Cho, Seong-Hoon

Kim, Yong-Taek

Yu, Tun-Hsiang (Edward)

English

Research Papers in Economics

 
 
Measuring Interactions among Agricultural Productivity, Trade Openness, Agricultural 
GDP, and Income in Korea (1972- 2007) 
 
 
 
 
Seong-Hoon Cho
1, Tun-Hsiang “Edward” Yu
1, and Yong-Taek Kim
2 
 
 
 
 
 
 
 
 
 
Poster prepared for presentation at the Agricultural & Applied Economics Association 2010 
AAEA, CAES, & WAEA Joint Annual Meeting, Denver, Colorado, July 25-27, 2010 
 
 
 
 
 
Copyright 2010 by Cho, Yu, and Kim. All rights reserved. Readers may make verbatim copies of 
this document for non-commercial purposes by any means, provided that this copyright notice 
appears on all such copies. 
 
 
1 Assistant Professor, Department of Agricultural Economics, University of Tennessee, 
Knoxville, TN. 
2 Senior Director, Korea Rural Economic Institute, Seoul, Korea. Measuring Interactions among Agricultural Productivity Trade Openness Measuring Interactions among Agricultural Productivity Trade Openness Measuring Interactions among Agricultural Productivity, Trade Openness, 
Agricultural GDP, and Income in Korea (1972- 2007)
Measuring Interactions among Agricultural Productivity, Trade Openness, 
Agricultural GDP, and Income in Korea (1972- 2007)
S Seong eong- -Hoon Hoon Cho,  Cho, Tun Tun- -Hsiang “Edward” Yu, and Yong Hsiang “Edward” Yu, and Yong- -Taek Taek Kim Kim
Agriculture in South Korea has developed in line with the progress of the national  1.200
TFP
25,000
Real Income Per Capita g p pg
economy. While agriculture used to be the backbone of the country’s economy, it has 
become a smaller component of national income. Even with the decline, the 
agricultural sector is still crucial for the country’s rural economy as 7 percent of the 
economically active population lives in rural areas where agriculture provides most
0.400
0.600
0.800
1.000
10,000
15,000
20,000
economically active population lives in rural areas, where agriculture provides most 
employment opportunity (Statistics Korea 2010). Given the importance of the 
agricultural sector, the South Korean government has expanded the public funds 
allocated to the agricultural sector to sustain agricultural growth. The support for the 
agricultural sector has increased further since the country opened its agricultural
0.000
0.200
1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
0.80
Openness
0
5,000
1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
30,000
Real Ag GDP
agricultural sector has increased further since the country opened its agricultural 
market through the Uruguay Round of General Agreement on Tariffs and Trade of 
multilateral negotiations (the “Uruguay Round”) that was completed in 1997. The 
change of South Korean agricultural structure seems inevitable as liberalizing  0.20
0.40
0.60
5 000
10,000
15,000
20,000
25,000
agricultural trade continues and its corresponding agricultural policies have been 
restructured. This paper applies the directed graph and times series model to 
measure interactions among agricultural productivity, trade openness, agricultural 
GDP, and income in South Korea during the period of 1972– 2007.
0.00
1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
0
5,000
1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
TFP (Total‐factor productivity): A variable which accounts for effects in total 
output not caused by inputs
TFP Openness
The directed graph is generated based on 
the correlation matrix of the residuals from 
the vector autoregression (VAR) equations of 
those four variables The graph suggests
g p
,where Y is total product and Z is total input Y
(1) TFP
Z

dTFP
(2) [l ( ) l ( 1)] [l ( ) l ( 1)] I
Ag GDP
those four variables. The graph suggests 
that, in the contemporaneous period, 
agricultural productivity and trade openness 
are exogenous. Shocks in agricultural 
dt i i t d td ff t
where 
where             is total product of ith category of agriculture (i=1,..9)* during 
dTFP
(2) [lnY(t)l nY(t 1)] [lnZ (t)l nZ(t 1)]
dt
    
9
ii i
i1
lnY(t) lnY(t 1) [lny (t) lny (t 1)]

    
i y( t )
Income productivity and trade openness affect 
agricultural GDP and the impacts pass 
through to the national income per capita.
F E Vi Di i (FEVD)
p gy g ( ) g
time t and       is weight of ith category of agriculture between t and t‐1
where 
h i ttl it f jth t (j 1 4)** di ti t d i
i y( t )
i  4
jj j
j 1
ln Z(t) ln Z(t 1) s [ln z (t) ln z (t 1)]

   
(t) s
100
80
100 80 100
Openness TFP Ag GDP Income
Income TFP Ag GDP Openness Forecast Error Variance Decomposition (FEVD)
where             is total input of jth category (j=1,..4)** during time t and       is 
weight of jth category between t and t‐1
Real Ag GDP ($1,000,000): Real Ag GDP adjusted by exchange rate 
j
j z (t) j s
20
40
60
80
20
40
60
80
20
40
60
20
40
60
80
g g j y g
Real Income Per Capita ($1,000,000): Real income divided by population
Openness: (Ag including livestock exports + Ag including livestock imports) / 
Nominal Ag GDP
0
1 2 3 4 5 6 7 8 9 10
0
1 2 3 4 5 6 7 8 9 10
0
1 2 3 4 5 6 7 8 9 10
0
1 2 3 4 5 6 7 8 9 10
The variance in agricultural GDP is explained by the shocks in itself and agricultural 
TFP initially, however, in the long run, the impact of productivity significantly 
i hil il i l ib h il l GDP F
g
* The 9 agricultural categories consist of rice, barley, grains, legumes, potatoes, fruits, vegetables, 
livestock, and others including specialty crops such as cottons and sesame, tobaccos and ginsengs, 
and silkworms.  
** Th 4 it it f lb it l f tili d ld
increases while national income also contributes to the agricultural GDP. For 
national income, although the forecast error variance is primarily explained by itself 
and agricultural GDP in the early stage, the impact of agricultural GDP quickly 
declines in the outer period. The variances in trade openness and agricultural 
** The 4 inputs consist of labor, capital, fertilizer, and  land.
p p g
productivity are primarily affected by national income in the long run.

Measuring Interactions among Agricultural Productivity, Trade Openness, Agricultural GDP, and Income in Korea (1972- 2007)

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