This article examines the dynamic industrial competitive process in Korea
through an analysis of determinants and consequences of industry turnovers. Entering
firms include both entirely new producers (births) and producers that have moved in
from another industry (switch-ins). Likewise, exiting producers include both
producers that close their businesses (deaths) and producers that move into another
industry (switch-outs). Using data of 690,000 establishments from 580 industries
between 1990 and 1998, this paper shows that the turnover rate in Korea is one of the
highest among countries.
Statistical analysis shows that a large part of turnover variance is related to
industry specific factors. At the same time, the analysis shows that macro-effects (GNP
growth and inflation) industry characteristics (industry growth rate, capital requirement,
market concentration, etc.) and producer specific factors (efficiency) affect industry
turnover rates and performance at the plant level differently. The study also shows
continual replacement of inefficient producers by efficient producers.
In addition, the study also finds that the performance of entrants and dying
plants was lower than that of continuing plants. Moreover, birth plants show better
performance than dying plants. The paper also shows that the performance of surviving
entrants has improved while that of dying plants has deteriorated over time. Such
observation provides an important implication. Because entrants use resources released
from closing plants and their performance improves over time, turnovers will improve
efficient resource allocation.