IMF Working Papers

Industrialization and the Big Push: Theory and Evidence from South Korea

By Jaedo Choi, Younghun Shim

December 20, 2024

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Format: Chicago

Jaedo Choi, and Younghun Shim. "Industrialization and the Big Push: Theory and Evidence from South Korea", IMF Working Papers 2024, 259 (2024), accessed December 20, 2024, https://doi.org/10.5089/9798400292927.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We study how one-time subsidies for adoption of modern technology drove Korea's industrialization in the 1970s. Leveraging unique historical data, we provide causal evidence consistent with coordination failures: adoption improved adopters' performance and generated local spillovers, with firms more likely to adopt when other local firms had already adopted. We incorporate these findings into a quantitative model, where the potential for multiple steady states depends on parameters mapped to the causal estimates. In our calibrated model, Korea's one-time subsidies shifted its economy to a more industrialized steady state, increasing heavy manufacturing's GDP share by 8.6% and export intensity by 16.2%. Larger market access amplifies the effects of these subsidies, as the gains from adoption increase with firms' scale.

Subject: Economic sectors, Export competitiveness, Exports, Financial sector policy and analysis, International trade, Manufacturing, Spillovers, Technology

Keywords: Big push, Complementarity, Coordination failure, Export competitiveness, Exports, Industrialization, Local spillover, Manufacturing, Market access, Productivity, Spillovers

Publication Details

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