East Asian Economic Review

Korea Institute for International Economic Policy (대외경제정책연구원)
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Specialization, Firm Dynamics and Economic Growth

  • Cho, Jaehan (Korea Institute for Industrial Economics and Trade (KIET)) ;
  • Ge, Zhizhuang (China Institute of Finance and Capital Market)
  • Received : 2019.04.08
  • Accepted : 2019.05.28
  • Published : 2019.06.30
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Abstract

Productivity in agriculture or services has long been understood as playing an important role in the growth of manufacturing. In this paper we present a general equilibrium model in which manufacturing growth is stimulated by non-manufacturing sectors that provides goods used in both research and final consumption. The model permits the evaluation of two policy options for stimulating manufacturing growth: (1) a country imports more non-manufacturing goods from a foreign country with higher productivity and (2) a country increases productivity of domestic non-manufacturing. We find that both policies improve welfare of the economy, but depending on the policy the manufacturing sector responses differently. Specifically, employment and value-added in manufacturing increase with policy (1), but contract with policy (2). Therefore, specialization of the import non-manufactured goods helps explain why some Asian economies experience rapid growth in the manufacturing sector without progress in other sectors.

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