A Decomposition of Total Factor Productivity Growth in the Food Manufacturing Industry in Korea: A Stochastic Frontier Approach

This study aims to identify major contributors to the change in total factor productivity of food manufacturers by decomposing it into four factors: technological progress, scale efficiency, technological efficiency, and allocation efficiency. Using the “Mining and Manufacturing Survey” data provided by the Statistics Korea, it classifies food manufacturing industries into seven sub-categories to estimate stochastic frontier production functions. The results show that the increase in output is mainly driven by an input increase in food manufacturing. In addition, technical progress is found to be the most significant contributor to the total factor productivity of the food manufacturing industry. On the other hand, it is found that the contribution of technical efficiency shows a negative sign, negatively affecting the productivity increase. The result indicates that R&D investment to improve the technology frontier is essential in increasing the productivity of the food industry. On top of that, support policies to spread and disseminate the leading technologies to other companies are also necessary to enhance technical efficiency throughout the industry.