The Role of Returns to Scale and Capital Utilization in Productivity Changes: The Case of Korean Manufacturing

The present study examines the production technology of South Korean manufacturing by linking TFP growth to parameters of a translog cost function. The sources of a productivity growth in 22 industrial sectors were identified by decomposing the measured growth in TFP into technology, returns to scale and capital utilization for the 1963–83 period. The study shows that, first, the major source of the rapid growth of Korean manufacturing was the growth of factor inputs (labor, capital, and materials); second, the returns to scale accounted for half of the growth in TFP; and third, technical change contributed 45 percent of TFP growth, while capital utilization accounted for only a small portion of TFP growth. [D 24]