The Korean Journal of Economic Studies
Dynamic Industrial Classification and the Gravity Model in Product Space
In-Moo Kim (Sungkyunkwan University), Daeyong Kim (Korea Deveopment Institute), Yong-Ju Lee (Yeungnam University) and Sungro Lee (Korea Gas Corporation)Year 2017Vol. 65No. 1
AbstractThis paper investigates the global trend of centrality measure in productspace and develops dynamic industrial classification based on this measure. Inaddition, the paper analyzes the gravity model with product-level heterogeneitywhich originates from centrality measure in product space and examines howmuch the centrality measure explains the export structure of Korea, China andJapan. Empirical results show that over 30% of products in product space havesignificantly changed their centrality in the past 24 years. Also, the empiricalresults based on the gravity model in product space illustrates that theestimated elasticity of centrality measure, the major concept of product space,is significantly positive in all of the model specifications as theoreticallyexpected and plays an important role in determining trade flows in globalmarket and the export structure in the country level. These evidence illustratesthat Korea has successfully achieved the structural transformation in manufacturing industries more timely than China and Japan as the global trendof export sophistication in product space has changed. Also, with theseresults, we carefully predict that the structural transformation in product spaceplay a key role in economic growth of the manufacturing countries.