In this study we decomposed GDP growth into labor input, domestic capital formation, imported foreign capital formation, and TFP growth. TFP growth is again divided into scale economies, capital utilization, human capital, domestic R&D effort, and imported foreign technology. To measure the contribution rate of each factor, we specified a transcendental logarithmic cost function which has these factors as its basic premise and estimated the cost elasticity of each factor. The contribution rate of each factor was computed from these elasticity and growth rate of each factor.

According to this study, TFP growth was not an important factor in the economic growth of Korea while capital formation did play an important part in the growth process. Moreover, a large portion of TFP growth comes from scale economies and the capital utilization rate. As one third of capital formation is also composed of imported foreign capital goods that contain foreign technology, foreign sources in the TFP are also regarded as a crucial factor. This fact, for the most part, is responsible for the current prevalence of assembly production in Korean manufacturing sector. The assembly production system was an asset to economic development during the early stages of industrialization, but it became a liability when Korea leapt up to join the ranks of the developed world. This illustrates very clearly the present weakness in Korea's export competitiveness in the world market.