1. 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 Nations May 12-17, 2008, Washington DC May 14 Session 3A

2. 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

3. I. Korea Industrial Productivity (KIP) Database EU KLEMS database –EU KLEMS Manual (Timmer et al., 2007) –www.euklems.net (Latest version: March 2008)www.euklems.net –25 EU member states plus Australia, Japan, the U.S. –71 industries for 1970-2005 –Variables: gross output, labor (hours and composition), capital (ICT and non-ICT), intermediate inputs (E, M, S)

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

5. Labor Input Hours – EAPS (NSO), SRWS (MOL), IO Employment Tables (BOK) – Consistency among the sources Compensation – National Accounts (BOK)

6. 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)

7. 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

8. Labor Composition by Education Level, 1980-2007

9. 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

10. 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

11. Issues on Real Value-Added Double deflation (DD) method –Real value added using Laspeyres DD –DD for most industries except finance, insurance, real estate, and public administration (53-57, 63) Aggregation: Tornqvist vs. Laspeyres index

12. 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

13. 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)

14. Market Economy 1980-1995 vs. 1996-2005

15. Trend of Market Economy Real VA and MFP in Korea Financial Crisis in December 2007

16. Contributions to the Market Economy Value-Added Growth

17. Value-Added Growth and Contributions: Korea

18. Value-Added Growth and Contributions: EU15EX

19. Value-Added Growth and Contributions: US

20. Value-Added Growth and Contributions: Japan

21. Sectoral Contributions to Market Economy Value-Added Growth ICT& MFG 27-44%ICT& MFG 26-55%

22. Sectoral Contributions to Market Economy MFP Growth

23. 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.

24. Sectoral Contributions to the Korean Market Economy Value-Added Growth ICT & MFG 46% ICT & MFG 41% ICT & MFG 56%

25. Sectoral Contributions to the Korean Market Economy MFP Growth ICT & MFG 70% ICT & MFG 100%

26. 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.

27. Contributions of ICT and MFG Industries to the Market Economy MFP Growth High-tech MFG

28. 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

29. Contributions of Non-ICT-Non-MFG Industries to Market Economy MFP Growth Business services

30. 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