Strategic Structural Choices in Korea’s Core Export-leading Industries

Purpose - The aim of this study is to examine productivity growth based on firms’ strategic structural choices—vertically integrated with capital-share (VI) firms versus non-VI (NV) firms—in Korea’s core export-leading industries. Design/Methodology/Approach - A Cobb-Douglas stochastic production frontier model incorporating intellectual property rights and incentive schemes is applied to an unbalanced firm-level panel dataset from Korea’s core export industries from 2010 to 2021 to decompose productivity growth across five strategic structural choices. Findings - Over the past decade, ‘VI firms throughout’ in the IT manufacturing sector demonstrated the highest productivity growth, driven by the highest technical progress. This reflected fewer agency dilemmas, reducing the need for strict fair-trade oversight. Conversely, ‘NV firms throughout’ and ‘VI firms transitioning to NV structures’ experienced productivity retrogressions due to technical setbacks, except for stagnant technical progress in IT manufacturing, highlighting the need to share technology upgrade practices. ‘Switching between VI and NV structures multiple times’ exhibited productivity retrogressions due to allocative inefficiency in IT manufacturing, and technical setbacks in the automobile and general machinery industries. Resource misallocation in the IT manufacturing and technical retrogressions in the automobile and general machinery industries led to productivity retrogressions, while increased intellectual property rights in the automobile industry boosted its productivity growth. Research Implications - Adopting frontier technology to drive technical progress requires timely R&D investments, while agile adjustments to macroeconomic fluctuations to improve resource allocation are essential for sustainable long-run economic growth. In terms of productivity growth driven by technical progress, the IT manufacturing industry outperformed both the automobile and general machinery industries.