The Rise of China and the Rebound in Korea’s Manufacturing Employment

Abstract

Unlike a number of other advanced economies, South Korea has experienced a pronounced increase in both imports from and exports to China since the rise of China, which began in the early 1990s. This study analyzes how Korea’s exposure to China’s rise and, in particular, to changes in its imports from and exports to China have affected Korean manufacturing employment. Our 2SLS estimates show that, during the period 1993-2015, Korean manufacturing industries’ increased exposure to trade with China had negligible/moderate direct employment effects, while this exposure caused relatively large indirect employment effects through Korea’s domestic industrial linkages. As a result, from 1993 to 2015, the total number of workers in Korean manufacturing firms with more than four employees appears to have increased by 1,090,000 due to the China shocks that boosted Korea’s exports to China. At the same time, manufacturing employment decreased by 1,210,000 due to the China shocks that facilitated Korea’s imports from China. These estimates imply that China’s rise considerably contributed to the relative rebound in Korea manufacturing employment that has taken place since the early 2000s. This contrasts with the downward trends in manufacturing employment in other advanced economies over the same period.