Cambridge Journal of Economics Advance Access originally published online on January 10, 2005
Cambridge Journal of Economics 2005 29(4):635-655; doi:10.1093/cje/bei022
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‘Total factor productivity vs. realism’ revisited: the case of the South Korean steel industry
* Institute of Developing Economies, Japan
Address for correspondence: Hajime Sato, Development Studies Centre, Institute of Developing Economies, 3–2–2 Wakaba, Mihama-Ku, Chiba 261–8545, Japan; email: hajime{at}ide.go.jp.
This paper presents key features of the development of the South Korean steel industry through the critical examination of an article by Truett and Truett. Despite their claim to exhibit ‘realism’ by use of a translog cost function, their methodology has strong affinities with the methods of measuring total factor productivity growth, which have long been known as invalid but continue to be applied not least to the experience of East Asian countries. It will be argued that the theoretical and empirical flaws involved with these methods invalidate their results and corresponding policy implications. Above all, by showing that the assumptions for their calculation do not hold in terms of the economic conditions of the industry, the paper points to a different understanding of ‘realism’ than that conceived by and for their study.
Key Words: Steel • Korea • East Asian miracle • Total factor productivity • Political economy
JEL classifications: O14, O30, O40, P16
Manuscript received January 13, 2004; final version received August 4, 2004.