Economies of scale, technological progress, and the sources of economic growth: case of Korea, 1969-2000

Empirical investigations are undertaken by estimating the system of an aggregate translog cost and cost-share equations for the Korean economy, using annual data for the period 1969-2000. We found inelastic demand for factor inputs, low substitution between labor and capital, and a complementary relationship between structure capital and equipment capital. The Korean economy exhibited increasing returns to scale and labor saving and capital using embodied technological progress. Capital accumulation and TFP growth are the proximate source of output growth. TFP growth includes the estimated embodied capital-using technological change. The technological change is as much as one and half times TFP growth between 1969 and 2000. Hence, investment is the most important engine of growth.