The purpose of this study is to assess the impacts of import liberalization on Korea’s manufacturing industries and explore potential policy implications to overcome its negative effects.
The Korean economy has embraced exports and liberalized imports by implementing policies such as strategies for export-oriented development in the 1960s, doing away with the policies that discourage imports in the mid-1960s, liberalization of imports in the mid-1980s, promoting economic liberalization and joining the WTO and OECD in the 1990s, and partaking in multiple FTA negotiations since 2000. However, there has been intense debate regarding the Korea-US FTA because of the effects of increasing imports.
In view of the impacts of import liberalization on the manufacturing industry, it is clear that import competition from China has had a negative effect on Korea’s capital-intensive industries. This indicates that Korean businesses have not easily adapted to the structural changes in the labor industry. Moreover, a decrease in the import tariff rate increased productivity of the manufacturing industry. The analysis indicates that if the import tariff rate was decreased by 1%p, individual businesses productivity increased by 1.5% on average. If applied to the Korea-US FTA, productivity would increase at least by 0.9-1.4%. Wage inequality between workers within the manufacturing industry improved after the 1990s, yet there is no clear evidence that import liberalization had a role in this improvement.
Trade adjustment is a necessary response to import liberalization because of changes that occur in the economic structure. However, assistance to companies because of this adjustment is considered a “social cost,” and compensation for this cost should be determined by what is “reasonable” as opposed to what is “sufficient.” Hence, any policy to assist those businesses negatively impacted by import liberalization must not take the form of a “subsidy program.” And once trade adjustment assistance is established and fully implemented, the government should be cautious not to violate international norms.
개방화 시대의 한국 경제(1)(The Korean economy in the FTA era(I))
구조적 변화와 정책과제(Structural changes and policy suggestions)
|Series Title; No||정책포럼 / 185|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Trade|
|Holding||KDI; KDI School|