Productivity Growth and Patterns of Efficiency Changes in Korean Economy : Stochastic Frontier Approach with Industry-Panel Data

Abstract

This paper applies the group-specific stochastic frontier

production model to the Korean 32-industry level panel data set

for the period of 1984-1997. The methodology allows for not

only estimating temporal variation in total factor productivity,

but also identifying the contribution of technical efficiency

separately from technical progress. The empirical results of this

study show that productivity growth of Korean economy was

driven mainly by technical efficiency improvement in the 1980s,

but by technical progress in the 1990s. At the industry level,

the petroleum products industry was the most efficient in the

1980s, but its efficiency rank fell to 5 in 1997. On the other

hand, the communication industry improved its technical

efficiency dramatically; its technical efficiency growth rate was

ranked at 14 in 1985, but at 1 since 1993.