Regional convergence and efficiency in Korea

Abstract

This study evaluates regional convergence and efficiency among 13 regions in Korea over the period 1985–2002 using stochastic frontier production model which allows for regional inefficiency and heterogeneity. Evidence is found in favour of regional convergence in Korea, with a lower rate of convergence of around 2% a year, because we find that inefficiency in production does exist in regional economy. The results also indicate that the improvement of education and reforms of local government policies have contributed to an increased level of efficiency. Since the average estimates of technical efficiency have increased over time, the results show that regional economy has brought the significant improvement in efficiency.

Notes

¹ We estimate a Cobb–Douglas specification of the model which imposes the constraints , i = l and j = k on a translog frontier production function. The likelihood ratio test cannot reject the null hypothesis at the 1% level.

² Kumar and Russell (2002) and Kumbhakar and Wang (2005) suggest that economic growth convergence can be regarded as technological catch-up which reflects movements toward the world production frontier.

³ The model proposed by Battese and Coelli (1995) specifies technical inefficiency effects in the stochastic frontier model that are assumed to be independently distributed nonnegative random variables.

⁴ These results are supportive of evidence found in Griffith et al. (2000) and Kneller and Stevens (2004) that human capital is important for technology transfer.