Edited by Takatoshi Ito and Chin Hee Hahn
Chapter 4: Understanding the Post-Crisis Growth of the Korean Economy: Growth Accounting and Cross-Country Regessions
4. Understanding the post-crisis growth of the Korean economy: growth accounting and cross-country regressions* Chin Hee Hahn and Sukha Shin INTRODUCTION 4.1 Korea maintained miraculously high and sustained economic growth at least up until the 1997 financial crisis, becoming one of the newly industrialized economies (NIEs) in the 1980s. After the crisis, however, the GDP growth rate slowed down significantly. Annual average gross domestic product (GDP) growth rate declined from 7.5 percent during the period from 1991 to 1995 to 4.5 percent on average from 2001 to 2006. The growth slowdown was accompanied by a significant decline in investment growth and worsened employment conditions (see Figures 4.1–4.3). In this chapter, we try to provide some empirical facts that are helpful for understanding the post-crisis growth performance of Korea. The main questions asked in this chapter are as follows. What are the respective roles of inputs accumulation and total factor productivity growth (TFPG) in explaining the growth slowdown? How does the post-crisis growth performance of Korea compare with other countries, in terms of per worker GDP growth, per worker capital growth, and TFPG? This chapter uses both growth accounting and cross-country regression methodologies to answer these questions, and tries to evaluate post-crisis growth of the Korean economy. As is well known, the studies by Young (1995) and Kim and Lau (1994) suggested that the growth rates of total factor productivity (TFP) of Korea and other East Asian countries were only moderate relative to those recorded by many developed countries in...
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