Manufacturing Revolutions: Industrial Policy and Industrialization in South Korea

I study the impact of industrial policy on industrial development by considering a canonical intervention. Following a political crisis, South Korea dramatically altered its development strategy with a sector-specific industrial policy: the Heavy Chemical and Industry (HCI) drive, 1973-1979. With newly assembled historical data, I use the sharp introduction and withdrawal of industrial policies to study the impacts of industrial policy—during and after the intervention period. I show (1) HCI promoted the expansion and dynamic comparative advantage of directly targeted industries. (2) Using variation in exposure to policies through the input-output network, I show HCI indirectly benefited downstream users of targeted intermediates. (3) I find direct and indirect benefits of HCI persisted even after the end of HCI, following the 1979 assassination of the president. These effects include the eventual development of directly targeted exporters and their downstream counterparts. Together, my findings suggest that the temporary drive shifted Korea manufacturing into more advanced markets and created durable industrial change. These findings clarify lessons drawn from South Korea and the East Asian growth miracle.

From Manufacturing-Led Export Growth to a Twenty-First Century Inclusive Growth Strategy

Success in economic development over the past half-century was based on manufacturing-led export growth. Because the share of global employment in manufacturing is set to continue to decline, manufacturing will not play the same role in the future. The author deconstructs what enabled manufacturing to generate growth and structural transformation. The strategy proposed is multi-pronged, addressing separately, in different sectors, the challenges of learning, foreign exchange, and employment. A carefully designed, coordinated multi-sector strategy, with sectoral policies in agriculture, natural resources, manufacturing, and especially services, has the prospect of attaining the same success as the old manufacturing-led export strategy. To implement it, countries will require active industrial policies based on a new understanding of dynamic comparative advantage. The creation of a global reserve system could help provide the finance required for success. New development strategies will require greater balance among the market, state, and community—a perspective articulated in the Stockholm Statement.

Dynamic Comparative Advantage of India and China: A study of Manufacturing Exports

This study analysed the dynamic export competitiveness of Indian manufacturing with China in the world market at HS 2-digit level classification. Dynamic RCA was utilised in this study for 2001-18. The study revealed that India was gaining a better dynamic competitive position of its manufactured exports in the world market than its Chinese counterpart. Besides this, the unfavourable dynamic position of lost opportunity included lesser Indian manufactured exports than China’s. However, China took the lead in including a higher percentage of manufactured products in those dynamic positions that showed relatively higher responsiveness to the declining demand of the world.

Extension of krugman’s comparative advantage model: Blessed fuels and cursed metals

Krugman’s dynamic comparative advantage model deals with spending effect from resource dividends. In its original setup dividends from resource export result in higher relative wages and therefore the Home country loses its production share to the Foreign country. The model had minor modifications so Home country has natural resources that can be either exported or used in production of traded goods. The learning is associated only with non-resource part of traded good production, and therefore the specialization range for resource producing country is narrower consequently it can easily lose it production share to Foreign country. As alternative to raw export the country can utilize its resources in production of traded goods. In that case, it is possible to reduce relative wages through change in demand for imported traded goods. Compared to fuel exporters, metal exporters are more vulnerable to losing their production share, and metal processing countries are much stronger in keeping their shares in the world production. From extension of Krugman’s comparative advantage model it follows that existence of large resource extractive sector would result in loss of comparative advantage more easily compared with country that have small resource sector. Distribution of resource wealth as pure transfers results in loss of domestic industries to foreign country. In contrast, utilizing resources as inputs and producing import substituting goods, while changing domestic demand preferences for traded and non-traded goods would have positive outcomes for the comparative advantage.