Total Factor Productivity of the Korean Firms and Catching up with the Japanese Firms

Abstract

This paper measured the Total Factor Productivity (TFP) of all

listed firms in Korea from 1984 to 2005 and compared this TFP

of Korean firms with that of Japanese firms. This study used

the chain-linked index number method developed by Good et al.

(1999) to find that the average TFP of Korean firms grew about

44.1% between 1984 and 2005, with 2.1% annual growth rates.

The catch-up index of Korean firms with Japanese firms is

defined at an individual firm level for the first time among

existing literature. Through this comparison analysis, the

researchers found that there were four patterns of catching up

methods practiced by Korean firms in closing in on the

Japanese firms. These patterns were over catch-up, just catchup,

under catch-up, and reverse catch-up. Furthermore, the

researchers found that the number of under catch-up and

reverse catch-up industries was more than 40% of the firms

subjected in the study. In contrast, only 10.1% of all the

Korean listed firms and 8.7% of total sales of all the listed firms

surpassed Japanese firms in terms of TFP in 2004. Also, the

catch-up performance was quite better in bigger firms, which is

indicative of polarization in TFP catch-up performance.