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

by 

Jung Woo Kim, Jeong Yeon Lee, Jae Yong Kim, and Hoe Kyung Lee

East-West Center Working Papers, Economics Series, No. 75

Publisher:

Honolulu: East-West Center

Publication Date: April 2005
Binding: paper
Pages: 20
Free Download: PDF

 

The technical efficiency of firms in the iron and steel industry is examined to identify the factors contributing to the industry's efficiency growth, using a time-varying stochastic frontier model. Based on findings pertaining 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. The 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 the empirical findings is adoption of new technologies and equipment. Continued efforts to update technologies and equipment are critical to the pursuit of efficiency in the iron and steel industry.