Superstars or Supervillains? Large Firms in the South Korean Growth Miracle
(with Jaedo Choi, Andrei A. Levchenko, Dimitrije Ruzic) Latest Draft
Abstract
We quantify the contribution of the largest firms to South Korea's economic performance since 1970. Using firm-level historical data, we document a novel fact: firm concentration rose substantially during the growth miracle period. To understand whether the increased importance of large firms contributed positively or negatively to the South Korean growth miracle, we build a quantitative heterogeneous firm small open economy model. Our framework accommodates a variety of causes and consequences of (changes in) firm concentration: productivity, distortions, selection into exporting, and oligopolistic and oligopsonistic market power in domestic goods and labor markets. The model is implemented directly on the firm-level data and inverted to recover the drivers of changing concentration. We find that most of the increased concentration is attributable to higher productivity growth of the largest firms. Shutting down the 10 largest firms' differential productivity growth would have decreased firm concentration and lowered markups, but nonetheless would have reduced welfare by 13.6%. Differential distortions and foreign market access of the 10 largest firms played a more limited role in the trends in concentration and had a smaller welfare impact. Thus, the largest Korean firms were superstars rather than supervillains.
From Adoption to Innovation: State-Dependent Technology Policy in Developing Countries (JMP)
(with Jaedo Choi) Latest Draft
STEG Small Research Grant
Abstract
Should governments prioritize subsidizing foreign technology adoption over domestic innovation, and how might this depend on different stages of development? Using historical technology transfer and patent data from South Korea, we find that greater productivity gaps between Korean and foreign firms correlate with larger productivity gains after adoption, accompanied by reduced fees paid to foreign technology sellers. Also, non-adopters increased patent citations to foreign sellers, indicating knowledge spillovers. Motivated by these findings, we build a two-country growth model of firm-level innovation and adoption. As firms narrow the gap, adoption costs rise due to strategic interactions between firms in the global market. Moreover, gains from adoption decrease as the advantages of backwardness diminish, reducing the effectiveness of adoption subsidies compared to innovation subsidies. We evaluate Korea's policy shift from adoption to innovation subsidies. The state-dependent nature of the policy has significant implications for welfare and catching up.
How Task-Biased is Capital-Embodied Innovation?
(with Hyejin Park) Latest Draft
Abstract
This paper develops a measure of Capital-Embodied Innovation (CEI). The measure counts the number of patents applied to capital goods by matching patent documents with Wikipedia articles on capital goods. Using occupation-level variations on the sets of capital goods from O*NET, we document that CEI is biased toward abstract and non-routine occupations. Furthermore, we highlight the heterogeneous effects of CEI across the capital-occupation relationship. When the capital good performs a similar function as the occupational task (task-substituting capital), the CEI reduces the relative demand for labor. In case the capital good performs a different function than the occupation tasks (task-complementing capital), the CEI raises relative demand for labor. Abstract occupations have disproportionately more CEI on task-complementing capital than non-abstract occupations. A model-based counterfactual implies that the employment growth between the 1980s and the 2010s would be 37% less biased towards abstract-task occupations without CEI. The degree of job polarization would have also been lower without CEI.
Technology Adoption and Late Industrialization
(with Jaedo Choi) Latest Draft STEG Working Paper 033
Abstract
We study how the adoption of foreign technology and local spillovers from such adoption contributed to late industrialization in a developing country during the postwar period. Using novel historical firm-level data for South Korea, we provide three empirical findings: direct productivity gains to adopters, local productivity spillovers of the adoption, and complementarity in firms' adoption decisions. Based on these findings, we develop a dynamic spatial model with firms' technology adoption decisions and local spillovers. The spillovers induce dynamic complementarity in firms' technology adoption decisions. Because of this complementarity, the model potentially features multiple steady states. Temporary adoption subsidies can have permanent effects by moving an economy to a new transition path that converges to a higher-productivity steady state. We calibrate our model to the microdata and econometric estimates. We evaluate the effects of the South Korean government policy that temporarily provided adoption subsidies to heavy manufacturing firms in the 1970s. Had no adoption subsidies been provided, South Korea would have converged to a less industrialized steady state in which the heavy manufacturing sector’s share of GDP would have been 15 percentage points lower and aggregate welfare would have been 10% lower compared to the steady state with successful industrialization. Thus, temporary subsidies for technology adoption had permanent effects.