How Large Is the impact of Exports on Economic Growth? New Evidence from the Korean Case

Abstract

The positive relationship between trade and economic growth is one of the most fundamental propositions in economics field. However, the existing empirical studies tend to have emphasized statistical significance of the trade-growth nexus, but they have paid less attention to the actual size of trade’s impact on economic growth. Is exports’ impact sufficiently large to justify the widespread pro-trade prescriptions to attain the long-term growth? In this respect, this paper empirically examines the impact of exports on economic growth, for the case of Korea since its economic take-off period in 1960s. We adopt two inter-related GDP decomposition methods to quantify the contributions of export to GDP growth from a historical perspective. We find that export’s contribution to GDP growth has been substantial. Specifically, the average contribution of net exports to growth for the period of 1960-2014 is 30.3 percent, which means that net exports accounts for 2.3 percent point per annum of Korea’s GDP growth. This figure is truly a remarkable one, taken into consideration that the average growth rates of developed and developing countries were 3.17 percent and 3.37 percent over the last five decades, respectively.