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Estimates of Labor and Total Factor Productivity by 72 Industries in Korea(1970-2003)

Economic Research Institute (82-2-759-5557) 2006.12.15 4279

Estimates of Labor and Total Factor Productivity by 72 Industries in Korea (1970-2003)  

Author : Hak K. Pyo, Keun Hee Rhee and Bongchan Ha

As Krugman (1994), Young (1994), and Lau and Kim (1994)'s studies showed, the East Asian economic miracle may be characterized as 'input-led' growth. However, both the stagnation in investment and the decrease in average working hours combined with decrease in the fertility rate require a productivity surge for a renewed sustainable growth in East Asia. The purpose of our study is to identify the sources of economic growth based on a KLEMS model for the Republic of Korea which experienced a financial crisis in 1997 after joining OECD. We report estimates of KLEMS inputs and gross output in Korea based on 72-industry classification following EU KLEMS project guidelines. We also provide estimates of 72-industry-level labor productivity and total factor productivity. We have found that Korea’s catch-up process with industrial nations in its late industrialization has been predominantly input-led and manufacturing based as documented in Timmer (1999) and Pyo (2001). We have also found that TFP growth has been positively affected by the growth of labor productivity and output growth. However, since its financial crisis in December 1997, the sources of growth seem to have switched to TFP-growth based and IT-intensive service based. But lower productivity in service industries due to regulations and lack of competition seems to work against finding renewed sustainable growth path.