Firm Structural Change and Productivity Growth in Korea’s Export-leading Industries

Purpose - This study investigates the extent to which the firm dynamics between a firm that is vertically integrated with capital-share (VI firm) and a non-VI firm (NVI firm), contribute to the productivity growth of their structures in Korea’s export-leading industries. Design/Methodology/Approach - A stochastic frontier production function was applied to the firm-level panel data for the industries over the 2006 2017 period. Findings - Within the bounds of the dichotomous structures, the measured productivity gains or losses of firm dynamics reflected the agency dilemma. New NVI entrants were more productive relative to the incumbents than the new VI entrants in their respective structures. The productivity growth of the NVI structure fluctuated across industries more than that of their counterpart over the time periods, especially under the macroeconomic disturbances. Both structures in half of the industries revealed their productivity growth were against the self-selection hypothesis and the early target industries revealed their technical retrogression, despite ranking high in export volumes. Research Implications - Along the developmental phase, growth-leading industries fared far better than expected despite the most recent regulations on resource allocation via the market mechanism. In future, government interventions in the market should be discouraged.