Korea Agricultural Economics Association

Title The Effect of Entry and Exit of the Establishments on Aggregate Productivity Growth in Korea’s food manufacturing industry
Author Choi Soon, Hanho Kim
Paper Information Vol.62 No.2 (2021-6) Page 63~88
File KJAE(2021-Vol62No02)-Korean-04.pdf
Abstract Aggregate productivity changes over time not only depend on shifts in the productivity of surviving producers, but also the entry of new producers and the exit of old ones. In this paper, we adopted Dynamic Olley-Pakes Decomposition that can break down aggregate productivity changes into 4 different components (productivity distribution shifts among survivors, market share reallocations among survivors, entry, and exit). The results showed that the aggregate productivity of the food manufacturing industry in Korea has increased by 1.08% from 2011 to 2018, which is lower compared to the results of previous studies that analyzed the previous period, indicating a slowdown in productivity. The decomposition of the productivity by subcategory showed that the effect of entry and exit on the change in aggregate productivity was relatively insignificant in all subcategories, whereas the contribution of surviving establishments was dominant. The implication of this study was that the productivity of surviving establishments played a major role in driving aggregate productivity changes in Korea’s food manufacturing, suggesting that the policy support focus on enhancing the productivity of surviving establishments.