We quantify the contribution of the largest firms to Korea’s economic performance over the period 1972–2011. Using firm-level historical data, we document a novel finding: Firm concentration increased substantially during the growth miracle. To understand whether increasing concentration contributed positively or negatively to Korea’s real income, we construct a quantitative heterogeneous firm small-open economy model. Our framework accommodates a variety of potential causes and consequences of changes in firm concentration: productivity, distortions, export selection, scale economies, and oligopolistic and oligopolistic market power in domestic product and labor markets. The model is implemented directly in firm-level data and inverted to recover the dynamics of concentration. We find that most of the differential performance of top firms is due to higher productivity growth rather than differential distortions. The superior performance of the top three firms in each sector relative to the average firm contributed 15 percent to real GDP in 2011 and 4 percent to the net present value of welfare over the period 1972–2011. So, Korea’s big companies were superstars rather than supervillains.
It is from New NBER Working Paper The authors are Jaedo Choi, Andrei A. Levchenko, Dimitrije Ruzic, and Younghun Shim.
