This study evaluates Korea’s competitiveness in manufacturing exports, focusing on the rivalry among Korea, China, and Japan. In doing so, it aims to predict changes in competitive dynamics for Korea in the global manufacturing market.
Chapter 2 compares the total factor productivity (TFP) and technical efficiency of 11 manufacturing sectors among the three countries. For Korea, firm-level TFP growth is decomposed by its determinants: within-firm and between-firm effects, entry and exit effects, technological progress and economies of scale. Chapter 3 sheds light on Korean export competition with China and Japan using various indicators calculated from export statistics. Then, it identifies the relationship between productivity and export performance in Korea. The standard gravity model and panel vector autoregressive model (VAR) are employed for estimations. Chapter 4 predicts changes in the competitive landscape for the Korean manufacturing industries based on long-term projections for productivity in the three countries.
The findings from the study are as follows: first, there has been a dramatic catch-up of China with Korea in terms of productivity, especially since 2000, while there still exists a relatively large gap between Japan and Korea. It is reminiscent of the sandwich theory, meaning Korea is literally sandwiched between a fast-growing China and technologically-advanced Japan. Second, since 2000, industry-level productivity has increased mostly with respect to the ratio of value-added in productive firms to total value-added in Korea. Meanwhile, it is actually technological progress that has been the major contributing factor to productivity growth rather than economies of scale. Third, Korea competes with China and Japan, respectively, in different product markets. It implies that the rivalry among the three countries even within the same industry may be divided in terms of the products. Fourth, productivity may be interconnected with exports in Korea. In particular, there seems to be a positive link between productivity growth created by technological progress and export performance. Fifth, current trends in productivity growth suggest that Korea will be overtaken by China in most manufacturing sectors except chemical and oil refining within 10∼15 years. For the long-term though, the productivity rankings will be reversed among Korea, China, and Japan; in virtually all industries but transportation equipment.