The Decomposition of Production Inducement Effects in the Electronics Industry among Korea, the USA, and Japan Using the World Input-Output Table [이춘근교수 경제분석 #16]

This study analyzes the decomposition of production inducement effects of the electronics industry among Korea, the USA, and Japan using the 2014 World Input-Output Table published by WIOD in 2016. The World Input-Output Table consists of a total 43 countries, including 28 EU nations, and other 15 countries. The countries were reclassified into four parts: Korea, the USA, Japan and other countries. Industrial sectors were re-grouped from 56 to 42 sectors and they were re-analyzed. As a result of the decomposition of production inducement effects, the domestic multiplier effect was highest in Korea having about double times higher effects than other countries, and followed by Japan which had a 1.9 times effect, and then the USA which had a 1.4 times effect, respectively. For each country's spillover effects on other countries among Korea, the USA, and Japan, both Korea and the USA had the highest effect on Japan, while Japanese spillover effects were a little higher on the USA than Korea. For the spillover effects by nation, Korea was the highest, and Japan and the USA followed in order. These trends seem to be explained by the conclusion that the USA used imported products from other countries more, causing it to have lower domestic input-output relations. However, the input-output relations between the USA and Japan were higher. It is a bit of a problem for Korea.

Compared to the analysis results in 2014 with those in 2010, all three countries had lower multiplier effects in 2014 than in 2010. The reason for lower effects in 2014 than in 2010 seems to be that the input-output relations in the electronics industry among the countries and industries were reduced. Korea should try to double the domestic and feedback effects by studying intermediate transactions and global value added chains in the electronics industry and by raising its competitiveness in the electronic components industries.

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The summary of the results analyzed in this study and suggestions for policies are as follows.

First, as a result of the decomposition of multiplier effects among Korea, the USA, and Japan, the domestic multiplier effects were highest in Korea with around 2.0 times effects, followed by Japan which had 1.9 times effects, and lastly by the USA which had 1.4 times effects, respectively. However, for the results in 2014, all three countries showed a decrease, when compared to 2010. Korea should also study about intermediate transactions and the value added chain in the domestic electronics industry, and raise competitiveness of electronic components industries in order to double the domestic multiplier effects.

Second, for the spillover effects of each country of Korea, the USA, and Japan on other countries, in the case of Korea, its effects on Japan were highest, and the USA's effects on Japan were also comparatively high. Spillover effects were higher in Korea's effects on other countries than those of the USA and Japan. These trends indicate that the USA uses more products imported from other countries, having the lower effects. But, it is somewhat problematic that the input-output relations between both the USA and Japan are higher than Korea. Third, feedback effects were highest in Korea with 1.78 units, followed by Japan with 1.66 units, and lastly by the USA which had the lowest value with 0.43 units. Higher feedback to Korea than the USA or Japan is beneficial, but the value is too small.

Fourth, among the output amount of the global electronics industry, Korea's share is 7.7%, the USA's is 9.6%, and Japan's is 6.2%, respectively. Among the total output amount of each country, for the respective shares of the total output amount in the electronics industry, Korea's share is 9.2%, the USA's share is 1.2%, Japan's share is 2.9%, and the others' share is 2.6%, respectively, showing that Korea's share is considerably high. For intermediate demand of the electronics industry in the total output amount for the electronics industry in each country, Korea's share is 71.0%, the USA's share is 52.5%, Japan's share is 71.4%, and the other countries' share is 69.3%. Japan has the highest share, and Korea, the others, and the USA followed in order. Korea has a higher share than the average, but it is a little lower than Japan.

As the Korean electronics industry has a high proportion of intermediate demand and exports, its role as an intermediate goods is growing. Therefore, it is necessary to increase the value added by increasing the proportion of domestic materials among the intermediate inputs and to enhance the competitiveness of the parts and materials industry.

Fifth, when the final demand of the Korean electronics industry was increased, the production inducement effects within Korea were high in electronic products, chemicals and chemical products, metal processing, electric equipment, and electric, gas, steam products, and its spillover effects on the USA were highest in electronic products, and then chemicals and chemical products, metal processing, and refined oil and coke products followed in order. For its spillover effects on Japan, the electronics industry was highest, and chemicals and chemical products, primary metal, and rubber and plastic products followed in order. In general, it has higher effects on the electronics industry, chemicals and chemical products, primary metal, and metal processing, and in order to develop the Korean electronics industry, these products should be developed.

Sixth, when the final demand of the American electronics industry was increased, the production inducement effects within the USA were highest in the electronics industry, and wholesales trading except for automobile and auto bicycle, metal processing, primary metal, and chemicals and chemical products followed in order. For its spillover effects on Korea, the electronics industry was highest, and chemicals and chemical products, primary metal, wholesales trading except for automobile and auto bicycle, and metal processing followed in order. For its spillover effects on Japan, the electronics industry was highest, and primary metal, chemicals and chemical products, metal processing, and electric equipment followed in order. In general, it highly affects the electronics industry, primary metal, wholesales trading except for automobile and auto bicycle, chemicals and chemical products, and metal processing which belong to self-sectors, and it is necessary to develop these products in order to develop the American electronics industry.

Seventh, as a result of comparative analysis on production inducement effects of the electronics industry between 2010 and 2014, all three countries had smaller multiplier effects in 2014 compared to in 2010. The reason that the effects in 2014 were lower than 2010, seems to be input-output relations of the electronics industry among countries and among industries have decreased. It is necessary to conduct qualitative studies about it in detail in the future. All three countries have quite weak spillover effects as well as feedback effects on themselves.

Although the multiplier effect of the Korean electronics industry is higher than that of the USA or Japan, it is problematic because the final demand and value added inducement effects are very low. Therefore, the value added rate should be increased by replacing import through localization of parts and materials products, which are highly dependent on foreign countries.

In addition, Korea's representative electronics companies, Samsung Electronics and LG Electronics, have invested heavily in foreign countries, causing to reduce the domestic jobs. The government should improve the domestic business environment to minimize the foreign investment by domestic companies, and encourage foreign companies to invest in the domestic market. In particular, it is necessary to strengthen the re-shoring policy by lowering gradually the domestic corporate tax rate so that companies that have entered the overseas market will come back to the domestic market.

Korean electronics companies have maintained technology-intensive factories in Korea, while labor-intensive processes have been transferred to overseas. Therefore, Korean electronics companies are investing heavily in Vietnam, China and India. In future, it is necessary to enter into developed countries such as the USA and Japan and to compete with them in order to enhance the competitiveness.

Based on this research, it is expected that the qualitative analysis and the Revealed Comparative Advantage(RCA) analysis on the Korean electronics industry will derive more desirable alternatives. Future research projects will decompose the value added inducement effect and analyze GVC(global value chain) between Korea, the USA, and Japan in order to derive policy implications. Therefore, it is expected that there will be differential results when compared with this study.

 

▷Decomposition of the Multiplier Effects of the Electronics Industry among Korea, the USA, and Japan (Comparative Analysis on 2010 and 2014)/(When the final demands of each country's electronics industry increased by 1,000 units)

Units: Millions of US Dollar

	Industry	Intra-country multiplier effects	Spillover effects		Feedback effects
			USA	Japan	Korea	USA	Japan
Korea 2010	Manufacture of electronic products	1,341.792	12.501	32.448	0.417	0.001	0.012
	Total Industries	2,057.841	52.332	135.327	1.690	0.013	0.115
Korea 2014	Manufacture of electronic products	1,331.422	10.552	29.501	0.350	0.001	0.009
	Total Industries	2,007.259	39.548	100.261	1.778	0.010	0.081
	Industry	Intra-country multiplier effects	Spillover effects		Feedback effects
			Korea	Japan	Korea	USA	Japan
USA 2010	Manufacture of electronic products	1,085.999	3.563	3.683	0.001	0.070	0.001
	Total Industries	1,568.924	8.018	12.547	0.006	0.452	0.011
USA 2014	Manufacture of electronic products	1,045.456	5.278	5.089	0.001	0.084	0.001
	Total Industries	1,369.205	11.537	13.196	0.009	0.432	0.011
	Industry	Intra-country multiplier effects	Spillover effects		Feedback effects
			Korea	USA	Korea	USA	Japan
Japan 2010	Manufacture of electronic products	1,296.803	13.282	11.968	0.004	0.001	0.383
	Total Industries	2,150.359	30.059	50.248	0.023	0.013	2.267
Japan 2014	Manufacture of electronic products	1251.155	11.110	9.791	0.003	0.001	0.317
	Total Industries	1,928.899	30.711	35.725	0.025	0.009	1.662