Sustainability of growth in the Korean manufacturing sector

Abstract

This paper examines Krugman’s pessimistic paradigm on East Asian economic growth, using Korean manufacturing data. The initial focus is on a disaggregated growth accounting approach. I found that productivity growth is the largest contributor to output growth in eight of fifteen industries, and that productivity growth explains about 38 per cent of output growth of manufacturing overall. Secondly the theoretical issues, which call into question the theoretical basis of the paradigm, are examined. I found that sequencing of the sources of growth was empirically verified (productivity growth in light industries ’ capital accumulation in heavy and petrochemical industries ’ productivity growth through R&D efforts), and that an increasing or constant output–capital ratio (marginal product of capital) was found in ten of the fifteen industries, and that interactions between productivity growth and capital input growth were found in nine of the fifteen industries. These results give a strong indication that criticism of the sustainability of East Asian growth is open to question.