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Total factor productivity and labor reallocation : The case of the 1997 Korea crisis

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  • Total factor productivity and labor reallocation
  • Benjamin, David M.; Meza, Felipe
  • University of Southampton


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Title Total factor productivity and labor reallocation
Similar Titles
Sub Title

The case of the 1997 Korea crisis

Material Type Reports
Author(English)

Benjamin, David M.; Meza, Felipe

Publisher

Southampton:University of Southampton

Date 2007-01
Series Title; No Discussion Papers in Economics and Econometrics / 0701
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Economic Conditions
Economy < Economic System
Social Development < Employment
Holding COnnecting REpositories

Abstract

Detrended Total Factor Productivity (TFP), net of changes in capital utilization, fell by 3.3% after the Korean 1997 financial crisis. Detrended real GDP per working age person fell by 11.9%. We construct a two-sector small open economy model that can account for 30.0% of the fall in TFP in response to a sudden stop of capital inflows and an increase in international interest rates. Empirically, the fall in TFP follows a reallocation of labor from the more productive manufacturing sector to the less productive agriculture and public sectors. The model has a consumption sector and an investment sector. The reallocation of labor in the data corresponds to a movement from the investment sector to the consumption sector in the model. In the model, a sudden stop raises the costs of imports, which are used more heavily as an input in the investment sector. (The rest omitted)