The effects of new technology on productivity: technological improvement and reallocation efficiency in the Japanese steelmaking industry

Abstract

This paper analyzes the effect of new technology for steel refining—the basic oxygen furnace—on productivity growth using the productivity decomposition method. I employ a technique that decomposes productivity growth into four factors: operational improvement, within- and between-technology reallocation, and entry–exit effects. I demonstrate that the following two factors are both substantially important: (i) the rapid operational progress of new technology and (ii) between-technology reallocation both among existing furnaces and through entries. I also find that although the overall allocation efficiency improved, the within-new-technology allocation efficiency declined. The results suggest that government policies encouraged the construction of new furnaces by lowering the cost of introducing new technology, and firms were able to enjoy the high productivity gains from the new technology itself and its rapid growth.