The purpose of this study is to analyze whether changes in import tax have impacted the productivity of domestic businesses, considered a significant variable in market liberalization policy, and drawing policy implications.
There are three routes to increasing business productivity through market liberalization; 1) realize an economy of scale through market expansion, 2) increasing competitive pressure followed by a rise in the rationalization of business management, effectiveness of factors of production, and sources of technology investment, and 3) a ripple effect in R&D caused by rapid technology transfers amongst countries and decreasing the cost of capital good.
Some argue that a decrease in import tariff will enhance the effectiveness of management and productivity in domestic businesses, as well as effectively develop their capacity for innovation. Others are concerned about the open market policy from the infant industry production point of view, which argues that a tariff wall would protect the domestic market from external competition pressure. An analysis of 15,000 manufacturing companies with more than five employees from 1993 to 2003 concluded that the lower the import tariff, the higher the productivity of that individual business. As import tariffs decrease by 1%p, the productivity of individual businesses increases about 1.5% on average. Productivity seemed to peak within a year of lowering the tariff, so corporations tend to adopt changes quickly. Companies with 50-100 employees were the most productive.
Meanwhile, lowering the tariff also influenced employment and company profit. Businesses with 10-50 employees and 100-300 employees showed an increase in employment by 0.7% and 0.8%, respectively, when the tariff rate was lowered by 1%p. However, in terms of business profit, companies with less than 50 employees and more than 300 employees showed a decline in profitability when tariffs were lowered. In particular, companies with more than 300 employees saw their profitability decrease 0.7% when the tariff rate was lowered by 1%p.
시장개방이 기업 생산성에 미치는 영향(Market liberalization and its impact on business productivity)
수입관세 인하효과를 중심으로(Focusing on lower import tariffs)
|Series Title; No||정책포럼 / 184|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < General|
|Holding||KDI; KDI School|