Abstract
This paper studies the short- and long-term effects of rapid technological advances in the manufacturing sector (named manufacturing-specific technology shocks) on sectoral employment in the Korean economy. A study on the Korean economy is fruitful since, during deindustrialization, the country exhibited different trends from those in the United States and United Kingdom in terms of manufacturing’s share of output. Based on empirical analyses and a two-sector small open-economy DSGE model, the paper finds that over the long run, employment moves from manufacturing to services following a manufacturing-specific technology shock. In the short run, however, manufacturing employment rises. Even though the Korean economy is highly export-driven, the short-run rise in manufacturing employment is ultimately driven by an investment boom following technological innovations.
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