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Korea's Participation in Global Value Chains and Policy Implications

Sunghoon Chung

No 59, KDI Focus from Korea Development Institute (KDI)

Abstract: The expansion of global value chains during the past 20 years has widened the gap between export value and domestic value added, diminishing the per-unit contribution of exports to the country's economic growth. Thus, policies now need to target creating value added rather than increasing gross exports and focus on enhancing the competitiveness of input and production activities. In particular, regulatory reform must take place in the service sector to eliminate unnecessary obstacles to competitiveness. Moreover, to utilize global value chains more effectively, efforts should be made to enhance the efficiency of offshoring and attract production to the country's shores in order to create more domestic valued added and jobs. - Gross exports are insufficient to accurately gauge the value of production activities conducted across different countries. - For every 100 won earned through the export of a product, Korea earned 75 won in value added in 1995. However, this fell to 59 won in 2011. - Considering the share of service value added embedded in a good, the role of services is critical even in exports. - Korea's share of services in value added export is on a continuous downward trajectory and is significantly lower than the global average. - With the intensification of offshoring, the share of foreign value added in domestic manufactured final goods has continuously increased. - Another result of offshoring is the increase in gross output through which domestic value added can also increase. - The increase in the value added created through the participation in foreign GVCs by Korean manufacturing has exceeded that created through participation in domestic GVCs. - Fundamental solutions must be considered by shifting the policy focus from export items to production activities and value added. - To utilize GVCs more effectively, efforts must be made to enhance the efficiency of offshoring and attract production to the country's shores. - Communication and cooperation among relevant authorities are essential to make policies more connected with each other and create synergy.

Date: 2015
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