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The R&D and productivity relationship of Korean listed firms

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Abstract

This study analyzes the relationship between R&D investment and the productivity of Korean R&D-engaged firms. An interdependent chain of equations including the propensity to invest, R&D investment and productivity are estimated in a multi-step procedure accounting for selectivity and simultaneity biases. Using Korean firm level panel data of listed firms from 1986 to 2002, we find four main empirical results. First, there is a two-way causal relationship between R&D investment and productivity for Korean listed firms. Second, Chaebol firms were associated with lower R&D growth as well as lower labor productivity growth in comparison to non-Chaebol firms. Third, there was a substantial reduction in growth rates both in R&D investment and labor productivity in 1997-1998, immediately following the Asian financial crisis. Fourth, considering the positive feedback effect from productivity growth to R&D growth, a decrease in R&D investment growth after the Asian financial crisis should have been harmful by further decreasing productivity growth.

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Notes

  1. A noticeable increase in R&D output occurred during the 1990s. See Sakakibara and Cho (2002).

  2. It can be implied that subsidies to R&D—and possibly other government policies as well—can affect economic growth rates in the long-term.

  3. GNI per capita, Atlas method (current US$), World Development Indicators 2008, The World Bank.

  4. According to the definition by the Korean Fair Trade Commission (KFTC), a chaebol or business group refers to a group of companies that holds more than 30% of its shares owned by some particular individual or by companies governed by those individuals. Since 1987, the KFTC has identified and listed business groups each year.

  5. In constructing the dataset to be used, the listed firms between 1986 and 2002 were selected. However, the observations in 1986 were dropped in estimating the system of equations because transforming data into annual growth rate terms required creating lag variables. Hence, the length of period examined in the empirical analysis for the system of equations was 16 years.

  6. Considering the significance and contributions of listed firms, the focus of this study is on listed manufacturing firms. A large proportion of these firms are engaged in R&D activities.

  7. TFP is the weighted average ratio of total value added for all factors of production (labor and capital).

  8. Due to limited space these results are not reported here but can be obtained from the authors upon request.

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Acknowledgments

The authors would like to thank the Associate Editor of the journal and an anonymous referee for their very useful comments and suggestions on two earlier versions of this paper.

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Authors and Affiliations

  1. Department of Food and Resource Economics, College of Life Sciences and Biotechnology, Korea University, East Building Room #217, Anam-dong Seongbuk-gu, Seoul, 136-701, Korea

    Almas Heshmati

  2. Department of Political Science, University of Rochester, Harkness Hall, Rochester, NY, 14627-0146, USA

    Hyesung Kim

Authors
  1. Almas Heshmati
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  2. Hyesung Kim
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Correspondence to Almas Heshmati.

Appendix

Appendix

See Table 7.

Table 7 Industry classification
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Heshmati, A., Kim, H. The R&D and productivity relationship of Korean listed firms. J Prod Anal 36, 125–142 (2011). https://doi.org/10.1007/s11123-010-0206-y

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