Cumulative Effects of Trade Liberalization: The Case of Korean Manufacturing (in Korean)

Soonchan Park ()
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Soonchan Park: Department of Economics and International Trade, Kongju National University

Economic Analysis (Quarterly), 2011, vol. 17, issue 4, 30-51

Abstract: Since the previous studies on the effects of trade liberalization implicitly assume that trade liberalization affects economic performance only in any point in time, they inevitably are static. Static evaluations fail to account for cumulative dynamic effects of trade liberalization that affect continuously economic performance. This paper tries to fill this gap of the previous studies in this field, estimating cumulative effects of trade liberalization on economic performance by employing an dynamic version of empirical model. One of important empirical issue is controlling bias from endogeneity. To resolve this problem, this paper employes system GMM that uses lagged first-differences as instruments for level equations and lagged levels as instruments for first-differences equations. It improves upon cross-section estimators because it controls for the potential bias induced by the omission of industry-specific effects and the endogeneity of all regressors. This study investigates the effects of trade liberalization in Korean manufacturing for the period from 1988 to 2005 and finds that cumulative dynamic effects of trade liberalization are present and bigger than static effects.

Keywords: Trade liberalization; Cumulative effects; Dynamic approach; System GMM (search for similar items in EconPapers)
JEL-codes: F13 F15 O4 (search for similar items in EconPapers)
Date: 2011
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