Rapid Economic Growth with Increasing Returns to Scale and Little or No Productivity Growth

Seung-Rok Park and Jene K Kwon

The Review of Economics and Statistics, 1995, vol. 77, issue 2, 332-51

Abstract: Total factor productivities for 28 Korean manufacturing sectors were estimated jointly with markups, scale economies, and the capacity utilization rate using the short-run generalized Leontief cost function. Concavity conditions necessary for the cost function to be well-behaved and consistent with a firm's optimizing behavior were imposed on the estimation by way of Bayesian inference. The study finds: (1) the superiority of the short-run equilibrium model over the long-run model and of the short-run generalized Leontief cost function over the translog cost function; (2) market imperfection; (3) the existence of scale economies; and (4) biases in the traditional TFP measures. The study also suggests that a rapid growth of output is possible with negative TFP growth. Copyright 1995 by MIT Press.

Date: 1995
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