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BOK Working Paper No.2021-7, Chaebols and Firm Dynamics in Korea

Economic Research Institiute (82-2-759-5445) 2021.03.05 1243

Title : Chaebols and Firm Dynamics in Korea
Author : Philippe Aghion(LSE), Sergei Guriev(Sciences Po), Kangchul Jo(BOK)

<Abstract>

We study firm dynamics in Korea before and after the 1997-98 Asian crisis and pro-competitive reforms that reduced the dominance of chaebols. We find that in industries that were dominated by chaebols before the crisis, labour productivity and TFP of non-chaebol firms increased markedly after the reforms (relative to other industries). Furthermore, entry of non-chaebol firms increased significantly in all industries after the reform. After the crisis, the non-chaebol firms also dramatically increased their patenting activity. Finally, markups of chaebol firms declined substantially, especially with industries dominated by chaebols before the crisis. These results are in line with a neo-Schumpeterian view of transition from a growth model based on investment in existing technologies to an innovation-based model.

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