Economic growth and the external sector: Evidence from Korea, lessons for Mexico

  • Julen Berasaluce El Colegio de México
  • José Romero El Colegio de México
Keywords: South Korea, VAR, industrial policy, exports, imports, FDI, growth
JEL Classification: C31, F14, F43


In this paper, we have set up an empirical analysis of the Korean external sector between 1980 and 2015, in order to identify the potential relationships between economic growth, exports, imports and foreign direct investment. We chose to study Korea because is a country that has been taken as a reference of the export-led growth hypothesis in order to justify export-promoting policies in Mexico. The results of our four-variable vector autoregressive model suggest that exports and foreign direct investment are not driving economic growth in Korea. Therefore, one should be cautious about policies that promote such investment and export tools to boost economic growth.


Ahmad, J. and S. Harnhirun. 1995. Unit roots and cointegration in estimating causality between exports and economic growth: Empirical evidence from the ASEAN countries, Economic Letters, 49: 329-334.

Amsden, A. H. 1989. Asia’s Next Giant: South Korea and Late Industrialization, New York, Oxford University Press.

Awokuse. 2007. Causality between exports, imports and economic growth: Evidence from transition economies, Economic Letters, 94(3): 389-395.

Balassa, B. 1985. Exports, policy choices, and economic growth in developing countries after the 1973 oil shock, Journal of Development Economics, 18: 23-35.

Chang, H. J. 1994. The Political Economy of Industrial Policy, London, MacMillan Press Ltd.

Conference Board, The. 2015. The Conference Board Total Economy Database, New York.

Elder, J. and P. E. Kennedy. 2001. Testing For unit roots: What should students be taught? The Journal of Economic Education, 32(2): 137-146.

Enders, W. 2003. Applied Econometric Time Series, Hoboken, NJ, Wiley.

Feder, G. 1983. On exports and economic growth, Journal of Development Economics, 12: 59-73.

Guerrero de Lizardi, C. 2006. Thirlwall’s Law with an emphasis on the ratio of export/import income elasticities in Latin American economies during the twentieth century, Estudios Económicos, 21(1): 23-44.

Haggard, S. 1990. Pathways from the Periphery: The Politics of Growth in Newly Industrializing Countries, London, Cornell University Press.

Henriques, I. and P. Sadorsky. 1996. Export-led growth or growth-driven exports? The Canadian case, The Canadian Journal of Economics, 29(3): 540-555.

Herzer, D. 2012. How does foreign direct investment really affect developing countries’ growth? Review of International Economics, 20(2): 396-414.

Johansen, S. 1995. Likelihood-Based Inference in Cointegrated Vector Autoregressive Models, Oxford, Oxford University Press.

Jung, W. S. and P. J. Marshall. 1985. Exports, growth and causality in developing countries, Journal of Development Economics, 18(1): 1-12.

Krueger, A. 1979. Studies in the Modernization of the Republic of Korea, 1945-1975: The Developmental Role of the Foreign Sector and Aid, Cambridge, Harvard University Press.

Krueger, A. 1980. Trade policy as an input to development, American Economic Review, 70: 288-292.

Kónya. L. 2004. Export-led growth, growth-driven export, both or none? Granger causality analysis on OECD countries, Applied Econometrics and International Development, 4(1): 73-97.

Liew, V. K. S. 2004. Which lag length selection criteria should we employ? Economics Bulletin, 3(33): 1-9.

Liu, X., C. Shu, and P. Sinclair. 2009. Trade, foreign investment and economic growth in Asian economies, Applied Economics, 41(13): 1603–1612.

Liu, X.; C. Wang and Y. Wei. 2001. Causal links between foreign direct investment and trade in China, China Economic Review, 12: 190-202.

Lutkepohl, H. 2005. Introduction to Multiple Time Series Analysis, Berlin, Springer-Verlag.

Nguyen, H. T. 2011. Exports, imports, FDI and economic growth, Working Paper, No. 11-03, University of Colorado.

OECD. 2016a. Quarterly National Accounts (database), < 1787/data-00285-en> (accessed on 27 June 2016).

OECD. 2016b. Balance of Payments (database), <> (accessed on 27 June 2016).

Santos-Paulino, A. and A. P. Thirlwall. 2004. The impact of trade liberalization on exports, imports and the balance of payments of developing countries, The Economic Journal, 114: 50-72.

Shin, Y. and H. M. Pesaran. 1998. Generalized impulse response analysis in linear multivariate models, Economic Letters, 58: 17-29.

Shirazi, N. S. and T. A. Abdul-Manap. 2005. Export-led growth hypothesis: Further econometric evidence from South Asia, The Developing Economies, 43(4): 472-488.

Tyler, W. G. 1981. Growth and export expansion in developing countries: Some empirical evidence, Journal of Development Economies, 9(1): 121-130.

Villarreal, R. 2005. Industrialización, competitividad y desequilibrio externo en México: un enfoque macroindustrial y financiero (1929, 2010), México, Fondo de Cultura Económica.

Westphal, L. 1978. The Republic of Korea’s experience with export-led industrial development, World Development, 6(3): 347-382.

Woo-Cumings, M. 1999. The Developmental State, Ithaca, Cornell University Press.

World Bank. 1987. World Development Report 1987, New York, Oxford University Press.

World Bank. 1993. The East Asian Miracle. Economic Growth and Public Policy, World Bank Policy Research Report, Oxford University Press.

Zestos, G. K. and X. Tao. 2002. Trade and GDP growth: Causal relations in the United States and Canada, Southern Economic Journal, 68(4): 859-874.

How to Cite
BerasaluceJ., & RomeroJ. (2017). Economic growth and the external sector: Evidence from Korea, lessons for Mexico. Estudios Económicos, 32(1), 95-131.
  • Abstract viewed - 355 times
  • PDF downloaded - 254 times
  • XML downloaded - 0 times