INFRASTRUCTURE AND PRODUCTION EFFICIENCY: AN ANALYSIS ON THE KOREAN MANUFACTURING INDUSTRY

Sangho Kim, Jaewoon Koo and Young Hoon Lee

Contemporary Economic Policy, 1999, vol. 17, issue 3, 390-400

Abstract: This study estimates an aggregate production function of manufacturing industry using panel data of 11 Korean regions covering 1977–1992. While the previous studies regard infrastructure as a direct input for production, the present study proposes that infrastructure has an effect on actual output by enhancing technical efficiency thereby, reducing the gap between maximum potential output and actual output. To investigate the relationship between infrastructure and technical efficiency, a stochastic frontier approach is applied to Korean manufacturing industry. Confirming the presence of substantial technical inefficiency in production, this study shows that an increase in infrastructure reduces the technical inefficiency level. The study also finds that, contrary to expectation, the industrialized regions are less efficient than the less industrialized ones. (JEL O20, H54, C23)

Date: 1999
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