The study employs Denison’s method to analyze the contributions of factor inputs and TFP to output growth. The explained variable is the national income at factor cost, which equals
During 1963 – 2000, the average yearly increase in Korea’s national income was estimated to be 7.24%, of which 3.83%p came from total input growth, and 3.41%p from TFP growth. The contribution of total factor input stayed at a high level of 4.8%p in the 1980s, but it decreased to 3%p in the 90s. The share of TFP showed a declining pattern over the analyzed period. The labor increase, mainly coming from the growing number of people employed, took up the biggest part of total factor input growth. The contribution of this employment growth to output growth, however, declined over time, which stood at 3.44%p in the 60s, 2.9%p in the 70s, 2.39%p in the 80s, and 1.4%p in the 90s. The share of capital peaked at 1.9%p in the 80s and then fell to 1.4%p in the 90s. The contribution of TFP growth came mostly from technological progress and economies of scale.
The average growth rate of Korea’s national income hit its peak at 9.9%p in the late 80s, and dropped to 7.21%p in the early 90s and to 4.04%p in the late 90s. The rapid fall in national income growth was due mainly to the rapid decrease in the contribution of total factor input, which stood at 5.67%p in the late 80s, 4.53%p in the early 90s and 1.51%p in the late 90s. The rapid drop in total factor input, in turn, came from the rapid slowdown in labor input growth. Most resource allocation effects vanished in the 90s and, economies of scale, which used to be one of the major factors behind Korea’s past economic growth, quickly disappeared in the late 1990s.
The study found that the rapid drop in Korea’s national income growth in the late 90s was due mainly to the slowdown of factor input, especially that of labor input, and the contribution of technological progress was gradually increasing while most of the other productivity factors ceased to contribute to national income growth.