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Working Paper

Variations in the Size Distribution of Korean Manufacturing Establishments across Sectors and over Time

페이스북
커버이미지
  • 저자 Jeffrey B. Nugent
  • 발행일 1989/08/31
  • 시리즈 번호 8932
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요약 The size distribution of manufacturing establishments is a
legitimate subject for social concern. This is because this
distribution can exert effects on static and dynamic efficiency,
export performance and hence the balance of payments, intensity
in the use of different resources, the skill composition and wage
structure of the labor force and the distribution of income. For
some of these purposes, small and medium sized establishments
and firms are expedient but for others large size may be
advantageous. As a result, an appropriate balance between LEs
and SMEs is likely to be desirable.

For some time now Korea has become known as a country
in which less and large industrial groups have come to play an
unusually large role in the economy, especially in relation to the
other East Asian countries with which Korea is most often
compared, such as Japan, Hong Kong and Taiwan.

Since 1963 Korea has experienced rather remarkable changes
in its size distribution of manufacturing establishments. In
particular, from 1963 to 1976, the share of large establishments
in manufacturing employment rose from 33.6% to 62.4%, but
since that time the share has fallen back to about 50% in 1986.
A similar pattern has been observed in the case of the share of
large establishments in manufacturing value added.

The study shows that there has existed relationships
between the size distribution of manufacturing establishments on
the one hand and both the share of chaebol firms and the
distribution of income among all Korean households, but
especially among nonagricultural households, on the other hand.

The study identifies a relatively long list of factors which
may have contributed to the observed trends. First, it
investigates the popular notion that the pattern is attributable to
a switch in sectoral priorities has contributed little to the
observed pattern. Instead, the study shows that the changes in
the share of LEs in manufacturing employment and value added
at the aggregate level are primarily the result of similar reversed
trend patterns within most individual sectors.

With respect to these intrasectoral variations in size shares
over time, the study hows that a large number of different
factors have been at work, no one or two among them being
dominant. Indeed, each group of factors, ranging from
technological and financial to government policies, exports and
various other institutional considerations, has exerted a rather
significant influence on the employment and value added shares
of different size groups.

Among the more important of these influences seem to have
been (1)economies of scale and other technological considerations
, (2) the relative importance and availability of different sources
of finance, in particular foreign and government finance to LEs
and credit to SMEs, (3) Policy restrictions of various sorts (4)
the relative importance of exports in total sales, export markets
being especially different for SMEs to enter and penetrate
because of economies of scale and of scope in information
production and dissemination, but the effects of which may also
be partially offset by the number and efficiency of readers and
other intermediaries in export markets, (5) the sectoral rate of
growth which, when it is very high, suggesting the development
of new products, the adoption of mass production techniques and
the penetration of new markets, tend to provide special
opportunities for LEs, (6)entry barriers like the importance of
advertising and research and development expenditures which
favor LEs, (7) the relative importance of skilled labor a market
in which LEs may have special advantages, and finally (8)
subcontracting relationships which can be advantageous to both
SMEs and LEs and which can help SMEs overcome the various
institutional and other constraints with which they are faced.

When many of the measures used for capturing these
influences are introduced into the estimating equation at the
same time, as in the column 6 results of Tables 14 and 16, at
least 50% and as much as 75% of the variation across sectors
and over time of the shares of LEs in manufacturing
employment and value added can be explained. Moreover, in this
case the model is also capable of explained. Moreover, in this
case the model is also share of LEs in manufacturing
employment and value added reverses from rising to falling in
the sectors in which these reversals have been the sharpest.

The results could both in forecasting future changes in the
size distribution of manufacturing establishment in Korea and in
arriving at a more efficient set of government policies for
steering that distribution in desired directions. While the size
distribution of manufacturing establishments should certainly not
be the sole or even most important objective of policy, on the
basis of gradually improving understanding of both the
determinants and the effects of the size distribution of Korean
manufacturing establishments, it should receive increasing
attention over time in the fine tuning of Korean policies to
ever-changing conditions and priorities.

Such policies can contribute to the objective of improving
the balance between growth on the one hand and equity and
political and social development on the other hand. Korean has
come a long way down the path to development in an amazingly
short period of time. In the rush, resources and opportunities
have often been biased in the direction of the big and powerful,
or at least it is seen in that way. But true success will depend
on maintaining social and economic stability over a long period
of time. Trading off some short-term growth for greater equity
and social harmony may in the long run assist Korea further
down the road to economic and social development more than
almost anything else it might do. In choosing particular policies
to assist SMEs, however, it would be desirable to emphasize
positive policies like further improving the credit guarantee
scheme on loans for SMEs , improving the ability of SMEs to
recruit skilled personnel and strengthening subcontracting
relationships between SMEs and LEs rather than negative
policies such as the SME designated areas scheme.

Nevertheless, the study is admittedly deficient and
incomplete in a number of ways and as a result most of the
specific conclusions should be regarded as tentative. First, it has
failed to operationalize a number of the influences identified in
Section Ⅲ as being of potential importance. Second, some of the
measures included, such as the technology measures FLO and O,
are defective in that they include too much, i.e., influences going
well beyond those of technology. Others, such as the quality
index INA, are defective in that they are not sufficiently
comprehensive, e.g.,INA is confined only to exports even though
in principle the effects of a quality index on size shares would
apply to sales in the domestic market. Third, at least when they
are included at the same time, there are too many separate and
indeed related measures.

As a result, the various explanatory variables are too closely
related to one another, making the results rather sensitive to
slight changes in specification. Fourth, some of the explanatory
factors, like the relative importance of exports and of
subcontracting relationships, are not true exogenous variables but
rather might better be thought of as being jointly determined
with size. Fifth, there is little reason to believe either that all
the relationships would be strictly linear or that the effects of
the various explanatory variables would be the same across all
sectors and for all time periods as in the models used here.
Sixth, since size of establishment choices can best be thought of
as microeconomic ones taken at the level of the individual
establishment, the fact that the data employed are all based on
sectoral aggregates implies that the correspondence between the
level of the data and that of the underlying conceptual model is
not very close.

Most of these shortcoming could and should be overcome in
future research. Clearly, it should be possible to reduce the
thirty sometimes closely related separate indicators to a smaller
number of more independent influences. It should also be
possible to improve on the present measures in several cases
and to develop measures for some of the potential influences
which to date have not been captured. Another feasible
refinement would be to rest for homogeneity of the sample
across sectors and time periods and, where justified, to introduce
dumy variables for different sectors and time periods or
alternative to estimate the model separately for the different
periods and sectors. It would be highly desirable to supplement
this kind of study with another using micro level data might be
available on census taps. In that context, it would be highly
desirable also to combine the decisions in establishments for
individual firms or even groups of firms.

Finally, it would be highly desirable to supplement this
study in which the individual establishments and the firms
which own them are anonymous with some case studies of
individual sectors. Especially appropriate choices of case studies
would be those sectors such as plywood, wearing apparel,
footwear and so on where the inverted U pattern has already
and clearly been observed. Finally, in a still more complete
analysis it would be desirable to explain jointly such matters as
the propensities to export, to subcontract, to employ different
types of technology, and to engage in advertising and research
and development expenditures. Nevertheless, since many of these
extensions would require considerable revision and time, these
admittedly very desirable suggestions are left for future research.
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