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Cost structure in Korean manufacturing and its decomposition

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Frame of Image r profitability due to falling domestic demand would cause business equipment investment to fall and industrial production activity to follow. Considering that high costs reduce firm’s profitability and innovation a c t i v i t y such as equipment and R&D investment, causing decreased competitiveness and growth potential in the long run, it is necessary to understand the cost structure and what the source of high costs is and how the price of inputs affects firm’s profitability. Current research, however, focuses mainly on estimation and determinants of total factor productivity (TFP) using production(cost) functions or growth accounting methods, and on the decomposition of TFP by technological progress, technical efficiency and scale effect. The purpose of this paper is to examine the cost structure in Korean manufacturing and to investigate how changes in the price of inputs affect costs and profitability by estimating and decomposing the long-run average cost function. Specifically, using the price of inputs(labor, capital, intermediate inputs, energy, total costs and time) I estimate a total cost function with a translog cost functional form. Then, the cost structures according to industry
and period are analyzed by calculating output and cost elasticity, economy of scale, and technological progress using estimated parameters. Finally, after deriving the long-run average cost, the source of the cost structure and the impact of input prices on the average cost and profitab


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Title Cost structure in Korean manufacturing and its decomposition
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Material Type Reports
Author(English)

Choi, Yong-jae

Publisher

[Seoul]:Korea Institute for Industrial Economics & Trade

Date 2009
Journal Title; Vol./Issue KIET Industrial Economic Review(Current issues):vol. 14(no. 1)
Pages 17
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Industry and Technology < Manufacturing
Holding KIET; KDI School

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