Productivity Analysis on the Service Sector in Korea: Evidence from Industry-Level and Firm-Level Data

Abstract

One of the most dramatic characterizations of late industrializa-tion is the speed and scope of structural transformation from manufacturing-based to service-based economy. This study aims to analyze this transformation in the Korean economy in terms of productivity performance in its service sector over the period of 1995–2013 in which the economy experienced two financial crises in the years 1997 and 2007. The major finding is that, while the growth rate of gross output in the service sector has decelerated more rapidly than in the manufacturing sector, the growth rate of total factor productivity (TFP) has improved from near 0% during 1996–2010 to 1.41% during 2011–2013. Particularly, the improvement in TFP in distribution and producer services has been impressive, which indicates that the Korean economy is transforming itself toward a service-oriented growth and that two financial crises have helped such transformation. However, the relative level of TFP in the service sector remains to be far behind than that of the US and Japan.