent of South Korea's catch-up to the G7 countries in value-added per worker in the manufacturing sector. These gains, as well as most of the welfare gains, are driven by two key transmission channels: multistage production and imported investment goods. (JEL F13, F43, L60, O47)
CitationConnolly, Michelle, and Kei-Mu Yi. 2015. "How Much of South Korea's Growth Miracle Can Be Explained by Trade Policy?" American Economic Journal: Macroeconomics, 7 (4): 188-221. DOI: 10.1257/mac.20120197
- F13 Trade Policy; International Trade Organizations
- F43 Economic Growth of Open Economies
- L60 Industry Studies: Manufacturing: General
- O47 Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence