The gross domestic product (GDP) growth rate of South Korea has declined since 2011 mainly due to dampened growth in total factor productivity (TFP). By studying changes in productivity growth from 2006 to 2015 with firm-level microdata, this paper shows that a decrease in allocative efficiency across firms can account for the recent dampened aggregate productivity growth and that most of a decrease in allocative efficiency since 2011 can be attributed to firms affiliated with business groups subject to the limitation on cross-shareholding designated by the Fair Trade Commission. Given the fact that business groups’ shares in input markets have been steadily rising, the economic concentration of business groups can be a main factor in the recent misallocations, which give rise to the diminished economic dynamism and dampened TFP growth of South Korea.

Preface
Executive Summary

Chapter 1 Introduction

Chapter 2 Factors Behind the Slowdown in Productivity Growth in the Korean Economy
　Section 1 Data: Survey on Business Activities by Statistics Korea
　Section 2 Methodology: Dynamic Olley-Pakes Decomposition
　Section 3 Results: Decline in Allocative Efficiency Across Firms

Chapter 3 Main Factors Behind the Decline in Allocative Efficiency: Business Groups
　Section 1 Recent Trends in Rising Economic Concentration of Business Groups
　Section 2 Impact of Business Groups on the Decline in Allocative Efficiency Across Firms
　Section 3 Analysis of Factors Behind the Decline in Allocative Efficiency by Firm Size

Chapter 4 Business Group Expansion and Declining Economic Dynamism
　Section 1 Capital-Driven Growth of Business Groups
　Section 2 Firm Growth Pathways Through Business Group Formation
　Section 3 Differences in Entry and Exit Rates by Ownership and Control Structure

Chapter 5 Conclusion

References
Appendix
ABSTRACT