Trade, Reform, and Structural Transformation in South Korea

65 Pages Posted: 27 Aug 2013

See all articles by Caroline Betts

Caroline Betts

University of Southern California - Department of Economics

Rahul Giri

Centro de Investigación (CIE), Instituto Tecnológico Autónomo de México (ITAM); International Monetary Fund (IMF)

Rubina Verma

Instituto Tecnológico Autónomo de México (ITAM) - Administracion

Multiple version iconThere are 2 versions of this paper

Date Written: July 1, 2013

Abstract

A two country, three sector hybrid model of structural change with distortionary government policies is used to quantify the impact of international trade and trade reform for industrialization. The model features Armington motivated trade in agriculture and industry, and a novel representation of trade reform as a time sequence of import tariffs, export subsidies and lump sum government transfers of net tariff revenue. We calibrate our economy to data on South Korea and the OECD, inputting time series of country and sector specific labor productivity, tariffs and export subsidies which determine evolution of the effective pattern of comparative advantage. The model’s predicted reallocations of Korean labor from agriculture into industry and services from 1963 through 2000 are quantitatively similar to those in the data. Incorporating trade and measured Korean trade reform are both important for the accuracy of this predicted structural change, although international real income differences under non-homothetic preferences primarily determine trade and specialization patterns rather than comparative advantage. Counterfactually eliminating a) international trade b) international labor productivity differentials c) post 1967 Korean tariff reform and d) post 1967 industrial export subsidy reform increase the model’s SSE by 91 percent, 56 percent, 27 percent, and 62 percent respectively.

Keywords: Liberalization, comparative advantage, import price, industrialization, structural change

JEL Classification: F13, F14, F43, O14, O41

Suggested Citation

Betts, Caroline M. and Giri, Rahul and Verma, Rubina, Trade, Reform, and Structural Transformation in South Korea (July 1, 2013). CAFE Research Paper No. 13.03, Available at SSRN: https://ssrn.com/abstract=2316238 or http://dx.doi.org/10.2139/ssrn.2316238

Caroline M. Betts (Contact Author)

University of Southern California - Department of Economics ( email )

KAP 300
Los Angeles, CA 90089
United States
213-740-2430 (Phone)

Rahul Giri

Centro de Investigación (CIE), Instituto Tecnológico Autónomo de México (ITAM) ( email )

Av. Camino a Santa Teresa #930
Col. Heroes de Padierna
Mexico City, D.F. 10370
Mexico

HOME PAGE: http://ciep.itam.mx/~rahul.giri/

International Monetary Fund (IMF)

Kuwait

Rubina Verma

Instituto Tecnológico Autónomo de México (ITAM) - Administracion ( email )

Mexico City, DF 01000
Mexico

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
172
Abstract Views
1,401
rank
128,376
PlumX Metrics