The purpose of this paper is to analyze the effects of subcontracting systems on productivity, profitability and growth in Korean manufacturing industries. The major empirical results from this study are as follows. (1) The expansion of subcontracting systems has a positive effect on the growth of industries. (2) The more parent firms with which a subcontractor deals increase in number, the higher labor productivity goes up. (3) The stratification of subcontract relationships promotes the growth of industries and elevates labor productivity. These results mean that we can improve the industrial performance through the subdivision of production process.
 
Because of the lack of relevant data, some reservations must be made about conclusions. To a limited extent, however, we may suggest that the Korean government needs to focus on rebuilding the structure of subcontracting systems. The directions of policy can be summarized as follows;

First, it is necessary to create the environment for expanding the subcontracting systems. The financial and tax support for the technical tie-up between parent firm and subcontractor can be helpful to spread the subcontracting systems.

Second, to make the subcontracting systems open, we needs to strengthen the bargaining power of subcontractor. To enlarge the size of subcontractor and to improve its technical level can give a chance to increase the bargaining power of subcontractor.

on the other hand, it is important to drive a strong competitive condition into the markets in which parent firm participates. It can induce the differentiation of production process that raises the growth rate and the labor productivity in Korean manufacturing industries.