We quantify the contribution of the largest firms to South Korea’s economic performance over the period 1972–2011. Using historical firm-level data, we document a novel finding: firm concentration increased substantially during the growth miracle period. To understand whether increasing concentration contributed positively or negatively to South Korea’s real income, we construct a quantitative model of a small-sized open economy with heterogeneous firms. Our framework accounts for a variety of potential causes and consequences of changing firm concentration: productivity, distortions, export selection, economies of scale, and oligopolistic and oligopsonic market power in domestic goods and labor markets. The model is implemented directly on firm-level data and inverted to recover concentration factors. We find that most of the differential performance of top firms is attributable to higher productivity growth rather than differential distortions. The exceptional performance of the top three firms in each sector relative to the average firms contributed 15% to real GDP in 2011 and 4% to the net present value of welfare over the period 1972-2011. Thus, Korea’s largest firms were superstars rather than supervillains.
This comes from a new NBER working paper by Jaedo Choi, Andrei A. Levchenko, Dimitrije Ruzic and Younghun Shim.
