total factor productivity in korea and international comparison - data structure and productivity...

Total Factor Productivity in Korea

and International Comparison

- Data Structure and Productivity Estimates of Korea Industrial Productivity (KIP) Database

Hyunbae Chun

Hak K. Pyo

Keun Hee Rhee

The 2008 World Congress on National Accounts and Economic Performance Measures for NationsMay 12-17, 2008, Washington DCMay 14 Session 3A

Outline

• Data structure of Korea Industrial Productivity (KIP) database – KIP versus EU KLEMS– Output, Labor, and Capital

• International Comparison (1980-2005)– EU15EX, Japan, US (EU KLEMS, March

2008)– Korea (KIP 2007)– Changes in the pattern of sectoral growth

after the 1997 financial crisis

I. Korea Industrial Productivity (KIP) Database

• EU KLEMS database– EU KLEMS Manual (Timmer et al., 2007) – www.euklems.net (Latest version: March 2008)– 25 EU member states plus Australia, Japan, the

U.S.– 71 industries for 1970-2005– Variables: gross output, labor (hours and compos

ition), capital (ICT and non-ICT), intermediate inputs (E, M, S)

http://www.euklems.net/

• KIP database

– EU KLEMS Manual (Timmer et al., 2007) – http://www.kpc.or.kr/publicwork_stat/kip_sub1_e.asp – KIP 2007 covers 71 industries for 1970-2005– Variables: gross output, labor (hours and compos

ition), capital (ICT and non-ICT), intermediate inputs (E, M, S)

– Old datasets: KDI (2004; 29 ind., no labor composition), Pyo et al. (2005; 33 ind.)

http://www.kpc.or.kr/publicwork_stat/kip_sub1_e.asp

Labor Input

• Hours– EAPS (NSO), SRWS (MOL), IO Employment Tables (BOK) – Consistency among the sources

• Compensation – National Accounts (BOK)

Labor Composition (18 types)

• Gender – (1) Male, (2) Female

• Age – (1) below 30, (2) 30-49, (3) 50 or above

• Skill (Education) (1) Low-skilled (middle school or under)

(2) Middle-skilled (high school)

(3) High-skilled (college or above)

Issues on Labor Input

• Accuracy in labor composition – 15 industries (incl. 6 manufacturing) – Linear interpolation using 5-year average

(before 1993)

• Three types of skill (education) levels

Labor Composition by Education Level, 1980-2007

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

1980 1985 1990 1995 2000 2005

LowMiddle

HighHigh (4 yr)

35%

23%

42%

7%

22%

72%

(24%)

Capital Input

• Two sources and methods– 1970-1997 using National Wealth Survey

(1968, 1977, 1987, 1997)– 1998-2005 using the Perpetual Inventory Method based on NA GFCF and depreciation rates (Pyo, 2003)

• Issues– PIV for 1987-2005– Depreciation rates: EU KLEMS vs. NWS (High)– EU KLEMS: PIV for 1971-2005

Gross Output, Value-Added, and Intermediate Inputs (E,M,S)

• Use detailed BOK NA data to get GO, VA, II for 72 industries

– Nominal and real GO, VA, and II (1970-2005, 78 industries).

– Use BOK internal data: Nominal and real GO (1970-2005, 397 industries)

• Use U & V tables to divide II into E,M,S

Issues on Real Value-Added

• Double deflation (DD) method– Real value added using Laspeyres DD – DD for most industries except finance, insuran

ce, real estate, and public administration (53-57, 63)

• Aggregation: Tornqvist vs. Laspeyres index

II. Growth Accounting: International Comparison

• EU KLEMS (EU15EX, US, Japan) and

KIP 2007(Korea)

• 6 sectors in the market economy

(1 ICT, 2 goods, 3 services)

• 1980-2005: 1980-1995 vs. 1995-2005

• MFP growth based on value-added

,

,

ln ln lnX tit it itX L K

MFP V v X

Market Economy

• Excluding the following 5 industries – Imputation of owner occupied rents (56)– Other real estate activities (57)– Public admin and defense (63)– Public Education (64)– Public Health (65)

Market Economy1980-1995 vs. 1996-2005

VA L LH LC K MFP

(1)=(2)+(5)+(6) (2)=(3)+(4) (3) (4) (5) (6)

European Union (EU-15EX)

1980-1995 2.1 0.0 -0.3 0.3 1.1 1.0

1995-2005 2.2 0.6 0.4 0.2 1.2 0.4

United States

1980-1995 3.0 1.2 1.0 0.2 1.1 0.7

1995-2005 3.7 0.7 0.4 0.3 1.3 1.7

Japan

1980-1995 3.9 0.4 0.1 0.3 2.0 1.5

1995-2005 1.0 -0.6 -0.9 0.4 1.1 0.5

Korea

1980-1995 9.5 2.2 1.9 0.3 5.5 1.8

1995-2005 4.8 0.7 0.2 0.5 3.0 1.2

1995-2005 (excl. 1998-‘99) 5.6 1.1 0.7 0.4 3.3 1.2

Trend of Market Economy Real VA and MFP in Korea

0

100

200

300

400

500

600

700

800

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

0

20

40

60

80

100

120

140

160

Value-added (1980=100), Left-axis

MFP (1980=100), Right-axis

Financial Crisis in December 2007

Contributions to the Market Economy Value-Added Growth

-2

0

2

4

6

8

10

12

EU15ex USA Japan Korea EU15ex USA Japan Korea Korea (ex1998-'99)

Labor Hours

Labor Composition

Capital

MFP

1980-1995 1995-2005

MFP 19%

Capital 73%

59%

Labor 23%

21%

20%

Value-Added Growth and Contributions: KoreaVA L LH LC K MFP

(1)=(2)+(5)+(6) (2)=(3)+(4) (3) (4) (5) (6)

VA

weight

1980-1995

Market Economy 9.5 2.2 1.9 0.3 5.5 1.8 100

Electrical mach & comm services 16.9 2.2 1.7 0.5 6.4 8.3 8.2

Manufacturing excl. electrical 10.2 2.3 1.7 0.6 5.2 2.7 27.8

Other goods producing industries 6.6 1.1 1.1 0.1 6.6 -1.1 27.4

Distribution services 8.0 1.6 1.4 0.1 4.3 2.2 18.7

Finance and business services 13.7 6.2 6.0 0.2 4.5 3.1 11.7

Personal and social services 7.9 2.9 2.3 0.5 7.3 -2.2 6.2

1995-2005 (excluding 1998-1999)

Market Economy 5.6 1.1 0.7 0.4 3.3 1.2 100


Manufacturing excl. electrical 4.8 0.0 -0.5 0.4 2.7 2.1 26.2


Distribution services 4.1 0.4 -0.2 0.6 3.0 0.7 15.7

Finance and business services 5.5 2.7 2.4 0.3 3.4 -0.5 17.0


Value-Added Growth and Contributions: EU15EX

VA L LH LC K MFP

(1)=(2)+(5)+(6) (2)=(3)+(4) (3) (4) (5) (6)

VA

weight

1980-1995

Market Economy 2.1 0.0 -0.3 0.3 1.1 1.0 100

Electrical mach & comm services 3.6 -0.6 -0.9 0.3 1.6 2.6 7.1

Manufacturing excl. electrical 1.1 -1.2 -1.5 0.3 0.7 1.7 28.0

Other goods producing industries 1.1 -1.1 -1.4 0.2 0.7 1.6 18.7




1995-2005

Market Economy 2.2 0.6 0.4 0.2 1.2 0.4 100



Other goods producing industries 1.1 0.0 -0.1 0.2 0.7 0.4 15.5




Value-Added Growth and Contributions: USVA L LH LC K MFP

(1)=(2)+(5)+(7) (2)=(3)+(4) (3) (4) (5) (6)

VA

weight

1980-1995

Market Economy 3.0 1.2 1.0 0.2 1.1 0.7 100

Electrical mach & comm services 6.6 0.1 -0.3 0.4 1.9 4.6 8.4

Manufacturing excl. electrical 1.7 0.1 -0.2 0.3 0.6 0.9 24.6





1995-2005

Market Economy 3.7 0.7 0.4 0.3 1.3 1.7 100






Personal and social services 2.6 1.7 1.4 0.3 0.9 0.0 8.5

Value-Added Growth and Contributions: JapanVA L LH LC K MFP

(1)=(2)+(5)+(6) (2)=(3)+(4) (3) (4) (5) (6)

VA

weight

1980-1995

Market Economy 3.9 0.4 0.1 0.3 2.0 1.5 100



Other goods producing industries 1.0 0.0 -0.3 0.3 1.3 -0.3 18.0

Distribution services 4.3 0.1 -0.1 0.2 1.0 3.1 23.0



1995-2005

Market Economy 1.0 -0.5 -0.9 0.4 1.1 0.5 100


Manufacturing excl. electrical -0.3 -0.9 -1.2 0.3 1.2 -0.7 24.0

Other goods producing industries -1.0 -1.3 -1.7 0.4 0.3 0.0 15.2

Distribution services 0.0 -1.1 -1.5 0.4 0.3 0.9 24.8


Personal and social services 0.6 0.1 -0.4 0.4 0.6 -0.1 10.1

Sectoral Contributions to Market Economy Value-Added Growth

-2

0

2

4

6

8

10

12

EU15ex USA Japan Korea EU15ex USA Japan Korea Korea(EX '98-

'99)

EleComManuGoodsOthGoodsDistrServFinBusServPersServ

1980-1995 1995-2005

MFG 30%

ICT 15%

41%

22%

ICT& MFG 27-44% ICT& MFG 26-55%

Sectoral Contributions to Market Economy MFP Growth

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

EU15ex USA Japan Korea EU15ex USA Japan Korea Korea(EX '98-

'99)


1980-1995 1995-2005

ICT & MFG 83 %

III. Structural Change in Korea After the 1997 Financial Crisis

• Before and after the 1997 financial crisis – 1990-1997 versus 1999-2005– 6 sectors and 72 (minus 5) Industries

• After the crisis, resurgence in the ICT and manufacturing sector’s output and productivity growth, but no resurgence in the NMFG (incl. service) sector’s.

Sectoral Contributions to the Korean Market Economy Value-Added Growth

0

2

4

6

8

10

12

1980-1990 1990-1997 1999-2005


10.1%

7.7%

6.6%

ICT & MFG 46%

ICT & MFG 41%

ICT & MFG 56%

Sectoral Contributions to the Korean Market Economy MFP Growth

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1980-1990 1990-1997 1999-2005

EleCom

ManuGoodsOthGoods

DistrServ

FinBusServ

PersServ

2.1%1.9%

1.3%

ICT & MFG 70%

ICT & MFG 100%

Looking at Detailed Industries: 1990-1997 vs. 1999-2005

• Changes in industries’ contributions to the market economy MFP growth– Resurgence across most MFG industries?– Decline across most Non-MFG industries?

• Through results from detailed industries’ MFP growth, search for underlying factors.

Contributions of ICT and MFG Industries to the Market Economy MFP Growth

-0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5Office & computing machinery (26)Post and telecommunications (52)

Fabricated metals (24)Leather (13)

Tobacco (10)Scientific instruments (32)

Machinery, nec (25)Textiles (11)

Food (9)Paper (15)

Printing (17)Insulated wire (27)

Other electrical machinery (28)Railroad & transport equip (37)

Aircraft and spacecraft (36)Wood (14)

Building of ships (35)Rubber & plastics (21)

Publishing (16)Basic metals (23)

Apparel (12)Manufacturing nec (38)

Chemicals (20)Nonmetallic products (22)

Petroleum products (18)Motor vehicles (34)

Pharmaceuticals (19)Radio and televisions (31)

Telecommunication equipment (30)Electronic valves and tubes (29)

(B) - (A)

(B) 1999-2005

(A) 1990-1997

High-tech MFG

Searching for Underlying Factors

Explaining Resurgence in MFP Growth in the ICT and MFG Sector

• Competition • domestic and world markets

• Lower input cost • e.g., temporary workers

• Faster technological innovation• e.g., investment in R&D and ICT

Contributions of Non-ICT-Non-MFG Industries to Market Economy MFP Growth

-0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5Research and development (60)

Renting of machinery andOther business activities, nec (62)

Retail trade (46)Insurance and pension funding (54)Computer and related activities (59)Legal, technical and advertising (61)

Water transport (49)Sewage and sanitation (66)

Supporting transport activities (51)Other mining (8)Air transport (50)

Electricity supply (40)Fishing (3)

Gas supply (41)Agriculture (1)

Other service activities (70)Mining of coal (4)

Membership organizations (67)Mining of metal (7)

Related financial intermediation (55)Water supply (42)

Media activities (68)Sale & repair of motor vehicles (44)

Forestry (2)Other recreational activities (69)

Wholesale trade (45)Inland transport (48)

Financial intermediation (53)Construction (43)

Hotels and restaurants (47)

(B) - (A)

(B) 1999-2005

(A) 1990-1997

Business services

Searching for Underlying Factors Explaining Decline in MFP Growth in

the Non-MFG Sector

• Regulation• No incentive/ too much protected

• Low investment in IT• Combined with too small firms

• Mismatched skills• Shifts from manufacturing

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