The economic effects of standardization in Korean manufacturing industry

Abstract

This paper analyzes the economic effects of standardization theoretically and empirically. Above all, the quantitative analysis of the macroeconomic effect of standardization in Korean manufacturing industry will be focused on. The results can be used as a basis of standardization policy and investment. As a beginning, we examine the classifications and the roles of standards, cost-reduction effect, network externalities and the economies of scale resulted from using standards. And then, we inquire into the effect of standardization investment on GDP growth through reviewing literature. For empirical analysis, we use growth accounting approach. To begin with, Cobb-Douglas production function is assumed. Next, the macroeconomic effect of standardization in Korean manufacturing industry is estimated using the indicators of technological innovation and standardization, which are the mean stock of patents, the expenditure for licenses and patents, and the mean stock of standards. To do this, unit root test and cointegration analysis are used. Finally, the relative degree of contribution to total output growth in Korean manufacturing industry are calculated based on the factor participation rate resulted from the estimation. The analysis period is from 1978 to 2003. All data were converted in prices of 2000. The results report that there are positive correlations between all indicators and total output. The relative degree of contribution of patents is 33.7961%, that of the expenditure for licenses and patents is 13.0474% and that of standards is 11.4054%. Total output has been increased by about 20.59 trillion won per year. Therefore, the contribution amount of standards to total output growth is approximately 2.35 trillion won per year. This amount of money reaches 0.7416% of the average annual total output in Korean manufacturing industry. It offers the key to understand the magnitude of macroeconomic effects of standardization in Korean manufacturing ...