Imports, exports and total factor productivity in Korea

Abstract

This study investigates the relationship between trade and economic growth in Korea during 1980–2003. We find Granger causality from imports to Total Factor Productivity (TFP) growth, and the absence of any causal relation between exports and TFP. We then, empirically examine the impact of various trade variables on TFP growth. Our results indicate that imports have a significant positive effect on TFP growth, but exports do not. Furthermore, our results suggest that the positive impact of imports stems not only from competitive pressures arising from the imports of consumer goods but also from technological transfers embodied in imports of capital goods and imports from developed countries. Most of our empirical results still hold when we replace TFP growth with Gross Domestic Profit (GDP) growth as the dependent variable.