The Spillover Effect between Productivity of SMEs and Large Firms

Productivity is known as the one of the most important engines for achieving sustainable growth of an economy. It implies the efficiency of the production process or the innovation in the economy. That is, through improving productivity, the present generation can meet its needs without hampering the resources for future generations. Therefore, productivity is a critical issue in current and future economic growth. As Cho, Kim, and Schreyer (2012) suggested, the productivity growth has headed up the real income growth in Korea since the middle of the 2000s. Also, they emphasize that the transition from ‘input-led’ to ‘productivity-led’ growth will intensify more because of a fast trend toward an aging society and a low birth rate. This issue is not just relevant to problems in Korea, but also in the rest of the world. This paper mainly considers the construction of an efficient system among various methods to raise productivity efficiently. In particular, the positive and close collaboration among institutions in an economy increases its productivity in a given individual effort. It is necessary to establish a virtuous cycle of productivity among institutions for raising economic efficiency in a national economy, in addition to R&D activity in each institution, which is an individual and direct method for improving productivity. Hereby, we investigate whether the positive spillover of productivity among firms has been significant. In particular, the relationship of productivity between two different size firms-a large firm and an SME (small-medium enterprise) - allowing for industrial linkages is our main concern. This study has the following purpose and significance. The purpose of this study is to investigate the significance of inter-firm as well as inter-industrial spillover effects of productivity. In all cases, the industrial linkages are commonly considered as an input-output (IO) table. In the case of inter-firm relationship, we consider the effect between two different-sized firms - a large firm and an SME - as well as among industries. Based on our empirical results, we then try to seek some provisions for the inter-firm virtuous cycle of productivity.