Firms’ strategies, vertical integration, and productivity growth in Korea's core growth-leading industries

Abstract

ABSTRACTThis study investigates the impact of firms’ strategies on the productivity growth of vertically integrated with capital share (VI) firms, non-VI (NVI) firms, and firms shifting schemes. A Cobb-Douglas stochastic frontier production model applies to a firm-level panel data set of Korea's automobile, electronics, and general machinery industries from 2006 to 2011. Distinct from VI automobile firms, VI electronics firms achieved the highest total factor productivity growth despite the agency dilemma. Therefore, policymakers need not ascribe undue attention to fair trade and competition policies for VI electronics firms. VI electronics firms achieved the largest impact from incentive schemes, and VI firms showed larger impact than did NVI firms from patents and intellectual property rights. Electronics firms and general machinery firms retaining a VI structure showed larger impacts from strategic technology partnerships than those retaining an NVI structure, and thus should share the growth experienced from technology upgrades with their NVI counterparts.