Chapter 6: China’s Rise and Production and Investment Growth in Korean Manufacturing Industries: Channels and the Effects
Chin Hee Hahn and Yong-Seok Choi INTRODUCTION 6.1 China’s rapid economic growth as well as its integration into the world economy is probably one of the most important developments in the external economic environment surrounding Korea and other East Asian countries. Over the past several decades, China sustained rapid economic growth of about nearly 10 percent per annum accompanied by the rapid trade expansion. As a result, China has recently become the third-largest economy in terms of GDP and the second-largest in terms of trade.1 Since the 1990s, the bilateral trade between Korea and China expanded impressively as well, making China the largest trading partner of Korea. China’s share of Korea’s exports rose from 0.9 percent in 1990 to 22.7 percent in 2007, making China the largest export market of Korea. During the same period, China’s share of Korea’s imports increased from 3.2 percent to 17.7 percent, making China the second-largest importing partner of Korea. What are the effects of China on the economic growth of Korea? What are major channels which are empirically important? To answer these questions, this chapter attempts to examine how measures of various aspects of trade relationship between Korea and China are related to the production and investment growth of Korean manufacturing at three-digit industry level. We consider primarily three channels – import competition and third-market competition from China and exports to China – and try to evaluate the empirical importance of each channel through which Korean manufacturing industries are affected by the rise of China. One...
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