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Technical Efficiency in the Iron and Steel Industry: A Stochastic Frontier Approach

  • Jung Woo Kim

    (Samsung Economic Research Institute, Seoul, Korea)

  • Jeong Yeon Lee


    (Graduate School of International Studies, Yonsei University)

  • Jae Yong Kim

    (Korea Institute Public Finance, Seoul Korea)

  • Hoe Kyung Lee

    (Korea Advanced Institute of Science of Science and Technology, Seoul, Korea)

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    In this paper we examine the technical efficiency of firms in the iron and steel industry and try to identify the factors contributing to the industry's efficiency growth, using a time-varying stochastic frontier model. Based on our findings, which pertain to 52 iron and steel firms over the period of 1978-1997, POSCO and Nippon Steel were the most efficient firms, with their production, on average, exceeding 95 percent of their potential output. Our findings also shed light on possible sources of efficiency growth in the industry. If a firm is government-owned, its privatization is likely to improve its technical efficiency to a great extent. A firm's technical efficiency also tends to be positively related to its production level as measured by a share of the total world production of crude steel. Another important source of efficiency growth identified by our empirical findings is adoption of new technologies and equipment. Our findings clearly indicate that continued efforts to update technologies and equipment are critical in pursuit of efficiency in the iron and steel industry.

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    Paper provided by East-West Center, Economics Study Area in its series Economics Study Area Working Papers with number 75.

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    Length: 23 pages
    Date of creation: Apr 2005
    Date of revision:
    Handle: RePEc:ewc:wpaper:wp75
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