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An International Comparison of Korean Industries Productivity and Competitiveness and New Directions for Industrial Policies

Author Inchul Kim, Youngmin Kim Date 2016.02.01 Page 18
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Internationalization has a significant bearing on the Korean economy, which, thus far, has achieved fast growth and development through export-driven strategies. The world’s industries have seen a rapid expansion of the global value chain driven by the internationalization of technology and production as well as networking and ties between businesses, industries, and countries.
Thus, the internationalization of trade has evolved beyond goods to encompass a diverse range of spheres. As evidenced by past
examples, internationalization not only reveals powerful and efficient measures for the Korean economy to increase productivity
levels and welfare benefits, but has yielded real-life results. Despite changes in the methods and channels through which internationalization takes place, the significance of internationalization and its implications on the Korean economy are growing.
If Korean industries are to continue succeeding in international trade, it is necessary to identify and understand changes in the international environment and take aggressive countermeasures. Given rapid changes in the domestic and international economy and the evolution of the concepts and application of internationalization, Korean industries and businesses should develop industry-wide and company-specific strategies based on an understanding of the changing impact of globalization on productivity and competitiveness.
In particular, Korea urgently needs to make Korean industries and businesses more productive and competitive. To do so, it is imperative for Korea to take full advantage of internationalization from an industrial policy perspective and respond to changes in the economic environments in both Korea and overseas.
Despite the importance of the relationship between internationalization and productivity and related changes, there is a relative lack of understanding in the following two aspects: a gap between internationalization and non-internationalization related to productivity distribution; and the causal relation between internationalization and productivity. The productivity gap suggests that the
marginal effect of internationalization and non-internationalization varies according to productivity levels, and policy responses should be adjusted accordingly. The causal relation between internationalization
and productivity implies certain endogenous errors of verifiable
analysis. A few studies have looked into either one of the
two issues using statistics available on Korean businesses, but little
research has analyzed both factors simultaneously.
Utilizing micro-level data on Korean businesses, this study estimated
productivity distribution by quartile to measure the impact
of a company’s internationalization. Based on the analyses’ findings, this study examined the industrial implications of export-oriented
policies from and proposed measures for improvement.
The primary question that this study addresses is, “How is the
marginal effect of internationalization on corporate productivity
distributed after endogenous factors are controlled?” If the effects
of internationalization differ by the quartile of productivity, then
they present significant policy implications in regard to internationalization
and productivity, and offer the opportunity to present
policy-related solutions. In addition, from the perspective of company
and industry dynamics, the productivity gap first appears
between companies in a cohort, but less productive companies are
left behind over time while more productive companies increase in
productivity, leading to improved productivity in the overall economy.
The role of internationalization of companies is seen to play
a key role in this process. Accordingly, this study aims to examine
the effects of internationalization from a dynamic perspective as
well as its policy implications.
In the policy section, the study seeks to derive policy implications
and gain insight for future policy directions by interpreting
the results of policy analyses regarding the internationalization
strategies of Korean companies, the exports of small to midsize
entrepreneurs, and export-oriented policies. Exports have thus far
comprised the base of internationalization strategies for Korean
firms and have served as the foundational step toward internationalization.
In addition, SMEs still have a critical role, as their
presence in the export market remains marginal. For this purpose,
this study examined the exports of SMEs and related policies to
infer necessary policy shifts and identify ways to improve support systems for increasing their exports.