74 Korean Social Sciences Review | Vol. 2, No. 1, 2012
Table 8. Productivity Growth Channel via Market Opening Means through Productivity Growth Channel
Main Trading Types
Trading Partner
Fulfillment of economies of scale
Export
Advanced & underdeveloped countries
Mounting Declining inefficiency competitive pressure Growing attraction of technology investment
Import & direct in- Advanced & underdevelvestment oped countries Import & direct in- Advanced & underdevelvestment oped countries
Intra- and Inter-Industry Import & direct Flow of Production Factors investment
Advanced & underdeveloped countries
R&D effects Rise in international tech- Import & direct in- Advanced nation nology transfer vestment Price reduction in import- Import ed capital goods
Advanced nation
Data: Lee, Si-Wook (2007).
further openings will increase its productivity and competiveness. There are number of studies that support such an argument. The most renowned studies include Lawrence and Weinstein (1999), Pavcnik (2002), Baggs et al. (2002), Woo et al. (2003), the World Bank (2005), Fernandes (2006), and Lee (2007). The Lawrence and Weinstein (1999) study shows that Japan and Korea’s productivity increase is largely due to the stimulation of competition through import expansions and technology investment expansions. Also, Si Wook Lee’s (2007) study shows that with a 1% import tariff rate decrease in Korea, productivity at individual businesses increases on average by 1.5%. As shown in Table 8, market openings increase industrial productivity in dynamic ways. Trade liberalization increases the pressure of competition, but the increased competition pressure decreases corporate production and management ineffectiveness, cultivates innovative capabilities, increases international technology transfers, lowers import capital good costs, and extends research and development (R&D). “Considering that Korean manufacturing industry’s standard tariff rates are within 4-6%, the productivity boost from the KORUS FTA is expected to increase by at least 0.9-1.4% (Lee, S. 2007).”