Does Export-Led Growth Still Work for the South Korean Economy?Following the Footsteps of Structural Changes in Japan

The export-led growth hypothesis has been examined for the case of South Korea, which has long been regarded as a typical export-oriented economy. In particular, the expansion of exports in South Korea has been reinforced by the imports of raw materials and intermediate goods from overseas, and hence net exports are used as an alternative measure of exports. One striking result we have found is that structural changes have been observed over time. For the earlier sample period 1972-1996, changes in net exports had a significant impact on economic growth; but the growth effect of net exports mitigated and became insignificant for recent years of 1999-2017. More specifically, import growth strengthened export expansion in Korea, and the subsequent growth of exports then had a significant impact on economic growth for the earlier sample period 1972-96. Our findings are, in general, consistent with the export-led growth hypothesis. In contrast, the hypothesis is no longer valid for recent years 1999-2017. The results suggest that the export sector is of greatly diminished weight, as in Japan's earlier decades. Disaggregated data re-confirms that the growth of exports enhanced by the import of raw materials and intermediate goods from overseas do not have a significant effect on the growth of GDP for recent two decades in Korea