Analysis of Impact of New Technologies in Metallurgy on the Industry Production Function and Total Factor Productivity

Abstract

Identification of positive conditions for structural transformation of industries in the Russian economy and also formation of a scientific base for development of practical recommendations for industrial policy are extremely important for the fulfillment of national goals set forth in the Presidential Decree No. 204 dated May 7, 2018. From the early 2000s up till now, development of the Russian metal industry has been characterized by gradual abandonment of the traditional method of steelmaking in open-hearth furnaces as well as transition to a more progressive electric melting technology. The article assesses the impact of this technology change on total factor productivity (TFP) of metallurgical enterprises and on the functional form of the production function in the industry for the period 2008–2017, as well as the factors of transition to the new technology for metallurgical companies. The results show that the transition to the new technology was accompanied by a 24–28% increase in TFP as well as changes in the parameters of the production function, in particular, a decrease in labor and material intensity of production. An analysis of the factors influencing the likelihood of transition to the new technology has confirmed our hypotheses: the process of assets consolidation in the metallurgical industry under the control of several holdings in the 2000s was accompanied by technological re-equipment of production and construction of new facilities. Enterprises that are part of a single financial and industrial group with higher productivity and access to the world market are characterized by a higher probability of transition to the new technology. In addition, estimates of the likelihood of transition to the new technology are higher for enterprises with higher levels of productivity.