Size, Entry, Exit, and Productivity Growth in Korea’s Export-leading Industries

This study investigates the impact of the entry and exit of establishments within the bounds of size on the productivity growth of 29 export-leading industries and 13 other exporting industries. The impact of entry and exit dynamics of small and medium-sized establishments (SMEs) and large establishments (LEs) on the productivity growth of exporting industries significantly varied depending on the respective industry’s own distinctive features as well as macroeconomic turbulences. Especially, vulnerability of new SME entrants and exiting SMEs in the automobile industry, allegedly resulting from the strongest vertical integration in their industrial structure, to a lesser degree, the similar trend was found in the IT manufacturing industry, resulting from the second strongest vertical integration in their industrial structure. In the export-leading industries, an increase in new SME entrants slowed productivity growth more than did an increase in new LE entrants, and an increase in exiting LEs reduced the productivity growth further, one year prior to actual exit, than did an increase in exiting SMEs. As a remedy to secure the market selection force, the overall institutional system should be redesigned to increase efficiency in resource and market share reallocation between SMEs and LEs, which will ultimately contribute to sustainable long-run economic growth for Korea.