Cost Structure and Efficiency of Korea’s Road and Rail in the Manufacturing Industries
Publication: Journal of Infrastructure Systems
Volume 17, Issue 3
Abstract
This paper analyzes the contribution of public infrastructure to private sector. It takes the example of road and rail and investigates their impact on South Korean manufacturing industries. To assess the cost structure and efficiency of investments in infrastructure, economies of scale, effects of infrastructure on variable cost and output, investment condition for infrastructure, and substitution and price elasticities are calculated. The divergence of infrastructure stocks from their static equilibrium levels influences production efficiency. Overall, investments in road and rail have positive effects on the manufacturing industries in Korea. This study expands the scope of existing studies by decomposing the internal rate of return (IRR) and the present value of benefit () into variable cost reduction, investment cost reduction, and rent. It was found that checks only the magnitude of benefit, whereas IRR indicates the existence of efficiency by investigating total cost reduction and rent. Finally, by analyzing investment efficiency and changing benefit with respect to road and rail through the investment efficiency methodology that compares IRR with market interest rate, retrospective benefit-cost analysis is conducted.
Get full access to this article
View all available purchase options and get full access to this article.
References
Baltagi, B. H. (1999). Econometric analysis of panel data, 3rd Ed., Wiley, Chichester, UK.
Berndt, E. R., and Hansson, B. (1991). “Measuring the contribution of public infrastructure capital in Sweden.” NBER Working Paper No. 3842, National Bureau of Economic Research, Cambridge, MA.
Bank of Korea (BOK). (2005). “Economic statistics yearbook.” 〈www.bok.or.kr.〉 (Mar. 3, 2005).
Bosca, J. E., Escriba, F. J., and Murgui, M. J. (2002). “The effect of public infrastructure on the private productive sector of Spanish regions.” J. Region. Sci., 42(2), 301–326.
Braeutigam, R. R., Daughety, A. F., and Turnquist, M. A. (1984). “A firm specific analysis of economies of density in the U.S. railroad industry.” J. Ind. Econ., 33(1), 3–20.
Breusch, T. S., and Pagan, A. R. (1980). “The lagrange multiplier test and its applications to model specification in econometrics.” Rev. Econ. Stud., 47(1), 239–253.
Brown, R. S., and Christensen, L. R. (1981). “Estimating elasticities of substitution in a model of partial static equilibrium: An application to U.S. agriculture, 1947 to 1974.” Modeling and measuring natural resource substitution, E. R. Berndt and C. F. Barry, eds., MIT Press, Cambridge, MA, 209–229.
Bruno, M. (1972). “Domestic resource costs and effective protection: Clarification and synthesis.” J. Polit. Econ., 80(1), 16–33.
Choi, J. (1983). “A variable cost function approach to the measurement of technological characteristics.” Korean Econ. Rev., 31, 173–186.
Choi, J. (1986). “Analysis of production structure of agricultural industry using flexible variable cost function.” Int. Econ. Stud., 6, 49–66.
Christensen, L. R., Jorgenson, D. W., and Lau, L. J. (1973). “Transcendental logarithmic production frontiers.” Rev. Econ. Stat., 55(1), 28–45.
Cohen, J. P., and Morrison, P. C. J. (2003). “Airport infrastructure spillover in a network system.” J. Urban Econ., 54(3), 459–473.
Cohen, J. P., and Morrison, P. C. J. (2007). “The impacts of transportation infrastructure on property values: A higher-order spatial econometric approach.” J. Region. Sci., 47(3), 457–478.
Ezcurra, R., Gil, C., Pascual, P., and Rapun, M. (2005). “Public capital, regional productivity and spatial spillovers.” Ann. Reg. Sci., 39(3), 471–494.
Greene, W. H. (2000). Econometric analysis, 4th Ed., Prentice Hall, Upper Saddle River, NJ.
Greene, D. L., and Jones, D. W. (1997). “The full costs and benefits of transportation: Conceptual and theoretical issues.” The full costs and benefits of transportation, D. L. Greene, D. W. Jones, and M. A. Delucchi, eds., Springer, New York, 1–26.
Hansen, N. (1965). “Unbalanced growth and regional development.” Economic inquiry, 4(1), 3–14.
Hausman, J. A. (1978). “Specification tests in econometrics.” Econometrica, 46, 1251–1272.
Hill, R. C., Griffiths, W. E., and Judge, G. G. (2001). Undergraduate econometrics, 2nd Ed., Wiley, New York.
Judge, G. G., Hill, R. C., Griffiths, W. E., Luetkepohl, H., and Lee, T. (1988). Introduction to the theory and practice of econometrics, 2nd Ed., Wiley, New York.
Kalecki, M. (1969). Theory of economic dynamics, 2nd Ed., Augustus M. Kelley, New York.
Keeler, T. E. (1986). “Public policy and productivity in the trucking industry: Some evidence on the effects of highway investments, deregulation, and the 55 mph speed limit.” Am. Econ. Rev., 76(2), 153–158.
Keeler, T. E., and Ying, J. S. (1988). “Measuring the benefits of a large public investment.” J. Public Econ., 36(1), 69–85.
Kennedy, P. (1992). A guide to econometrics, 3rd Ed., MIT Press, Cambridge, MA.
Kim, M., and Kwon, H. (2002). A study on the SOC stock estimation, Korea Research Institute for Human Settlements, Seoul.
Kim, E., and Shin, M. (2002). “Estimation on regional benefit and optimal level of road capital stock.” J. Infrastruct. Syst., 8(3), 96–102.
Kmenta, J. (1990). Elements of econometrics, 2nd Ed., Macmillan, New York.
Korea Electric Power Corporation (KEPCO). (2005). “Korea Electric Power Corporation.”〈www.kepco.co.kr〉 (Mar. 27, 2005).
Korea National Statistical Office (NSO). (1999). National Wealth Survey, Daejeon, Korea.
Korea National Statistical Office (NSO). (2005a). Rep. on Construction Survey, Daejeon, Korea.
Korea National Statistical Office (NSO). (2005b). Rep. on Mining and Manufacturing Survey, Daejeon, Korea.
Korea National Statistical Office (NSO). (2005c). Annual Rep. on the Consumer Price Index, Daejeon, Korea.
Lee, D. (1982). “Domestic resource cost of major industries in Korea.” J. Asian Econ., 41, 5–23.
Lee, J., and Lee, S. (2005). Econometric analysis by using RATS, 3rd Ed., Park Young, Seoul.
Lynde, C., and Richmond, J. (1992). “The role of public capital in production.” Rev. Econ. Stat., 74(1), 37–44.
Mancuso, P., and Reverberi, P. (2003). “Operating costs and market organization in railway services: The case of Italy, 1980–1995.” Transp. Res., 37B(1), 43–61.
Min, S. (2004). “The investment efficiency of road and rail sectors based on manufacturing industry.” Ph.D. thesis, Dankook Univ., Seoul.
Ministry of Labor (MOL). (2005). Rep. on Monthly Labor Survey, Gwacheon, Korea.
Moreno, R., Lopez-Bazo, E., and Artis, M. (2002). “Public infrastructure and the performance of manufacturing industries: Short- and long-run effects.” Reg. Sci. Urban Econ., 32(1), 97–121.
Morrison, C. J., and Schwartz, A. E. (1992). “State infrastructure and productive performance.” NBER Working Paper No. 3981, National Bureau of Economic Research, Cambridge, MA.
Morrison, C. J., and Schwartz, A. E. (1994). “Distinguishing external from internal scale effects: The case of public infrastructure.” J. Prod. Anal., 5(3), 249–270.
Nadiri, M. I., and Kim, S. (1996). “R & D production structure and productivity growth: a comparison of the U.S., Japanese, and Korean manufacturing sectors.” NBER Working Paper No. 5506, National Bureau of Economic Research, Cambridge, MA.
Nadiri, M. I., and Mamuneas, T. P. (1991). “The effects of public infrastructure and R&D capital on the cost Structure and performance of U.S. manufacturing industries.” NBER Working Paper No. 3887, National Bureau of Economic Research, Cambridge, MA.
Nadiri, M. I., and Mamuneas, T. P. (1994). “The effects of public infrastructure and R & D capital on the cost structure and performance of U.S. manufacturing industries.” Rev. Econ. Stat., 76(1), 22–37.
Nemoto, J., Nakanishi, Y., and Madono, S. (1993). “Scale economies and over-capitalization in Japanese electric utilities.” Int. Econ. Rev., 34(2), 431–440.
Park, S., and Lee, S. (1986). Optimum scale and expansion of infrastructure provision, Samsung Economic Research Institute, Seoul.
Rovolis, A., and Spence, N. (2002). “Duality theory and cost function analysis in a regional context: the impact of public infrastructure capital in the Greek regions.” Ann. Reg. Sci., 36(1), 55–78.
Samuelson, P. A. (1953). “Prices of factors and goods in general equilibrium.” Rev. Econ. Stud., 21(1), 1–20.
Schankerman, M., and Nadiri, M. I. (1984). “Restricted cost functions and the rate of return to quasi-fixed factors, with an application to R & D and capital in the bell system.” NBER Working Paper No. 1259, National Bureau of Economic Research, Cambridge, MA.
Shah, A. (1992). “Dynamics of public infrastructure, industrial productivity and profitability.” Rev. Econ. Stat., 74(1), 28–36.
Shephard, R. W. (1953). Cost and production functions, Princeton University Press, Princeton, NJ.
Spady, R. H., and Friedlaender, A. F. (1978). “Hedonic cost functions for the regulated trucking industry.” Bell J. Econ., 9(1), 159–179.
Stata Corporation. (1997). Stata release 5, Stata, College Station, TX.
Uzawa, H. (1962). “Production functions with constant elasticity of substitution.” Rev. Econ. Stud., 29(4), 291–299.
Wheat, P., and Smith, A. S. J. (2008). “Assessing the marginal infrastructure maintenance wear and tear costs for Britain’s railway network.” J. Transp. Econ. Policy, 42(2), 189–224.
Zellner, A. (1962). “An efficient method of estimating seemingly unrelated regressions and tests for aggregation bias.” J. Am. Stat. Assoc., 57(298), 348–368.
Information & Authors
Information
Published In
Copyright
© 2011 American Society of Civil Engineers.
History
Received: Apr 24, 2010
Accepted: Mar 10, 2011
Published online: Mar 12, 2011
Published in print: Sep 1, 2011
Authors
Metrics & Citations
Metrics
Citations
Download citation
If you have the appropriate software installed, you can download article citation data to the citation manager of your choice. Simply select your manager software from the list below and click Download.