A total factor productivity analysis: Korea's garment industry and transportation equipment industry

Economic growth or output growth is the combined result of input growth and productivity increase. Considering Korea's poor endowment of natural resources, productivity growth should be an important source of Korea's successful economic performance. If productivity growth is important, the question arises "How can productivity growth be maintained?". To answer this question, we need to know causes, sources, and nature of productivity change. This dissertation tries to explain the nature and sources of productivity growth by analyzing past performance of two representative Korean industries--garment and transportation equipment--at both the industry and establishment level.;Industry level productivity is calculated by translog rates of total factor productivity growth (TFPG). These numbers are calculated by deducting the weighted increase in inputs from the increase in outputs assuming a translog production function. Unlike most other studies on productivity, the analysis is extended by relating estimated TFPG to the variables output growth, net export growth and capacity utilization.;Establishment level productivity is analyzed by using linear programming methods to estimate frontier production functions and decompose productivity change into technical efficiency (TE) and technological progress (TP). Empirically measuring TE and TP provides useful implications to industrial policy makers.;Output growth, whether caused by domestic demand or export demand increase, is essential for productivity growth. It holds for both the labor-intensive and small-scale garment industry and the capital-intensive and large-scale transportation equipment industry.;Somewhat surprisingly, the estimation results show that, over time, medium size establishments in the garment industry gain competitiveness in terms of TP against large establishments (no significant difference is observed in TE change). This indicates that past government policies favoring large establishments might be flawed.;Decomposing transportation equipment into shipbuilding, showing low TE change, and automobiles, showing high TE change, reflects their respective market situation. The low TE change in shipbuilding was partly due to both its industrial structure, formed by past government policies, and its vulnerability to changes in the world market. This demonstrates that "directive" industrial policy may be risky and cause waste of scarce resources when future market expectations are not fulfilled. Finally, the most unusual result of this study is the low TP found in the actively growing capital-intensive automobile industry. This may explain, at least partly, the current, sluggish automobile export. Therefore, investment in R&D and/or technological learning should continue regardless of the current market situation.