Is Korea Catching Up? An Analysis of the Labour Productivity Growth in South Korea

Comparing the Korean labour productivity growth in the last two decades with the Japanese and US labour productivity growth, data confirm a process of catching up in several important manufacturing sectors. The paper investigates its determinants using a non-neoclassical model. Investments in skills and capabilities are found to be crucial in explaining this trend. Important policy implications for developing countries are then discussed. In the long run, a targeted education policy with government intervention and a strong emphasis on technical education can give high pay-offs. This conclusion holds in particular when the aim of the country is to compete in the international markets, not along the low road to competitiveness, based on squeezing wages and profit margins, but along the high road (i.e. improving productivity, wages and profits).