We calculate the contribution of the largest firms to the performance of the South Korean economy in the period 1972-2011. Using historical firm-level data, we document a new fact: firm concentration increased dramatically during periods of growth miracles. To understand whether increasing concentration has had a positive or negative effect on real income in South Korea, we develop a micro-open econometric model of a multi-firm open economy. Our framework includes the causes and potential consequences of changing firm concentration: productivity, distortions, export preferences, economies of scale, and oligopolistic and oligopsonistic market forces in domestic goods and labor markets. The model is applied directly to firm-level data and inverted to recover concentration drivers. We find that most of the variation in the performance of top firms is due to higher productivity growth rather than differential distortions. The exceptional performance of the top three firms in each sector compared to the average of firms contributed 15% to real GDP in 2011 and 4% to total welfare over the period 1972-2011. Therefore, the big Korean firms were champions rather than supervillains.
That’s according to a new NBER working paper by Jaedo Choi, Andrei A. Levchenko, Dimitrije Ruzic, and Younghun Shim.
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