소장기록
제목Entry, Exit, and Aggregate Productivity Growth : Micro Evidence on Korean Manufacturing
설명Summary and Concluding Remarks In this study, we examined the micro-dynamics of entry, exit, and productivity growth using plant-level data on the Korean manufacturing sector. In order to do this, we documented the patterns of plant entry and exit, examined the relation between plant productivity and turnovers, and assessed the contribution from plant turnovers or resource reallocation among producers to the aggregate productivity change. The following summarizes the main findings of this study. First, there is a large amount of resource reallocation going on in Korean manufacturing through plant births, deaths, switch-ins and switch-outs. Plants born during the past five-year period account for between 21.5 and 26.2 percent of manufacturing output. A roughly similar portion is attributable to the plants that will die within five years. They account for a much larger fraction of the total number of manufacturing plants, indicating that those plants are usually small ones. Switch-ins and switch-outs are almost as important as births and deaths, respectively, in terms of output contribution. Those plants are, on average, bigger in size than births and deaths. Cross-country comparison of plant birth rate indicates that the turnover rate in Korean manufacturing is higher than in the U.S. and several developing countries for which comparable studies exist. However, the importance of entry by birth in Korea is not as pronounced as in Taiwan. Second, examination of the data on Korean manufacturing reveals that plant turnovers reflect systematic differences in underlying productivity as found in many other countries. Deaths are, on average, less productive than continuing plants, consistent with the prediction by models of plant or firm dynamics that market selection forces sort out low-productivity plants from high-productivity plants. Births are less productive than not only continuing plants but also deaths in the first year they are observed. However, the productivity levels of switch-ins and switch-outs are higher than births or deaths and comparable to continuing plants. The post-entry performance of births shows the presence of both market selection and learning process. Births are a heterogeneous group themselves, among which low productivity plants die over time. Surviving members of births experience rapid productivity improvement or learning, especially during the first several years after entry, and catch up with continuing plants in terms of productivity level in approximately three years. Meanwhile, deaths are less productive than continuing plants not just at the time of death but also for a certain period before death. In other words, plant deaths, on average, reflect not just temporary misfortune but persistent productivity disadvantage, which seems to indicate the existence of plant-specific effects on plant productivity. In order to examine whether the persistent productivity differential between deaths and survivors arises from the age differential, i.e., younger plants are less productive and die more frequently than older plants, we also examined the pre-death performance of plants in the same birth-year cohort. As expected, the persistence of productivity differential between survivors and deaths within the same birth-year cohort was somewhat weaker. Especially in the early years of the beginning of operation, there was not a noticeable productivity differential between survivors and deaths within births. However, as surviving members of births improve their productivity at a fast space, the productivity gap begins to develop and persists over time. Recognizing the possibility that the analysis based on the average productivity differential might mask the diversity that exists within the same plant categories, we also utilized the transition matrices. Similar to the results reported by Baily, Hulten, and Campbell (1992) for the U.S., the persistence of productivity was noticeable, especially in the top of the productivity distribution. In addition, while the plants in low productivity quintiles were more likely to die within five years, there were many high productivity deaths that are small in size. Likewise, the diversity in productivity was present for other plant groups. Comparison of transition matrices between Korea and the U.S., however, revealed not only similarities but also differences. First, the degree of persistency was somewhat weaker in Korea than in the U.S. This might be partly due to the fact that there is a higher percentage of young plants that show weaker persistency in productivity in Korea, as has already been documented. Second, the fractions of entries and exits are much larger in Korea than in the U.S. Even though the sources of cross-country variation of the turnover rate are not well understood yet, this might be related, for example, to factors such as differences in the growth rate and the pace of structural change of the economy and the development of financial market. Third, the time it takes for surviving entrants as a group to become as productive as continuing plants seems to be somewhat shorter in Korea. This might be related to both high frequency of death by unproductive plants and fast learning in Korea. Finally, we decomposed the productivity growth in manufacturing into the within effect, the entry and exit effect, and the share effect for the periods of 1990-95 and 1995-98. It was found that the cyclical patterns of the contribution from each component in Korea are very similar to those found for the U.S. That is, the resource reallocation effect, i.e., the entry and exit effect and the share effect, plays a larger role during cyclical downturns. During the 1995-98 period, for example, the combined effect of entry and exit and market share reallocation more than explains away the aggregate productivity growth in manufacturing. However, in terms of relative importance of each component, the results for Korea differ from the U.S. Among others, entry and exit plays an important role in aggregate productivity growth in Korea while, in the U.S., its role is more modest. This seems to reflect not only fast overall productivity shift and high rate of plant turnover but also the strong learning effect in Korea as documented in this paper. By contrast, market share reallocation plays a relatively minor role in Korea. This finding, however, is not unique to Korean manufacturing but is in line with other studies on several developing countries. Taken together, the evidence presented in this study confirms that the entry and exit of plants has been an important source of productivity growth in Korean manufacturing. Plant birth and death is mainly a process of resource reallocation from plants with relatively low and declining productivity to a group of heterogeneous plants, some of which have the potential to become highly efficient in future. Thus, much of the benefit from the resource reallocation by entry and exit on aggregate productivity growth will be realized over time even though the instantaneous gain might be small. The most obvious lesson from this study is that it is important to establish a policy or institutional environment where efficient businesses can succeed and inefficient businesses fail. In other words, policies that hinder the processes of entry and exit of businesses are likely to be inefficient. Considering the persistently low and declining productivity of deaths and the rapid learning opportunities of births as documented in this paper, the cost of such policies is likely to be very large. This point would be particularly relevant these days for Korea, which is going thorough a process of large-scale corporate sector restructuring. Maintaining exit barriers for firms simply because they are large is highly likely to make matters worse. The evidence of this study suggests that, even though the cost of such policies might not be evident momentarily, it will show up and grow over time in the form of foregone aggregate efficiency gain. Of course, removing all entry and exit barriers per se is not likely to guarantee that the outcome is efficient when there are market imperfections for a variety of reasons. Market imperfections can arise for the following reasons, as discussed in Haltiwanger (2000). First, there might be externalities involved in innovation activity. In creative destruction models such as Aghion and Howitt (1992) and Grossman and Helpman (1991), agents do not internalize the impact of their decisions on others so that the resulting pace of creative destruction and, hence, the rate of aggregate growth may not be optimal. Second, Caballero and Hammour (1996) emphasize that the specific investments that firms and workers make combined with contracting difficulties in the formation of production units can disrupt the timing and volatility of creative destruction and hamper the pace of renovation in the economy. Third, and related to the second, markets may be incomplete due to a missing insurance and contingent claim market, as Haltiwanger (2000) points out. He argues further that the inability of losers in the reallocation process to insure against idiosyncratic risks can be a source of distortion. That is, barriers to the reallocation process can emerge through a variety of interventions in product, labor, trade, and credit markets that are rationalized in terms of protecting against the potential losses to those that would be adversely affected in the reallocation process. However, the existence of market failures or poor institutions would not justify the barriers to entry and exit, especially if the creative destruction process is an inescapable and essential element of improving aggregate productive efficiency.
생산자한진희
날짜2000-12-01
기록유형문서류
기록형태보고서/논문
주제정치경제
연관링크http://www.kdi.re.kr/research/subjects_view.jsp?pub_no=1864&pg=3&pp=1000&mcd=001002001
식별번호KC-R-00456
제목Entry, Exit, and Aggregate Productivity Growth : Micro Evidence on Korean Manufacturing
설명Summary and Concluding Remarks In this study, we examined the micro-dynamics of entry, exit, and productivity growth using plant-level data on the Korean manufacturing sector. In order to do this, we documented the patterns of plant entry and exit, examined the relation between plant productivity and turnovers, and assessed the contribution from plant turnovers or resource reallocation among producers to the aggregate productivity change. The following summarizes the main findings of this study. First, there is a large amount of resource reallocation going on in Korean manufacturing through plant births, deaths, switch-ins and switch-outs. Plants born during the past five-year period account for between 21.5 and 26.2 percent of manufacturing output. A roughly similar portion is attributable to the plants that will die within five years. They account for a much larger fraction of the total number of manufacturing plants, indicating that those plants are usually small ones. Switch-ins and switch-outs are almost as important as births and deaths, respectively, in terms of output contribution. Those plants are, on average, bigger in size than births and deaths. Cross-country comparison of plant birth rate indicates that the turnover rate in Korean manufacturing is higher than in the U.S. and several developing countries for which comparable studies exist. However, the importance of entry by birth in Korea is not as pronounced as in Taiwan. Second, examination of the data on Korean manufacturing reveals that plant turnovers reflect systematic differences in underlying productivity as found in many other countries. Deaths are, on average, less productive than continuing plants, consistent with the prediction by models of plant or firm dynamics that market selection forces sort out low-productivity plants from high-productivity plants. Births are less productive than not only continuing plants but also deaths in the first year they are observed. However, the productivity levels of switch-ins and switch-outs are higher than births or deaths and comparable to continuing plants. The post-entry performance of births shows the presence of both market selection and learning process. Births are a heterogeneous group themselves, among which low productivity plants die over time. Surviving members of births experience rapid productivity improvement or learning, especially during the first several years after entry, and catch up with continuing plants in terms of productivity level in approximately three years. Meanwhile, deaths are less productive than continuing plants not just at the time of death but also for a certain period before death. In other words, plant deaths, on average, reflect not just temporary misfortune but persistent productivity disadvantage, which seems to indicate the existence of plant-specific effects on plant productivity. In order to examine whether the persistent productivity differential between deaths and survivors arises from the age differential, i.e., younger plants are less productive and die more frequently than older plants, we also examined the pre-death performance of plants in the same birth-year cohort. As expected, the persistence of productivity differential between survivors and deaths within the same birth-year cohort was somewhat weaker. Especially in the early years of the beginning of operation, there was not a noticeable productivity differential between survivors and deaths within births. However, as surviving members of births improve their productivity at a fast space, the productivity gap begins to develop and persists over time. Recognizing the possibility that the analysis based on the average productivity differential might mask the diversity that exists within the same plant categories, we also utilized the transition matrices. Similar to the results reported by Baily, Hulten, and Campbell (1992) for the U.S., the persistence of productivity was noticeable, especially in the top of the productivity distribution. In addition, while the plants in low productivity quintiles were more likely to die within five years, there were many high productivity deaths that are small in size. Likewise, the diversity in productivity was present for other plant groups. Comparison of transition matrices between Korea and the U.S., however, revealed not only similarities but also differences. First, the degree of persistency was somewhat weaker in Korea than in the U.S. This might be partly due to the fact that there is a higher percentage of young plants that show weaker persistency in productivity in Korea, as has already been documented. Second, the fractions of entries and exits are much larger in Korea than in the U.S. Even though the sources of cross-country variation of the turnover rate are not well understood yet, this might be related, for example, to factors such as differences in the growth rate and the pace of structural change of the economy and the development of financial market. Third, the time it takes for surviving entrants as a group to become as productive as continuing plants seems to be somewhat shorter in Korea. This might be related to both high frequency of death by unproductive plants and fast learning in Korea. Finally, we decomposed the productivity growth in manufacturing into the within effect, the entry and exit effect, and the share effect for the periods of 1990-95 and 1995-98. It was found that the cyclical patterns of the contribution from each component in Korea are very similar to those found for the U.S. That is, the resource reallocation effect, i.e., the entry and exit effect and the share effect, plays a larger role during cyclical downturns. During the 1995-98 period, for example, the combined effect of entry and exit and market share reallocation more than explains away the aggregate productivity growth in manufacturing. However, in terms of relative importance of each component, the results for Korea differ from the U.S. Among others, entry and exit plays an important role in aggregate productivity growth in Korea while, in the U.S., its role is more modest. This seems to reflect not only fast overall productivity shift and high rate of plant turnover but also the strong learning effect in Korea as documented in this paper. By contrast, market share reallocation plays a relatively minor role in Korea. This finding, however, is not unique to Korean manufacturing but is in line with other studies on several developing countries. Taken together, the evidence presented in this study confirms that the entry and exit of plants has been an important source of productivity growth in Korean manufacturing. Plant birth and death is mainly a process of resource reallocation from plants with relatively low and declining productivity to a group of heterogeneous plants, some of which have the potential to become highly efficient in future. Thus, much of the benefit from the resource reallocation by entry and exit on aggregate productivity growth will be realized over time even though the instantaneous gain might be small. The most obvious lesson from this study is that it is important to establish a policy or institutional environment where efficient businesses can succeed and inefficient businesses fail. In other words, policies that hinder the processes of entry and exit of businesses are likely to be inefficient. Considering the persistently low and declining productivity of deaths and the rapid learning opportunities of births as documented in this paper, the cost of such policies is likely to be very large. This point would be particularly relevant these days for Korea, which is going thorough a process of large-scale corporate sector restructuring. Maintaining exit barriers for firms simply because they are large is highly likely to make matters worse. The evidence of this study suggests that, even though the cost of such policies might not be evident momentarily, it will show up and grow over time in the form of foregone aggregate efficiency gain. Of course, removing all entry and exit barriers per se is not likely to guarantee that the outcome is efficient when there are market imperfections for a variety of reasons. Market imperfections can arise for the following reasons, as discussed in Haltiwanger (2000). First, there might be externalities involved in innovation activity. In creative destruction models such as Aghion and Howitt (1992) and Grossman and Helpman (1991), agents do not internalize the impact of their decisions on others so that the resulting pace of creative destruction and, hence, the rate of aggregate growth may not be optimal. Second, Caballero and Hammour (1996) emphasize that the specific investments that firms and workers make combined with contracting difficulties in the formation of production units can disrupt the timing and volatility of creative destruction and hamper the pace of renovation in the economy. Third, and related to the second, markets may be incomplete due to a missing insurance and contingent claim market, as Haltiwanger (2000) points out. He argues further that the inability of losers in the reallocation process to insure against idiosyncratic risks can be a source of distortion. That is, barriers to the reallocation process can emerge through a variety of interventions in product, labor, trade, and credit markets that are rationalized in terms of protecting against the potential losses to those that would be adversely affected in the reallocation process. However, the existence of market failures or poor institutions would not justify the barriers to entry and exit, especially if the creative destruction process is an inescapable and essential element of improving aggregate productive efficiency.
생산자한진희
날짜2000-12-01
크기 및 분량60쪽
언어영어
출처한국개발연구원
연관링크http://www.kdi.re.kr/research/subjects_view.jsp?pub_no=1864&pg=3&pp=1000&mcd=001002001
기록유형문서류
기록형태보고서/논문
대주제정치경제
소주제산업
자원유형기록
파일 d96fa7ff95a94d67c47d3ef12987d072.pdf
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