Journal of Rural Development
Measuring Aggregate Productivity and Its Decomposition Using Firm-level Data: Korean Food Manufacturing Case
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AuthorKim, Sungyong
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Publication Date2024.12.20
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Original
This study uses the Levinsohn and Petrin technique to estimate the Cob-Douglas production function from a panel data of firm-level financial statements. The total factor productivity of each firm in the Korean food manufacturing industry is then derived. The productivity analysis covers the period from 2001 to 2021, which is divided into four periods. We identify the drivers of changes in aggregate productivity from a dynamic perspective, taking into account the entry and exit of firms. The results of the analysis indicate a notable increase in aggregate productivity since 2011, but it remains below the level observed in 2001. When the food manufacturing industry is divided into 10 sub-industries, the productivity levels and growth rates of other food manufacturing industries and meat processing industries were found to be relatively high. The dynamic Olley-Pakes productivity decomposition shows that the increase in the net entry effect of firms is as significant as (and, in some periods, more substantial than) the productivity growth of individual firms for aggregate productivity growth. Since 2016, the impact of resource reallocation on aggregate productivity growth has not only diminished but also turned negative. These findings suggest that to enhance productivity growth in food manufacturing, the market ecosystem of food manufacturing should be made more competitive and dynamic by removing entry and exit barriers. In addition, R&D support for firms and technology diffusion policies that facilitate the rapid acquisition of technology by small and medium-sized firms from frontier firms are necessary measures to boost the productivity of surviving firms.
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