How Much of South Korea's Growth Miracle Can Be Explained by Trade Policy?

36 Pages Posted: 21 Aug 2009 Last revised: 9 Oct 2009

See all articles by Michelle Connolly

Michelle Connolly

Duke University - Department of Economics

Kei-Mu Yi

University of Houston - Department of Economics; Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Date Written: June 1, 2009

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, the authors assess the importance of one key set of policies, the trade policy reforms in Korea, as well as the concurrent GATT tariff reductions. They 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. The authors calibrate the model and simulate the effects of three sets of tariff reductions that occurred between the early 1962 and 1995. Their 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. The authors find that the effects of the tariff reductions taken together are about twice as large as the sum of each reduction applied individually.

Keywords: Growth, trade, calibration, multi-stage production, South Korea

JEL Classification: F4, O11, O4, O53

Suggested Citation

Connolly, Michelle and Yi, Kei-Mu, How Much of South Korea's Growth Miracle Can Be Explained by Trade Policy? (June 1, 2009). FRB of Philadelphia Working Paper No. 09-19. Available at SSRN: https://ssrn.com/abstract=1459171 or http://dx.doi.org/10.2139/ssrn.1459171

Michelle Connolly (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1819 (Phone)
919-684-8974 (Fax)

Kei-Mu Yi

University of Houston - Department of Economics

Houston, TX 77204-5882
United States

Federal Reserve Banks - Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

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