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Big business in South Korea’s growth miracle

by xyonent
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We quantify the contribution of the largest firms to Korea’s economic performance in the period from 1972 to 2011. Using historical firm-level data, we uncover a new fact: firm concentration rose substantially during the growth miracle. To understand whether rising concentration contributed positively or negatively to Korea’s real income, we build a quantitative heterogeneous-firm small open economy model. Our framework incorporates a variety of potential causes and consequences of changing firm concentration, including productivity, distortions, selection into exports, economies of scale, and oligopolistic and oligopolistic market power in domestic product and labor markets. The model is implemented directly on firm-level data and inverted to recover the drivers of concentration. We find that most of the top firms’ differentiated performance is due to rising productivity, not differentiated distortions. The top three firms in each sector performed significantly better than average firms, contributing 15% to real GDP in 2011 and 4% to the net present value of welfare from 1972 to 2011. In other words, South Korea’s biggest companies were superstars, not supervillains.

it is New NBER Working Paper Authors: Jaedo Choi, Andrei A. Levchenko, Dimitrije Ruzic, Younghun Shim.

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