llllllllllllllllllllllllllllllIllllllllllllllllllllllllllll 3129300901749 This is to certify that the disse- tqtion entitled IMPLICATIONS OF CHANGING FACTOR PRICES AND PRODUCTION TECHNOLOGY ON THE KOREAN PLYNOOD INDUSTRY'S PRODUCTION COSTS presented by HYUN DEOK SEOK has been accepted towards fulfillment of the requirements for Ph.D. degree in FORESTRY Mom/Ham orprof sssss Date June 3, 1991 LIBRARY Michigan State University ‘1 -¢. a PLACE IN RETURN BOX to remove this checkout from your record. TO AVOID FINES return on or before date due. 5 DATE DUE DATE DUE DATE DUE i :NEII: MSU Is An Affirmative Action/Equal Opportunity Institution owns-9.1 IMPLICATIONS OF CHANGING PACTOR PRICES AND PRODUCTION TECHNOLOGY ON THE KOREAN PLYIOOD INDUSTRY'S PRODUCTION COSTS BY HYUN DEOK SEOK A DISSERTATION Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Forestry 1991 C75?) “T S) 79,72 ABSTRACT IMPLICATIONS OF CHANGING FACTOR PRICES AND PRODUCTION TECHNOLOGY ON THE KOREAN PLYWOOD INDUSTRY'S PRODUCTION COSTS BY Hyun Deck Seok .The Korean plywood industry was developed as a strategic industry in the 60's and grew until the end of the 70's. The industry's success was due to rising demands for plywood in domestic and world markets, continuing supplies of inexpensive tropical logs and other inputs, and the government's commercial policies which maintained strong protection for domestic target industries. However, several economic shocks caused a major contraction of the Korean plywood industry. These started with the oil crisis of the early 70's and were followed later by Indonesia's tropical log export ban, declining export markets and diminishing governmental assistance. In the near future, the industry will face even more severe competition in the domestic plywood market as well due to a new trade policy of decreasing protectionism. Productivity and cost effectiveness are crucial in competitive markets. To provide insight for making the Plywood industry more competitive in international and domestic markets, the industry's production behavior and cost structure are investigated in this study. The primary objective of this study is to investigate factors causing contraction of the Korean plywood industry. The second objective is to analyze the industry's adjustment methods and processes (e.g., factor substitutions, technological changes, and structural changes) following altered circumstances. To address these objectives, the transcendental logarithmic cost function with labor, capital, material, and energy for the industry is estimated using annual time series data for the period of 1966-87. Several models based on the production technology are estimated. The best model is selected using the likelihood ratio test. The test for technological change and structural changes of the production function are also conducted. Major findings are: (1) production costs were most sensitive to log prices; (2) the industry showed a material- using technological change bias; and (3) material is substitutable with all other inputs. Implications of this study are: (1) because material cost is a main factor affecting total production costs, the long-run log supply should be carefully assessed; and (2) producing more highly processed plywood should be considered to enhance the Korean plywood industry's comparative advantages. This study is dedicated to my grandfather, Mr. Ki Won, Seok. iv ACKNOILSDGENBNT I would like to express my sincere appreciation to Dr. Larry Leefers, my dissertation and guidance committee chairman, for his invaluable advice, encouragement, and support during the completion of this work. Special appreciation is extended to my graduate committee Dr. Anthony Koo, Dr. Daniel Chappelle, and Dr. Ching-Fan Chung for their support and guidance in the development and completion of this work. I owe a great debt to my parents, Mr. Seung Hwan Seok and Mrs. Young he Lee, who have supported me by sacrificing everything they have. My indebtedness is extended to the rest of my family who are very supportive and proud of me. Finally, my deepest gratitude belongs to my wife, Kyung Hee Kim, for her love, support, encouragement, and sacrifice. It is also belongs to my son, Hahn Sam, for his delightfulness. LIST OF FIGURES . . . . . . LIST OF TABLES. . . . . . CHAPTER 1 1.1. 1.2. 1.3. 1.4. CHAPTER 2 2.1. 2.2. TABLE OF CONTENTS INTRODUCTION . Background . . Objectives of the Study . Scope and Limit of the Study The Dissertation Plan . . . OVERVIEW OF THE KOREAN PLYWOOD INDUSTRY . . Introduction . . . . . . . . . . . History of the Korean Plywood Industry . . 2.2.1. Establishment and Initial Development of the Korean Plywood Industry in the Period 1954- -l960 . . . . . . . . . 2.2.2. Success of the Korean Plywood Industry as an Export-led Industry in the Period 1961-1979 . . . . . . . 2.2.3. Contraction of the Industry in the Early 19808 . . . . . . . . . . . . . 2.2.4. Reconstruction of the Korean Plywood Industry . . . . . . . . . . . Structure of the Korean Plywood Market and Performance of the Korean Plywood Industry . 2.3.1. Major Export of Plywood by Region and Country . . . . . . . . . . 2.3.2. Production, Domestic Consumption, and Export of Plywood by Kinds . . . . . 2.3.2.1. Production, Domestic Consumption, and Export of Raw Panels . . . . . . . . . . . . 2.3.2.2. Production, Domestic Supply, and Export of Processed Plywood . . . . . . . . . . . . 2.3.3. Maximum Production Capacity, Investment, Value Added, and Rate of Operation . . . . . . . . . . . . 2.3.4. Tropical Log Import, Log Price, and Major Suppliers of the Tropical Logs 2.3.5. Price of Plywood . . . . . . . . . Commercial Policies on the Plywood Industry 2.4.1. Commercial Policies on the Export-led Industries in Korea . . . . . . . . 2.4.2. Export Assistance Programs for the Plywood Industry . . . . . . . . . . 2.4.2.1. The Tariff Policy . . . . . . 2.4.2.2. Domestic Tax Policies . . . . 2.4.2.3. Financial Export Assistance Program . . . . . . . . . . . 2.4.2.4. Conversion Factor Policy . . . vi ROOGUII-‘I-‘XX 15 18 20 22 24 25 25 30 31 32 32 33 34 36 36 38 38 39 CHAPTER 4 STIIDY METHODS o o o o o o o o o O 0 2.5. Summary and Conclusion . . . . . . . . . . . CHAPTER 3 LITERATURE REVIEW . . . . . . . . . . . . 3.1. Studies of the Korean Forest Products Industries . . . . . . . . . . . . 3.2. Studies of the Production Behaviors and Structures of the U. S. and Canadian Forest Products Industries . . . . . . . . . . 3.2.1. Lumber Industry . . . . . . . 3.2.2. Pulp and Paper Industry . . . 3.2.3. Sawmill Industry . . . . . 3.2.4. Other Solid Wood Industries . 3.3. Conclusion . . . . . . . . . . . . . 4.1. Overview of Methods Selected . . . . . 4o 20 HOdEl o o o o o o o 0 ° 4.2.1. Duality Theory and Cost Function . 4. 2. L Flexible Functional Forms . . . . . 4.2.3. Choice of Flexible Functional Forms 4.3. Translog Cost Function for the Korean Plywood Industry . . . . . . . . . . . . . . . . . . 4.4. Tests for the Production Structure . . . . . 4.5. Estimation of Biased Technological Progress . 4.6. Allen-Uzawa Partial Substitution Elasticities and the Price Elasticities of Derived Demands for Factors . . . . . . . . . . . . . . . . . 4.7. Impact of Factor Prices and Technological Progress on the Average Costs of Production . 4. 8. Test for Production Structure Changes . . . . 4. 9. Data . . . . . . . . . . . . . . . . . . . . 4.9.1. Definition and Computation of the Data . . . . . . . . . . . . . . . . . 4.9.2. Data Sources . . . . . . . . . . . . . 4.10. Estimation Method . . . . . . . . . . . . . CHAPTER 5 CONDUCT AND RESULTS OF ANALYSIS . . . . . . . 5.1. Estimated Translog Cost Function and Its Share Equations . . . . . . . . . . . . . 5.2. Test for Production Structure . . . . . . 5.2.1. Homothetic Production Function . . 5. 2. L Homogeneous Production Function . 5.2. 3. Unitary Elastic Production Function 5.3. Test for the Hicks Neutral Technological Change . . . . . . . . . . . . . . . . 5.4. Test for Structural Changes . . . . . . . . 5.5. Summary and Results of Model Estimation . . L 6. Results of the Production Structure Change 5 7. Validation of the Best Model . . . . . . . 5 8. Effects of Input Prices on Average Production Cost . . . . . . . . . . . . . . 5.9. Result of Test and Estimation of the vii 40 42 42 45 46 49 52 53 57 60 61 62 62 63 65 67 69 71 74 75 76 77 77 80 80 84 84 87 88 89 90 91 92 93 93 100 102 Technological Change Bias . 5.10. The Allen Partial Elasticities of Substitution and Elasticity of Input Demand 5.11. Test of Structural Changes CHAPTER 6 . 6.1. 6.2. 6.3. 6.4. APPENDIX A. Data for the Korean Plywood Industry APPENDIX B. REFERENCES Data Used in Models . viii Findings and Implication of the Analysis Implications of this Study Scepe and Limits of the Analysis. Further Studies . 104 105 110 111 112 117 120 123 127 151 154 Figure Figure Figure Figure Figure Figure 2-1. LIST OF FIGURES Production of Plywood in Korea, 1954-1988. ) (14 Value of Plywood Exports from Korea, 1963-1987. (17) Domestic Consumption and Export in Korea, 1954- 1988. (21) Production of Raw Panel and Processed Plywood in Korea (27) Domestic Consumption of Raw Panel and Processed Plywood in Korea, 1971-1988 (28) Export of Raw Panel and Processed Plywood in Korea, 1971-1988 (29) ix Table Table Table Table Table Table 5-1. LIST OF TABLES Estimates of an Unrestricted and Restricted Translog Cost Function Models for the Korean Plywood Industry. (94) Test Statistics for the Production Structure. (99) Elasticities of Average Cost with Respect to Factor Prices. (103) Technological Change Bias. (106) The Allen Partial Elasticity of Substitution Estimates. (108) Own and Cross Partial Elasticity of Factor Demand Estimates (109) CHAPTER 1 INTRODUCTION 1.1. Background After the end of Japanese rule in 1945, the Korean government sought to establish a strong economy in order to satisfy the consumptive demands of a rapidly increasing population. Moreover, a rapid rise in unemployment also became a major concern of the government. The need for a concrete national defense, to prevent any possible invasion attempt from North Korea, also required a stable and strong economy. However, the inefficient and inadequate administration of Sungman Lee's regime, political and social instabilities, and the extensive destruction occasioned by the Korean War (1950-1953) decimated the Korean economy again (Brown 1973). After the war, rehabilitation of the Korean economy was initiated in 1954 with the aid of international economic agencies.1 Development of import-substitution industries became one of Korea's major economic policies, strategically designed to revive a nearly suffocated economy (Kuznets 1977). Although major industries showed higher growth rates than those of average developing countries in some years, 1 The International Cooperation Administration (ICA) and the United Nations Korean Reconstruction Agency (UNKRA) were major agencies. 2 the economy started to show signs of stagnation in 1959. Because of the unbalanced development of industries, declining foreign aid, and political and social instability, economic growth did not occur until the early 1960's.2 Even then the economy remained at essentially the same stage as the prewar level, due to the lack of natural resources, low capital and technology accumulation, weak industrial structure, and the slow economic progress which compounded existing problems. The appearance of Chung Hee Park's regime (in 1961) brought a new economic era to Korea. One major accomplishment of the first phase of his economic development plan (1962-1966) was the switch from development of import-substitution industries to development of export- led industries (Government of the Republic of Korea 1966; Kuznets 1977). Sixty-seven percent of the area of South Korea is covered by wilderness mountain areas which were once heavily forested. However, after both massive extraction of forest resources by the Japanese during their rule in Korea (1910- 1945), and subsequent destruction of much of the remaining forests during the Korean War, little remained intact in the mountain areas. Consequently, forest resources and 2 The excessive expansion of production capacities in consumer goods industries and the failure to establish industries which would have provided intermediate goods to the consumer goods industry became major obstacles to the growth of the whole economy. 3 industries were not important factors in the Korean economy. However, the rise to power of Park's government caused the forest sector to become an important part of the Korean economy. The initiation of massive planting and conservation practices in the mountain areas resulted in one of the most successful reforestation projects in the world. Selection of the plywood industry as a strategic industry for the revival of the Korean economy in the late 1960's also contributed to the overall development of the forest sector. The success of the plywood industry initiated the development of other major forest industries such as furniture and musical instrument industries. The plywood industry was developed as a strategic industry mainly because it was labor-intensive. The industry continuously expanded its capacity until the end of the 1970's, and at one point earned the largest amount of foreign currency of any single commodity among export goods. The expansion was due to: (1) booming construction activities in Korea and Middle Eastern countries at that time which boosted demand for plywood; and (2) continuing supplies of inexpensive tropical logs from the Southeast Sea countries which made plywood manufacturing more profitable. Moreover, the government's commercial policy, which maintained strong protectionism for domestic target- industries such as plywood, textiles, fertilizers, and footwear, was a major contributor to the expansion of the 4 plywood industry (Government of the Republic of Korea 1971). However, several economic shocks created disasters for the plywood industry in the early 1980's. Major shocks included the oil crisis of the early 1970's and later followed by the tropical log export ban by Indonesia and sluggish construction activities in domestic and Middle Eastern countries' construction markets. Also, the increasing harshness of competition in the world plywood market, caused mainly by the appearance of the South Seas countries in that market, suppressed the Korean plywood industry more than ever. The problem was compounded by inefficient production processes resulting from the Korean government's protectionist policies. These successive shocks resulted in both a major loss of export markets and the huge shrinkage of the plywood industry. In the near future, the industry will face even more severe competition in the domestic plywood market as well. This is the result of the Korean government's new trade policy of decreasing protectionism. In order to make the Korean plywood industry more competitive in international and domestic markets, the production behavior and cost structure of the industry should be investigated, since productivity and cost effectiveness are chiefly what make it competitive. This information can be used by policymakers and other interested in natural resource-using industries. 1.2. Objectives of the study Since the late 1970's, the production scale of the Korean plywood industry has shrunk significantly due in large part to loss of export markets. This implies that the Korean plywood industry has been losing its competitiveness in the world plywood market, and its loss of competitiveness brings further concerns in the domestic plywood market as protectionism is removed. The major question regarding the competitiveness of any industry is usually derived from the cost performances of manufacturing goods. The cost performance of the industry can be explained from input mixtures, the availability of technology, and levels of outputs. To improve productivity, the industry should cost-effectively mix inputs into its production structure, depending on available technologies (Nicholson 1985). This implies that the industry needs to substitute a less expensive input for a more expensive input when one can be substituted for the other. Furthermore, the industry needs to develop technologies toward using more inputs which become less expensive, while saving inputs which are highly priced. Also, development of tedhnologies could be a significant component enhancing cost effectiveness. The Korean plywood industry has faced remarkably altered circumstances of input markets during the past three 6 decades. Owing to the expansion of the Korean economy, the opportunity costs of the labor factor rose significantly. The oil crises of the 1970's caused the price of the energy input to skyrocket. Finally, significantly reduced supplies of tropical logs due to export restrictions by the Southeast Sea countries consequently resulted in a substantial price increase for tropical logs. The primary objective of this study is to investigate the causes of the contraction of the Korean plywood industry. The second objective of the study is to analyze the industry's adjustment methods and processes following altered circumstances (e.g., factor substitutions, technological changes, and structural changes). Previous research has not directly addressed the contraction of the Korean plywood industry, though it is believed that the altered circumstances of factor markets were major contributors. Therefore, this study addresses the following questions: 1) What was the major cause of the contraction? Did increased factor prices cause increases in production costs resulting in less competitiveness in the world market? For example, what was the effect of increased prices of tropical logs on the production performances of the Korean plywood industry? Has labor cost been a significant factor in modifying the cost performances of manufacturing plywood in Korea? What are other influential input prices which may 7 affect the cost of producing plywood in Korea? 2) To be more competitive in the world market, how has the Korean plywood industry faced the altered circumstances? In other words, what are the major adjustments that the. Korean industry made when it faced different situations? Did they substitute specific inputs for other inputs due to the changed prices of inputs? For instance, did industry substitute a labor input for an energy input when the price of energy increased? Or, did they develop a technology toward using a certain input, while saving other inputs? Or, did the Korean plywood industry change its production structure to dilute the impact of changed conditions of input markets? It is clear that these questions regarding structural changes and input substitutions must be addressed in order to reveal adjustment behaviors of the industry following altered situations. To address these objectives and related questions, the transcendental logarithmic cost function for the industry (see chapter 4), which is a flexible form of a cost function, is applied and estimated by using the annual time series data for the period of 1966-87. In addition, the test for structural changes of the production function is conducted in order to investigate the second objective of the study. To select the best model which is based on the production technology, the log likelihood ratio test is conducted. 1.3. Scope and Limit of the Study This study deals only with the production behavior of the Korean plywood industry. Therefore, commercial policy issues related to the Korean plywood industry are not I analyzed. A discussion of commercial policies, however, is presented in chapter 2. There are two major reasons for excluding the issues of commercial policies from this study. First, the effects of those policies are already quantified and included in the cost performances of the industry, even though those effects are not separately quantified. Second, it is very difficult to quantify the effects of those policies correctly due to the lack of data and information regarding the commercial policies applied to the Korean plywood industry. However, the exclusion of commercial policy issues may limit the usefulness of this study in terms of policy implementation and evaluation. Although the Korean plywood industry has more recently begun to produce a variety of plywood products, this study considers plywood as a single commodity. The main reasons for this aggregation are: (1) the Korean plywood industry mainly produced unprocessed plywood (raw panel) in most of the years for the sample period; and (2) due to the lack of data availability, it is difficult to get a separate cost of production for the processed plywood. The aggregation of the commodities may limit the usefulness of the study in some cases. This study includes only four inputs (namely, capital, labor, energy, and material). Although these inputs comprise more than 95% of total production costs, the inclusion of only these four factors in the analysis may limit the usefulness of this study in some applications (The Korea Development Bank and Economic Planning Board, various years). The main reason for excluding other inputs (e.g., water) is that these inputs are not significant in the total production costs and these inputs cannot be classified in terms of the common classification of the production factors for the industry. The study considers for the period 1966-1987 mainly because of data availability. However, this may affect the results of econometric analysis and consequently may limit the usefulness of the study in some applications. 1.4. The Dissertation Plan This study of the Korean plywood industry has six chapters. The general status of the study, background, information, objectives, scope, and limitations are presented in this chapter. The second chapter provides general information on the Korean plywood industry, including its historical development, its current situation, 10 and the conditions of the domestic plywood market. This provides a foundation for understanding the industry and its output market. The third chapter focuses on a review of previous studies of forest products industries in the Korean and North American regions, including studies of industry production behavior. Given this study's objectives, it provides a basis for selecting the econometric models used. The fourth chapter covers the functional forms of the model used for the present study, including a description of the tests relevant to this study. Estimation methods and processes of the employed model, and results of the estimations are presented in the fifth chapter. Conclusions and policy implications are presented in the final chapter. All related data are presented in the Appendix. CHAPTER 2 OVERVIEI OF THE KOREAN PLY'OOD INDUSTRY 2.1. Introduction In order to fulfill the objectives of this study, a general understanding of the industry and its performance throughout the sample period is required. In addition, the conditions of the plywood market should be reviewed in order to understand how its mechanisms affect the industry's performance. Therefore, the primary intent of this chapter is to provide a description of the Korean plywood industry and the domestic plywood market by presenting the establishment, development, expansion, and contraction of the Korean plywood industry throughout its history. In addition, a description of the conditions of the domestic plywood market and a history of the commercial policies implemented for the industry and its market are presented in this chapter. 2.2. History of the Korean Plywood Industry The history of the Korean plywood industry is presented in four parts, which are grouped by time periods and the 11 12 concomitant shape of the industry. First, the establishment and initial development of the industry--here depicted as an import-substitution industry--are presented. The second part discusses the continuing development and success of the industry throughout the '70s. In this period, the Korean plywood industry was classified as an export-led industry. The third part describes the contractions of the industry after the late '70s. And finally, the historical review focuses on the reshaping process of the industry following its massive decline. 2.2.1. Establishment and Initial Development of the Korean Plywood Industry in the Period 1954-1960 The history of the Korean plywood industry began when Dae-Sung Timber Ltd. was established in 1936. However, due to the lack of data from the period of its establishment to the end of the Korean War, the early stage of the plywood industry, including the history of its establishment and initial expansion, is unknown. However, we can assume that Korea's production technologies were comparable to Japan's, and that the produced merchandise was limited to raw panels, since the Korean plywood industry was controlled by the Japanese at that time (Song and Son 1978). After the Korean War (1950-1953), the Korean plywood I). 13 industry expanded significantly as a result of construction booms which boosted demand for the plywood. To meet this postwar demand for plywood, the industry reconstructed its facilities, developed advanced technologies, and expanded its production structure. To this end, production increased from 15.79 thousand cubic meters (M3) in 1954 to 55.20 thousand M3 in 1960, and the annual rate of production increase for the same period was 19.58% (see Figure 2-1). In 1957, the Korean plywood industry began to supply plywood to the in-country United Nations forces. Exports to the United Nations forces continued for several years. In 1959, Sung-Chang Enterprise Co. Ltd. exported plywood to the United States for the first time. Until the early 1960's, the Korean plywood industry expanded its production capacities and satisfied domestic consumption needs. Without industry expansion, plywood would need to be imported. Therefore, the first period of its history, 1954-60, includes the establishment and successful development of the Korean plywood industry as an import-substitution industry. 1 IA 14 Figure 2-1. Production of Plywood in Korea, 1954-1988. NDMN Million cubic meters DOOD [ITTTTITTTTTITTIIITIIITTTT 1954 1960 1965 1970 1975 1980 1985 1998 Year 0 production Note: Data are 4mm basis. Source: Korea Plywood Industries Association. Various years. Statistics of Plywood. I 15 2.2.2. Success of the Korean Plywood Industry as an Export- led Industry in the Period 1961-1979 The Korean plywood industry entered a new era after being named as a strategic export-led industry by the Korean government in 1964. From that time on, its production capacity expanded significantly and operating rates were kept high until 1979 (see Table A-1 in Appendix A). The major expansion of the Korean industry in this period can be explained by several reasons. First, the continuous expansion of the Korean economy created additional domestic demands for plywood via construction booms. This was a result of the success of several economic development plans started by the First Korea Economic Development Plan in 1962. Second, the industry's export market had expanded remarkably with the assistance of the Korean government and the industry's great eagerness to export plywood. Third, the demand for plywood in the world market had increased steadily during this period (see Table A-4). Fourth, inexpensive and plentiful natural tropical logs, a major factor in plywood manufacturing, had been continuously available from the South Sea countries.3 This yielded consistently huge value-added opportunities for the industry. Finally, since many construction companies 3 Indonesia and Malaysia were the major suppliers of tropical logs to Korea. 16 serviced construction activities in Middle Eastern countries such as Saudi Arabia and Iraq, plywood exports to these countries become more significant at that time (see Table A- 2). Production of plywood increased from 353.7 thousand M3 in 1966 to 2,559.3 thousand M3 in 1978. Export values for the same period expanded from 30.6 million to 394.1 million U.S. dollars (see Figure 2-2). The production capacities of the plywood industry expanded from 360.2 thousand M3 in 1966 to 2,734.2 thousand M3 in 1978. However, during this second period of the industry's history, the first oil shock in 1973 created a major shrinkage of plywood industry since (1) it caused higher production costs through higher oil prices, and (2) it brought on stagnation in the global economy. Consumption of plywood in the domestic and world market was significantly reduced, and the Korean plywood industry suffered financial problems related to over-investment in facilities and unsold commodities. Therefore, the export values of plywood declined 33% in 1974 from the previous year. Consequently, production decreased from 1,840.2 thousand M3 in 1973 to 1,534.5 thousand M3 in 1974. 17 Figure 2-2. Value of Plywood Exports from Korea, 1963-1987. 450 400 J 350 - 300 j 200 A Million dollars 150 - 100 W 50 - 0 “r—'i l 1* T i I r 1 I i T I I T i ’TTTT 1 i T 1 r i I 1983 1985 1970 1975 1980 1985 1987 Year 0 Value of export Note: Values are nominal U.S. dollars. Source: Korea Plywood Industries Association. Various years. Statistics of Plywood. 18 The industry recovered its expansion momentum in 1975, and reached record highs for exports in 1979 and for production in 1978. The industry also became a major producer and exporter among the plywood production and export countries at the end of the '70s (see Table A-4 and A-5). In addition, the Korean plywood industry became a major contributor to the Korean economy and became the largest industry acquiring foreign currencies, which were a significantly important factor in accumulating capital for the development of the Korean economy (The Bank of Korea, various years. the Korea Economic Statistics Yearbook). 2.2.3. Contraction of the Industry in the Early 1980s The Korean plywood industry faced a dark future after 1979, when the conditions of the major input markets altered dramatically. Starting in 1979, the Korean plywood industry confronted a tropical log export-ban from Indonesia which was the largest supplier of tropical logs to the Korean plywood industry at that time (see Table A-13). In addition, there was a downturn in plywood demand from both domestic and world markets, and financial problems due to the major elimination of the assistance programs of the Korean government (see part 2.4. in this chapter). The 19 industry was further damaged after facing the second oil shock and a 36% devaluation of domestic currency in 1980. Sky-rocketing prices of tropical logs and oil increased production costs, and eventually reduced the comparative advantages of the Korean plywood industry in the world market. Furthermore, the appearance of the South Sea countries, particularly Indonesia, in the world plywood market, and the shrinkage of this market due to the second oil shock in the late '70s created a significant reduction of the Korean plywood industry's share in the world market. In the domestic market, the industry suffered similarly reduced demand for plywood due to the shrinkage of a downturn in the Korean economy. The Dong-Myung Timber Co., which owned the largest production capacities among plywood firms in the world at that time, disappeared in 1977. Soon after, the Korea Timber Co. and the Kyung-Dong Timber Co. in 1980, and the Sam-Sin Timber Co. and the Sin-Sin Timber Co. in 1981 all went bankrupt (Seoul Newspaper 1990). Further failures of plywood firms continued until 1986. Production decreased from 2559.3 thousand M3 in 1978 to 893.3 thousand M3 in 1986, while exports decreased significantly from 1,308.0 thousand M3 in 1979 to 171.1 thousand M3 in 1986. Also, production capacity decreased from 2,734.2 thousand M3 to 1,516.6 thousand M3 in 1986. 20 However, the domestic consumption fluctuated during the same period, decreasing in the first three years and increasing in later years (see Figure 2-3). 2.2.4. Reconstruction of the Korean Plywood Industry The Korean plywood industry faced a difficult situation in the late '70s and early '80s, and only the most financially sound firms could survive. The remaining twelve firms adjusted their production structures in order to survive any severe setback. Related firms such as resource development firms were absorbed to develop more versatile management (Seoul Newspaper 1990). More advanced technologies were developed for greater efficiency in the production process, and more value-added products such as processed plywood were produced.4 Greater efforts were made to find new sources of tropical logs in order to secure a permanent supply.s 4The major processed plywoods are prefinished, overlaid, printed, and cosmetic. 5For example, Eagon Industry Cooperation Ltd. recently acquired a license to develop approximately 340 thousand ha of forest land from the government of the Solomon Islands (Seoul Economics Newspaper 1990). 21 Figure 2-3. Domestic Consumption and Export in Korea, 1954- 1988. 2 1.9-4 1.8 — 1.74 1.8 .1 1.5 -‘ 0 14+ 3 1.3a g 124 g 1.1-1 g 1 —l g 0.9-1 . ‘ ' . 2 0.8 d ‘ .. a ‘ E d?- ’ as- 0.5- o4J caJ 0.2 J 0.. 1 _ = _ 0 'tTth-zfizmfi‘ii IT—FT I‘I—FIN 7 Ft lfi I it T_T—I 1954 1960 1965 1970 1975 1950 1985 1988 Year 0 Domestic consum. + Export Note: Data are 4mm basis. Source: Korea Plywood Industries Association. Various years. Statistics of Plywood. 22 As a result of these changes, production has tended to increase in recent years, although production capacity has remained constant. 2.3. Structure of the Korean Plywood Market and Performance of the Korean Plywood Industry The production, domestic consumption, and exports of plywood are reviewed for understanding the structure of the Korean plywood industry. Production of plywood increased from 353.7 thousand M3 in 1966 to 1,001.9 thousand M3 in 1987. However, it did not show an increase for every year of the period 1966-1987. Production had continuously increased from 353.4 thousand M3 in 1966 to 2,559.3 thousand M3 in 1978 with an average annual growth rate of 16.45%. During the period 1966-78, only 1974 and 1975 showed a decrease in production, due to the first oil shock. Subsequently, however, production started to decrease from the year 1978, and continued until 1987. The production of plywood decreased from 2,559.3 thousand n3 in 1973 to 1001.9 thousand n3 in 1987. A commonly held view is that the production shrinkage in this period was due to the loss of export markets and the diminishing competitiveness of Korean plywood. This, in 23 turn, was related to increased prices of tropical logs and oil, which had sky-rocketed as a result of the natural log export ban from Indonesia and the second oil shock in 1979. Quantification of these relationships are part of the focus of this study. Domestic consumption of plywood increased steadily from 76.8 thousand n3 in 1966 to 850.0 thousand M3 in 1987. However, these trends are significantly different from that of production. Domestic consumption had increased from 1966 to 1979 with an annual growth rate of 6.6%. However, after the year 1979, the supply decreased for the next three consecutive years. Unlike the production trend, domestic consumption increased again after 1983, while total production decreased in the same period. Since plywood has been consumed mainly as an intermediate good, its demand can be explained by the activities of final demands. The input- output tables of the industry, published by the Bank of Korea (the Bank of Korea 1973 and 1975), indicate that the construction industry has been a predominant consumer of plywood, comprising more than 70% of the demand, followed by electronics and furniture industries (Song and Son 1978). Therefore, the number of permits authorized by the Korean government for building construction can be a major explanation for domestic plywood consumption trend (see Table A-12). 24 Export of plywood significantly increased from 276.9 thousand M3 in 1966 to 1,618.0 thousand M3 in 1978, which is the largest annual plywood export. After 1978, plywood exports began to decline and reached 172.2 thousand M3 in 1987. The main reasons for this decline are: (1) increased production costs, and (2) the appearance of Indonesia as a major competitor in the world plywood market. The value of plywood exports had become nearly parallel to the fluctuations in the physical quantities of plywood exports. The value of plywood exports hit their peak of almost one- half billion dollars in 1979. 2.3.1. Major Export of Plywood by Region and Country The U.S. had been a predominant importer of Korean plywood until the early '80s. It imported more than 80% of total plywood exports from Korea until 1972. After that, its share declined significantly to 69% in 1975, and eventually to less than 10% in 1984. It is evident that the U.S. market had been a major contributor to the success of the Korean plywood industry in the world market. Therefore, the loss of the U.S. market to the South Sea countries (especially Indonesia) explained the loss of almost the entire export market to the Korean plywood industry. Only 25 the United States, Canada, Japan, and Saudi Arabia were major importers of Korean plywood. 2.3.2. Production, Domestic Consumption, and Export of Plywood by Kinds Plywood is classified into two major products classes, namely, raw panel and processed plywood. The Korean plywood industry produced and supplied these two products for both the domestic and world markets in the sample period. 2.3.2.1. Production, Domestic Consumption, and Export of Raw Panels Raw panels have been major products of the Korean plywood industry since its establishment. For many years after 1971, the shares of raw panels of total plywood production were more than 90% (see Figure 2-4). However, its share decreased after the major contraction of the industry in the early '80s. Its share in total production decreased from 94% in 1970 to approximately 78% in 1988. Figure 2-4. Production of Raw Panel and Processed Plywood ' in Korea, 1971-1988. MI I I ion CUDIC IDIOI’O 1971 1975 1980 1985 1988 Year Ci Haw panel + Processed plywood Note: Data are 4mm basis. Source: Korea Plywood Industries Association. Various years. Statistics of Plywood. 27 In the domestic market, the share of raw panels was dominant in most years. Its share increased slightly from 92.5% in 1970 to 93.5% in 1988 (see Figure 2-5). Accordingly, the share of raw panels of total exports has proportionately decreased (see Figure 2-6). Raw panels are classified into four products by their thickness, namely, "below 3.5 mm", "3.5-5.9 mm", "6.0-11.9 mm", and "over 12.0 mm". Among them, the "3.5-5.9 mm" size panel was the major product until the early '80s. Its share of total production was more than 50% until 1980. However, after 1980, the "over 12.0 mm" size panel became a major product by showing an increase in its share growth. In 1989, the "over 12.0 mm" size occupied 69% of total production, while the "3.5-5.9 mm" size had only an 8% share (see Table A-6). The trends of total production, domestic consumption, and export of raw panel by kind were very similar for the sample period (see Table A-6, A-8, and A- 10). Figure 2-5. Domestic Consumption of Raw Panel and Processed Plywood in Korea, 1971-1988. 700 — 800 — 500 - 400 -l 300 4 MI I I ion CUBIC raters 200 d d I I I I I T T I I I I I 1980 1985 1988 Year Ci Fhw pane I + Processed plywood Note: Data are 4mm basis. . . . Source: Korea Plywood Industries Assoc1at1on. various years. Statistics of Plywood. Figure 2-6. Export of Raw Panel and Processed Plywood in Korea, 1971-1988. MI I I ion CIDIC meters I I I I I I I 0 I I I I I r l I I 1980 1985 1988 Year :3 Raw panel 1» Processed plywood Note: Data are 4mm basis. . . . . Source: Korea Plywood Industr1es Assoc1at1on. Various years. Statistics of Plywood. 30 2.3.2.2. Production, Domestic Supply, and Export of Processed Plywood Processed plywood has never been a major product of the Korean plywood industry. In most years of the sample period, it occupied only 3.6-24.6% of total plywood production. However, its relative significance in the plywood market has tended to grow in recent years. The share of processed plywood grew from 7.2% in 1979 to 22.4% in 1988. The proportion of domestic consumption of the processed plywood showed consistency over the sample period. Its share of the total domestic supply showed was in single digits throughout the sample period except for 1979. The share of processed plywood of total exports shows an increasing trend in recent years. Processed plywood is classified mainly as four products, namely, prefinished, overlaid, printed, and cosmetic plywood. Among them, prefinished plywood was the major product until the mid-'70s (see Table A-7). Since then, overlaid plywood has become the major product; it comprised 64% of processed plywood production in 1988. Similarly, prefinished plywood was a major commodity for However, domestic and export markets until the mid-'7OS. overlaid plywood has become a major commodity in both 31 domestic and world markets in more recent years. 2.3.3. Maximum Production Capacity, Investment, value Added, and Rate of Operation The trend in production capacity parallels the trend of production. Production capacity increased annually until 1979 due to the success of exports in the world market. Then, it began to decline steadily until 1987 due mainly to the diminishing export market and consequent bankruptcy of plywood firms until 1987. Investment had risen steadily until 1979, the year in which it peaked. Subsequently, it decreased more significantly than it rose (see Table A-16). This can be attributed to the success and subsequent shrinkage of the industry caused by several economic shocks (see the history of plywood in the first part of this chapter). The industry enjoyed a steady increase of value-added until 1978 except for the year 1974, and the largest value- added in 1978 and 1984 (nominal terms). The drop in 1974 may be explained by the first oil shock in 1973. After 1978, it decreased sharply in the following two years. The skyrocketed price of oil and tropical logs in 1979 could explain this downturn. After that, the amount of value- added steadily recovered in most years because of the financially sound firms that had remained in the industry. 32 2.3.4. Tropical Log Import, Log Price, and Major Suppliers of Tropical Logs Volume of tropical log imports for manufacturing plywood increased steadily for most years until 1977. However, the volume of log imports decreased after Indonesia began to restrict log exports in 1979 (see Table A-14). The tropical log export restriction by Indonesia caused a higher import price of logs and eventually burdened the plywood industry. Indonesia had supplied more than 60% of the total number of logs imported by Korea in most of the years before 1979. However, Korea has not imported any logs from Indonesia since 1985. Since 1980, Malaysia has become a major supplier of logs to Korea, and now supplies more than 60% of the total number of imported tropical logs in Korea. Papua New Guinea has been the second largest supplier of tropical logs to Korea since 1982. 2.3.5. Price of Plywood The nominal price of plywood steadily increased in most years except for the period of 1978-80 (see A-15). The rapid price increases during that period indicate that the sharp rise in log and oil prices was a major factor. The 33 real price of plywood did not increase in most years except 1973. A sharp increase in 1973 can have been a result of the first oil-shock. 2.4. Commercial Policies on the Plywood Industry Since the plywood industry developed with assistance of the Korean government's commercial policies during most years in the sample period, a review of those historically implemented commercial policies is required to understand the Korean plywood industry. This part of the study reviews the history of those commercial policies in order to provide a better understanding of the industry. Most of this review section is based on the studies by Kim (1988) and Song and Son (1978). When the plywood industry initiated its exports to the U.N. forces in Korea in 1957, the government began to facilitate the development of the industry. The amount of governmental assistance was nevertheless insignificant until the industry was named as a target-industry in 1964. However, specific data on the commercial policies applied to the plywood industry were available only for the period 1967-1969 (Song and Son 1978). Therefore, the information on the general commercial policies of all the target industries will be reviewed together. 34 2.4.1. Commercial Policies on the Export-led Industries in Korea Given Korea's poor natural resources endowment and lack of accumulated capital, expansion of trade--especially exports--was considered the best way of developing its infant economy. Therefore, the major objective of successive economic development plans initiated in 1962 was expansion of commodity export. To fulfill this objective, the Korean government supported those industries with a greater possibility of acquiring foreign currency through adequate commercial policies.6 The major commercial policies aimed at developing and encouraging exportation can be divided into several categories, namely, tax policy, financial policy, and trade policy. The major contribution of this assistance through commercial policies was to reduce the production costs of commodities and consequently increase the competitiveness of Korean industries in world markets. Tax policies included tax exemptions and discounts on direct and indirect taxes, and are referred to as domestic taxes in this paper. The major assistance from the trade 6 Examples of this kind of industry are the footwear, plywood, cement, and fabric industries. 35 policy was from the reduction and exemption of the tariff.7 The value amount of assistance per unit of export over the period 1967-1975 indicated that these two policies contributed the greatest amount of the assistance for the industries (Song and Son 1978). Assistance from these policies comprised more than 67% of the total assistance over the period of 1967-1975, and increased up to 90% in 1975. After 1975, these two policies became even more significant due to the reduction and termination of other policies. The government also assisted the industries through its financial policies. The major form of financial policy was a loan-aid policy. The industry was indirectly subsidized by discounted interest rates on the loaned capital. Also, it was comparatively easier for the target-industries to receive loans than for other industries. The loans came from all sorts of sources, including funds accumulated by the government, commercial banks and imported capital. However, this policy had never been a major assistance to the industry, and became even more insignificant after 1971. Another method of assistance was an indirect subsidy by 7 The tariff policy indicated the complete, or partial exemption of tariffs on intermediate goods, while imposing extremely high rates of tariff on processed goods, mainly to protect the domestic manufacturers. This policy is commonly called "tariff escalation". 36 means of discounted energy prices for the targeted industry. However, it was never a major assistance policy because it usually provided less than 1% of the total assistance for the industries. 2.4.2. Export Assistance Programs for the Plywood Industry All commercial policies for the target industries were essentially applied to the plywood industry. However, due to the uniqueness of the plywood industry in comparison to other industries, the amount of assistance was different in some cases. The export assistance programs for the plywood industry can be classified into three sub-programs, namely, a domestic tax and tariff policy, a capital-loan policy, and an allowance of conversion factor in plywood production. 2.4.2.1. The Tariff Policy In the early years of the sample period, no tariff was applied on imported logs originally intended for the manufacture of plywood for exports. Only 50% of the original tariff rates were applied to the domestic usage of 37 imported logs until 1975. However, this 50% tariff- exemption was not effective after the implementation of a tariff-reimbursement program in 1975. This program stipulated that the tariffs would be paid initially, but could be completely reimbursed after the industry had exported plywood manufactured from the imported logs within one year of their importation. In contrast, the tariff previously had been strictly imposed on plywood for most years. This policy was a manifestation of the Korean government's so-called "tariff-escalation" policy, used to protect domestic plywood manufacturers.8 The tariffs on imported capital from abroad were completely exempted until early 1974 to induce foreign investments in the domestic industry. Also, this policy stimulated the expansion of production facilities and increased comparative advantages through reducing fixed costs. However, it was no longer effective after the new policy was established in 1974. The government imposed tariff on imported capital goods after 1974, but the payments could be deferred up to three years. 8 "Tariff-escalation" means that tariff rates are escalated when the imported products are highly processed. The main purpose of this policy is to provide more value- adding activities to manufacturing in one's own country. 38 2.4.2.2. Domestic Tax Policies All indirect taxes were exempted for plywood exporters. Half of the income tax had been exempted until 1973, when the exemption of direct taxes was terminated. After 1973, several reserve-loan programs, which were specially intended to encourage plywood exports, were indirectly substituted for the direct-tax exemption program. The government also allowed higher depreciation rates for the plywood industry, which were from 1.15 to 1.5 times higher than other non- target industries. This policy partially compensated the loss of the direct-tax exemption program by reducing the burden of direct taxes. 2.4.2.3. Financial Export Assistance Program The government assisted the plywood industry through discounting interest rates on foreign trade loans. Also, it secured lower interest rates on the loaned capital from abroad (see Table A-18). However, the difference in interest rates between commercial loans and trade loans had been reduced since the early '70s, and has almost equalized in recent years. 39 2.4.2.4. Conversion Factor Policy The government allowed a higher conversion loss rate (in other words, a lower conversion factor) in plywood manufacturing.9 The conversion loss rate was 43-49% until 1974, and 41-43% after that. Because of these highly allowed loss rates, the industry could utilize the unused imported logs originally intended for export, but which are actually the remainder from the difference between the government-set conversion loss rates and the actual ones. This policy thereby allowed the industry to use imported logs for domestic demand, not for exports. Eventually, it provided the industry extra profits from the sale of products, made by untaxed imported logs to the domestic markets. Because actual conversion factors were around 50% in many cases, the industry could use about 10% of its imported logs for domestic demand.10 Ironically, this policy was considered the most important assistance policy 9 "Conversion factor" is the ratio (as a %) between the volume before and after processing. For example, the ratio of log volume before being used to manufacture plywood and after is the conversion factor of manufacturing plywood (Society of American Foresters 1983). 1° In contrast, the conversion factor would have been 51-59 % in the case of the 43-49 % conversion loss rates. Again, the conversion factor would have been 57-59 % if the conversion loss rates had been 41-43 %. 40 since it contributed the largest profits to the plywood industry (Song and Son 1978). 2.5. Summary and Conclusion The history of the Korean plywood industry was reviewed based on selected periods of growth and decline. The industry was established with government assistance to serve the needs of the Korean economy. It expanded with the growth of domestic and world economics, improving domestic and world markets of inputs and outputs, and Korean government assistance. During this period, production, industry capacity, and exports of the plywood industry increased significantly. However, the industry suffered a major contraction during the early of '803 due to significant alterations of input market conditions and the loss of the world plywood market to its competitors. Production, export, and production capacity of the industry significantly decreased during this period because of closure of many individual firms. After that, the industry maintained the same level of production and domestic consumption. However, the industry continued to lose shares in the export market. Since the industry was established, developed, and 41 expanded with the assistance of Korea's commercial policies, the commercial policies which were implemented on the plywood industry were reviewed. Tax policy, loan policy, and the allowance policy of the conversion factor were major assistance programs. Among these programs, the conversion factor policy provided a major impact. CHAPTER 3. LITERATURE REVIEW A few studies of Korean forest products industries and numerous studies of North American forest products industries have been completed. A review of selected studies is presented in this chapter. Only those investigating production behavior, including factor demand, factor substitution, production structure, economies of scale, and technological change, are discussed. The review is limited to Canadian and U.S. studies on production behavior and to Korean forest products studies because: (1) this study's focus is on the production behavior of the Korean plywood industry, and (2) numerous studies of the North American forest industries are not related directly to production behavior. However, most of the previous studies of the Korean forest industries will be reviewed since only a handful of studies were conducted. 3.1. Studies of the Korean Forest Products Industries Several studies of the Korean forestry industry have been conducted by Korean foresters. These studies have 42 43 focused primarily on the market structures and behaviors of forest products. Several studies have examined domestic timber markets, timber demands, and demands for timber exports (Yoo et a1. 1985, Shim et a1. 1982, and Kim and Park 1980). Others have focused the pulp and paper industry and its market (Youn 1988, Chung and Chung 1984, and Lee 1982). In addition, Kim (1989) compared the development processes of the Korean and Japanese forest products industries. Few studies focused primarily on the production behaviors of the Korean forest industry. 8. Kim (1984) employed the Cobb-Douglas and Constant Elasticity of Substitution (CES) production functions to study the production behavior of the plywood industry.11 He used 11For the production function Q=f(K,L), when the . elasticity of substitution equals to one, the funct1on 1s the Cobb-Douglas production funct1on (Douglas 1934). The mathematical form is : Q = f(K,L) = A K‘ L” where A, a, and b are all positive constants. Also a+b=1 indicates the Cobb-Douglas function has constant returns to scale. The constant elasticities of substitution (CES) production function is : -1 Q=y[0K‘P+(1-0)L‘P] P where y>0, Osbsl, p=>-1 y is an efficiency parameter, 6 is a distribution parameter p is a substitution parameter. 0 0 0 0 f The CES roduction funct1on includes elastic1ty o. substitugion values of 1, 0, and 1nf1n1ty as spec1al cases 44 the Cobb-Douglas production function for estimating economies of scale, and the CES production function for estimating the elasticities of substitution between two inputs (labor and capital). The major findings of this study were: (1) the Korean plywood industry was characterized by diseconomies of scale, and (2) the elasticity of substitution between labor and capital was inelastic for the Korean plywood industry. These results conflicted with those of Song and Son (1978). Song and Son (1978) studied the development process of the Korean plywood industry and concluded that the industry had elastic substitution capabilities between labor and capital regardless of the size of the firms. Also, the economies of scale were positive for the Korean plywood industry. They employed the Cobb-Douglas production function and a variant form of the CES production to estimate the economies of scale and the elasticities of substitution between two production factors (labor and capital). However, both studies included only capital and labor as production inputs, while energy and material were not considered. N. Kim's (1984) used the Cobb-Douglas production function, including two factors (labor and capital) for the (Arrow et a1. 1961). 45 study of the production technology. Results of this study showed that the industry enjoyed increasing economies of scale for all locations. 3.2. Studies of the Production Behaviors and Structures of the U.S. and Canadian Forest Products Industries Numerous studies have been conducted of the Canadian and U.S. forest products industries. These studies cover many industries including pulp and paper, lumber, plywood, and sawmill industries. Given this study's objectives, only the studies of the forest products industries' production behaviors are reviewed in this section. Production structures of the U.S. and Canadian forest products industries have been studied in order to understand the roles played by factor demands, production structures, economies of scale, and technological changes.12 Economists who engaged in the above types of studies includes: Buongiorno and Lu (1989), Wear (1987, 1989), Meil and Nautiyal (1988), Neil et a1. (1987), Abt (1987), Martinello (1985, 1987), Merrifield and Singleton (1986), Nautiyal and Singh (1985, 1986), Borger and Buongiorno 12 Production structure refers to a certain modelled types of production function such as a homogeneous or homothetic function. 46 (1985), Banskota et a1. (1985), Merrifield and Haynes (1983, 1985), Stier (1980, 1985), Singh and Nautiyal (1984, 1986), Buongiorno et a1. (1983), Greber and White (1982), Mohr (1980), Field and Grebenstein (1979), Jorgenson et a1. (1987), and Tsurumi (1970). These studies can be classified by several categories such as models employed, study objectives, industries, and regions. For purposes of this review, studies will be discussed based on industry groups (i.e., lumber, pulp and paper, sawmill, solid wood, and multiple industries). 3.2.1. Lumber Industry Abt (1987) conducted an analysis of regional factor demand in the U.S. lumber industry by using the translog cost function.13 The study estimated the restricted cost function to decompose factor demands. The findings of the study were that the fixed-factor assumption was violated in this case. Meil, Singh, and Nautiyal (1987) analyzed the dynamic cost structure of the British Columbia interior softwood lumber industry, using a variable cost approach. The study 13Translog cost function is explained in chapter 4. 47 assumed variable cost minimization instead of total cost minimization of industry's production process. Therefore, they used a model which combined the translog cost function of Christensen et a1. (1973, 1976) with the dynamic interrelated factor demand theory (Nadiri and Rosen 1969, 1973; Mohr 1980) to decompose the short-run and long-run cost functions of the industry.14 The major findings were: (I) demand for variable inputs in the regional industry were interrelated, (2) significant economies of scale and technological progress were found, (3) the technological progress was found to be both wood-using and labor-saving, (4) all inputs were found to be substitutable, except for wood and energy, and (5) labor productivity was positive, while wood and energy productivities were negative. Nautiyal and Singh (1985) studied the production structure of the Canadian lumber industry by employing a nonhomothetic translog cost function for the period 1965- 1981. They included four inputs (labor, capital, material (roundwood), and energy) in their model. They tested the homotheticity and homogeneity of the production function and 14Dynamic interrelated factor demand functions allow the interaction among variables in the input demand functions over time. Therefore, this model allows differentiation of the input demand along with the length of me. 48 also estimated factor substitution, factor demand elasticity, and the effects of factor costs on the production cost of the plywood. The results of the study showed that: (1) the production structure of the industry was homothetic and homogenous, while the assumption of unitary elasticity of substitution among inputs was refuted, (2) the price of material had a major impact on the average production cost, and (3) substantial economies of scale were found in the production process of the industry. Singh and Nautiyal (1986) studied the long-term productivity of and demand for inputs in the Canadian lumber industry from the period of 1955 to 1982 by employing the translog cost function which was specially imbedded by a cross-stock adjustment process in the cost share equations. The least-costs in the production process, which were calculated by removing the short-run adjustment, were used to estimate the long-run productivity of the inputs. The results of the study showed that: (1) factor demands in the Canadian lumber industry are interrelated, (2) the Canadian lumber industry experienced economies of scale, and (3) only labor productivity increased among inputs. 49 3.2.2. Pulp and Paper Industry Borger and Buongiorno (1985) employed the variable translog cost function to calculate annual indices of total productivity growth of the paper and paperboard industry in the U.S. for the period 1958-1981.15 This study disaggregated the paper industry and paperboard industry, unlike other studies. Study findings suggested that: (1) the industry showed short-run economies of scale and long- run diseconomies of scale; (2) derived demands for energy, labor, and materials appeared inelastic; (3) substitutability existed between energy and materials and between labor and materials, but not between labor and energy; and (4) the average productivity growth of the paper industry was three or four times faster than that of the paperboard industry between 1958 and 1981. Buongiorno, Farimani, and Chuang (1983) employed a generalized Cobb-Douglas production function and mark-up pricing to investigate price formation for the U.S. paper and paperboard industry over the period from January 1967 to . 15A variable cost function includes only variable costs 1n the cost function. 50 June 1979.16 The results of the study showed that: (1) capital costs had been predominantly important in setting prices, and (2) technological changes did not significantly affect the price of paper for the sample period, except for labor-saving technological changes. Martinello (1985) employed the translog cost function to estimate factor substitution, technological change, and returns to scale for three Canadian industries, including the pulp and paper industry, during the period of 1963-1982. The result of this study showed that technological change is capital-using and labor-saving for all industries. Mohr (1980) studied the long-term structure of production, factor demand, and factor productivity in several U.S. manufacturing industries, including food and beverages, textile mill products, paper and related products, chemical and allied products, rubber and plastic products, and motor vehicles and equipment. He combined the duality theorem of Shepherd, the translog production function, and the dynamic interrelated factor demand model of Nadiri and Rosen to build a model, called a partial 16 The price of output is computed by a mark-up procedure. This is that the price of output (P) is set by the average unit cost of production (UC) and by a market-up factor (m) (Buongiorno et al. 1983): P = m UC. 51 adjustment model, for decomposing the cyclical and secular influences of the production process of several industries.17 In other words, he segregated the long-run least-cost, and the short-run costs of production by removing the adjustment process. Also, he estimated the long-run and short-run productivities of the inputs for those industries. Nautiyal and Singh (1986) studied the long-term productivity and factor demand in the Canadian pulp and paper industry by using the translog cost function specially imbedded by the interrelated dynamic adjustment process for the study, which is the same model for their earlier study of the Canadian lumber industry in 1985. The study found that: (1) the long-term structure of production is homothetic; (2) all inputs in the production process are substitutes in the long-term; and (3) there is no productivity growth in the long-run. Stier (1985) employed the translog cost function, including three inputs, to investigate the implications of factor substitution, economies of scale, and technological 17 The partial adjustment model is designed to decompose the differences of factor demands in a long-term and short-term situation. Since the input demands are usually interrelated by the change of time, the responds of industry's factor demand are mixed with various lagged adjustment. The partial adjustment model is useful to verify these differences. 52 change for the cost of production in the United States pulp and paper industry in the period 1948-1976. The results of the study showed that: (1) the prices of the material, labor, and capital led to increases in the plywood price, while output expansion did not yield price increases due to the existence of economies of scale in the production process, and (2) the industry showed labor-saving, wood- using, and capital-using technological advances. 3.2.3. Lumber Industry Banskota et a1. (1985) used a translog cost function for the analysis of the production structure of the Alberta sawmill industry. Unlike other studies, which used the translog cost function, this study used cross-sectional data. Results of the study showed that: (1) significant factor substitutions were presented, and (2) positive scale economies were found across mills. Field and Grebenstein (1979) estimated capital-energy substitutions for numerous U.S. industries, including the lumber industry, employing the translog cost function. The results of the study demonstrated that for some industries energy and capital inputs were complements, while for other industries they were substitute. However, he concluded that these inputs were substitutes for all sectors. 53 3.2.4. Other Solid lood Industries Wear (1987) used the translog cost function to analyze the production structure of the U.S. solid wood products industries. He found that the assumption of output separability, general output homogeneity, linear output homogeneity, and Hicks-neutral technological progress were refuted. He also found that the industry experienced timber- and labor-saving and capital-using technological changes during the sample period. Wear (1989) studied structural change and factor demand in Montana's solid wood products industries for the period of 1958-1978. He used a quadratic normalized cost function to estimate demands of stumpage and labor in the Montana wood products industries and tested for a structural change in the demands for labor and stumpage.18 Study results showed that structural change has occurred since 1978, most likely in the period of the 1979-1983 downturn in wood products markets. Greber and White (1982) employed Sato-Batavia methods to analyze technical change and productivity growth in the U.S. lumber and wood products industry by considering biased 18The quadratic normalized function is one of many flexible functional forms. 54 technical changes during the period 1951-1973.19 Study finding showed that the industry experienced labor-saving biased technological changes. Jorgenson et a1. (1987) used translog production functions to study U.S. economic growth and productivity for the period 1948-79. The paper, lumber, and furniture industries were included in the study. Martinello (1987) estimated factor substitution, technical change and returns to scale for British Columbia wood products industries, including the plywood industry, for the period 1963-79. He employed the translog cost function, including three factors (capital, materials, and labor) for this study. Unlike other studies, he estimated capital services from aggregate capital stock and energy consumption data. The major findings of this study were: (1) all inputs were substitutable, (2) the technical changes were capital using, labor saving, and material-using or neutral in all industries, and (3) all industries experienced increasing average cost over the sample years. Meil and Nautiyal (1988) employed the variable translog cost function to investigate the production structure and factor demand of four major softwood lumber production 19The Sata-Batavia methods is a functional form which is intended to estimate technical change biases. This method is developed by Sato (1970), and revised by Batavia (1979). 55 regions over the time period of 1968-1984. Unlike previous studies, which used the translog cost function to investigate the production structure of the Canadian lumber industry, this study examined only the softwood lumber industry. Also, this study tested inter- and intra-regional homogeneity of production function. The results of the study showed that: (1) different production structures were present in the different regions, (2) different mill sizes of the same region showed different production behaviors, and (3) most mills throughout the regions showed material- and energy-using and labor-saving technological changes. Buongiorno and Lu (1989) employed a mark-up model of price formation to investigate the reasons for changes in the prices of forest products for four solid-wood industries and three pulp and paper industries in the U.S. for the period 1958-84. The findings of the study showed that price changes were mainly influenced by changes in the unit variable cost of production and changes in demand. Also, labor productivity was not increased for any industry. Merrifield and Singleton (1986) used a dynamic capital adjustment model to conduct a dynamic cost and factor demand analysis of the Pacific Northwest lumber and plywood industries for the period 1954-80. The results of this study showed that own- and cross-price elasticities of derived demand generally increased as the industry adjusted 56 the long-run capital levels. The input requirement elasticities indicated constant proportions of stumpage requirements to output levels in both industries, relatively constant proportions of labor to output in only the plywood industry, and relatively volatile employment levels in the lumber industry. Merrifield and Haynes (1983) established a market model for the Pacific Northwest forest products industry to estimate the effects of exogenous demand and supply shifts on the final good market. Markets were developed for softwood lumber and plywood products, and for inputs such as labor, capital, and stumpage. The system of market equations then were solved to estimate the effects of a market condition on other markets. Merrifield and Haynes (1985) employed a homothetic translog cost function including four inputs (labor, capital, energy, and stumpage) to analyze cost performance of the lumber and plywood industries in two Pacific Northwest regions during the period 1950-79. They estimated derived demand for inputs, factor substitution, and technology changes. The findings show that: (1) some regions enjoyed scale economies over the sample period, (2) little technological progress had been observed during the sample period, and (3) the industry experienced cost savings by substitution possibilities among inputs and changing 57 factor mixes following technological advances. Stier (1980) employed a homothetic translog cost function for ten U.S. forest industries including the sawmill and paper industries to investigate their production structures for the period 1958-74. He included only labor and capital inputs in his model. Results showed that technological progress was neutral in the wooden container and building paper industries, while other industries were labor-saving. Tsurumi (1970) employed the CES production function for twelve Canadian manufacturing industries, including the paper industry, to estimate the production structures of those industries. 3.3. Conclusion The review of the previous studies of the Korean forest industries leads to several conclusions: (1) few studies have been conducted on the production behaviors of the Korean forest products industries, (2) these studies employed simple models such as the Cobb-Douglas and CES function to investigate the production performance of the industries, and (3) these studies included fewer inputs--at most two factors--in their investigations even though more 1.4}. 58 than two inputs are important in the production process. more comprehensive studies, using models that ceded to Therefore, include more inputs in the production process are n analyze Korean forest products industries. The translog function was the most popular model for investigating production behaviors of the forest products industries in North America, such as production structure, economies of scale, factor substitution, and cost performance. The papularity of this function is due to its superior flexibility relative to any other normal functional forms such as the Cobb-Douglas and CES functional forms for investigating production behaviors (see Chapter 4 for a more detailed explanation). The translog function was employed in the studies by Abt (1987), Banskota (1985), Borger and Buongiorno (1985), Field and Grebenstein (1979), Jorgenson et a1. (1987), Martinello (1987, 1985), Meil and Nautiyal (1988), Meil et a1. (1987), Merrifield and Haynes (1985), Mohr (1980), Nautiyal and Singh (1986), Singh and Nautiyal (1985), Stier (1985, 1980), and Wear (1989). Some studies used a dynamic concept of translog function, but the majority of the studies employed a static concept. While a majority of the above studies employed a translog cost function, a couple of these studies used a translog production function. In the review of both Korean and North American studies 59 of forest products industries, significant differences were found in methods and objectives between the studies conducted in these two areas (i.e., Korea and North America). Most studies investigated factor substitutability, factor demand, economy of scale, bias of technological progress, and the effects of input costs on production costs irrespective of whether a translog function or other function was used. Few studies of the Korean forest products industries have been undertaken; they should be more comprehensively investigated by employing more flexible, comprehensive models. CHAPTER 4 STUDY METHODS The objectives of this study are to investigate the effects of input prices on the production costs of the Korean plywood industry and to analyze the industry's adjustment methods in the production process following altered conditions of the input markets. In order to address these objectives and related questions, the production structure of the industry must be investigated. A production or cost function can be used to analyze the production structure of the industry. The cost function is used for this study because of duality theory and the theoretical and empirical advantages of the cost function over the production function (see 4.2.1. for further description). To provide the best approximation of the production structure, a certain functional form should be used. Among functional forms, including conventional functional forms (i.e., Cobb-Douglas and CES function) and flexible forms (i.e., the generalized Leontief, the translog, the generalized Cobb-Douglas, the generalized square root quadratic, the generalized Box-Cox, and the Fourier function), the translog cost function is employed for this study. Since the flexible forms are superior to the 60 61 conventional forms theoretically, a flexible form is chosen for the study (see 4.2.2. for more details). The choice of translog function among flexible forms is based on the principles of selecting functional forms, which are suggested by Pope (1984), Lau (1974), and Fuss et a1.(1978) (full descriptions are provided in 4.2.3. in this chapter). 4.1. Overview of Methods Selected The cost function employed for this study is based on duality theory and consists of a transcendental logarithmic function (translog function). It is one of several possible flexible functional forms for the Korean plywood industry and includes four inputs--namely, material(tropical logs for plywood), energy, capital, and labor--in the investigation of the effects of input costs on the production costs. Annual data for the industry during the 1966-1987 period are used. The translog cost function is also used to estimate factor substitutions, demand elasticities, and technological bias changes. The likelihood ratio test is employed for investigating the production technology of the Korean plywood industry. Structural changes in the production process of the industry are tested. 62 4.2. inmdel 4.2.1. Duality Theory and Cost Function According to duality theory, a well-behaved cost function is considered a dual to the production function (Shephard 1953, 1970).20 The choice of the cost function over the production function provides several advantages. Advantages come from the fact that the cost function uses factor prices, while the production function uses factor quantities.21 The use of factor prices tends to be convenient because they are potentially observable and more readily available. Therefore, the cost function is easier to estimate than the production function in econometrics. In addition, factor demand functions can be easily derived 2° From the mathematical principle of duality, problems of constrained maximization are related to problems of minimization which are constrained by the constraints of the maximization problem. An example adequate for this study is that a firm's fundamental problem of maximizing profits used given inputs is dual to minimizing costs to produce given outputs (Nicholson 1985). Duality theory provides a very useful tool for economists because they can choose a cost function or production function, depending on the circumstances. Therefore, the choice of a cost or a production function for a given study does not alter the answers to the question but provides convenience to researchers. 21 The cost function is expressed by factor prices and output quantities, while the production function is expressed by factor quantities. 63 from the cost function. For this study, therefore, the cost function is employed. 4.2.2. Flexible Functional Forms In order to investigate factor demand elasticities, a system of equations relating factor shares and total cost expenditures to factor price and output level should be estimated. Moreover, a functional form for the model must be chosen to estimate the demand elasticities of certain inputs. Since a system of equations is derived from either a production function or cost function, the problem of specifying a system of equations is the problem of approximating the production or cost function. In other words, econometrically, a functional form is needed that provides the best approximation of the elasticities of input demands. The development of flexible functional forms provides approximations of elasticities of interest without a priori constraints on these elasticities. A flexible functional form is defined as follows: if function "f" can provide a second-order (differential) approximation to an arbitrary twice continuously differential function of "f'" at ”x'", it is a flexible functional form (Diewert 1971). Most flexible functional forms used in the application of 64 the duality theory are second order approximations. Two different definitions of second order approximation were presented by Lau (1974): first, Diewert's definition is that a function G(y) is a second order approximation to a function F(y) at yb if the first and second derivatives of the two functions are equal at yo, that is, G(Yo)=F(Yo) [ as] =[ 61"] ‘53,: rye '53,: you I a G ] =4 d.F ] W w. W m. where function G and F are twice differentiable. ; and second, the definition by Cristensen et a1. (1973, 1976) is that a function C(y) is a second order approximation to a function F(y) if G(Yo) =1” (Y0) and x - l3 lam ~F + “rs. an) + aTgT _ _ - + a lnE- sM — a:M + amunM an) + amunL an) ml (34) 90 Equations 31, 32, 33, and 34 are simultaneously estimated to test the homogeneous production technology. Results of the estimation are used for the log likelihood test. This model is named Model 3 for this study. 5.2.3. Unitary Elastic Production Function The elasticities of substitution between factors are unitary when aij is zero. After the restriction of “if=° is applied to the original translog cost equation (i.e., model 1), a new equation for the unitary elasticities of the substitution production function can be written as follows: lnC = a0 + 1nK + annQ + aM(lnM-an) + aE(lnE-1nK) + aL(lnL-1nK) + aTT + 0.5aQQ(an)2 + 0.5amT2 + aQLan(lnL-an) + aQEan(1nE-an) + aQHan(lnM-an) (35) sL = (21‘ + “n? + aQLan (36) SE = (2E + aTET + “:22an (37) (33) Equations 35, 36, 37, and 38 are estimated together along with the obtained log likelihood function in order to 91 test the unitary elasticities of substitution among factors. This model is called Model 4 for this study. 5.3. Test for the Risks Neutral Technological Change The Hicks neutral technological change will be tested by applying restrictions (an=0) on Model 1. Therefore, the new equations after restrictions are imposed are as follows: lnC = “o + an + annQ + aM(lnM-an) + a3(1nE-an) + aL(lnL-lnl() + aTT + 0.5aQQ(an)2 + 0.5aLL(lnL-lnl<)2 + 0.5aMM(lnM-an)2 + 0.5aEE(1nE-an)2 + 0.5%,.1'2 + aEL(lnL-an)(lnE-an) + aLM(1nL-an)(lnM-1nK) + aEM(lnE-an)(lnM-an) + aQLan(1nL-an) + aQEan(lnE-an) + aQMan(lnM-an) + anTan (39) SL = aL + aLL(lnL-an) + aLE(lnE-an) + aw(lnM-an) + (291.3118) 5:: = as + “32(1DE'1nK) + aELunL-an) + aEM(1nM-an) + (1033:?) _ - — + lnE-an + a an SM - a:M + am(lnM an) + am(lnL 131K) “143‘ ) 914“” The equation 39, 40, 41, and 42 are estimated simultaneously. Results of estimation are used for the likelihood ratio test. This model is named Model 5. 92 5.4. Test for Structural Changes In order to perform the test for a production structure change, a dummy variable is included in the "best" translog cost function, which is selected using the log likelihood test. Therefore, the new equations are as follows: lnC = a0 + an + aQInQ + aH(1nM-an) + aE(lnE-an) + aL(lnL-1nK) + aTT + 0.5aQQ(1nQ)2 + 0.5aLL(lnL-an)2 + 0.5aMM(1nM-1n1<)2 + 0.5aEE(lnE-an)2 + 0.5anT2 + aEL(lnL-an)(1nE-an) + aLM(1nL-an)(1nM-an) + aE“(lnE-an)(lnM-an) + aTflr(lnL- an) + amTunE-lnx) + amT(lnM -an)+ aQLan(lnL-an) + aQEan(lnE-an) + aQMan(lnM-an) +anT1nQ + aDD (43) - aL + aLL(lnL-an) + aLE(lnE-an) + aLM(lnM-1nK) + aTflT + aQLan (44) 0) l“ I 0293an (45) aQMInQ where D is a dummy variable for the material input. Again, the above equations (43, 44, 45, and 46) are estimated together and the model is named Model 6. 93 5.5. Summary and Results of Model Estimation Estimation results for the six models are presented in the Table 5-1. The estimators are used to derive some important figures (e.g., elasticities) in the following sections.31 5.6. Results of the Production Structure Test Results of the likelihood ratio tests show that all imposed restrictions were rejected at a 5% level of significance (see Table 5-2).32 That is, the calculated values of X2 fall outside critical values for models 2-5. Therefore, homothetic, homogeneous, and unitary elasticities of substitution production structures for the Korean plywood industry were not valid. 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In other words, if the output level increases autonomously (holding all input prices constant), the slope of isoquants along a radial expansion will be changed from the original tangency (Silberberg 1981). Equivalently, the output elasticities for all inputs are not invariant at any level of production along a radial expansion path. This means that the relative composition of inputs (holding all input prices invariant) at a certain production level will be different from that of other production levels. 5.7. Validation of the Best Model Given the results of the likelihood ratio test, Model 1 is considered as the best model since no other models are valid. The conditions for a well-behaved cost function (i.e., homogeneity, positivity, continuity, and concavity) were investigated for Model 1.33 33 These four conditions are the necessary and sufficient conditions for the well-behaved cost function (Varian 1984). 101 First, the condition of homogeneity in input prices was imposed a priori on the estimated cost function. Second, the positivity condition will be met if the fitted values of all input shares are positive. From the results of estimation, this condition was successfully fulfilled since all the fitted values for shares were positive (data available from author). Third, the concavity condition will be satisfied if the Hessian matrix of the second-order partial derivatives is symmetric and negative semidefinite (Fuss 1977). The equivalent condition for the concavity condition is that the symmetric matrix of the Allen elasticities of substitution (aij) is negative semidefinite (Mohr 1980). A sufficient condition for fulfilling the above condition is that all of the own Allen partial elasticities of substitution are less than zero, namely 011(0' Estimation results show that all of the own Allen partial elasticities of substitution are less than zero (see Table 5.5.). Therefore, the concavity condition was fulfilled for this model. Fourth, the continuity condition also will be satisfied, if the cost function fulfilled the concavity condition (Varian 1984). It did so as indicated above: thus, the continuity condition was satisfied for this model. Therefore, all four necessary and sufficient conditions (i.e., homogeneity, positivity, continuity, and concavity) 102 for a well-behaved cost function were fulfilled for the best model, Model 1. 5.8. Effects of Input Prices on Average Production Cost Table 5-3 presents the elasticities of average cost with respect to factor prices. The price of material has the highest elasticity value, followed by labor, energy, and capital. Therefore, material has the greatest effect on production costs, followed by labor, energy, and capital. The results differ from those of Merrifield and Haynes (1985) of the Pacific Northwest region of the United States, which showed that labor had the highest value of elasticity, followed by energy or structure depending on the locations of the industries (see Appendix 5). Nautiyal and Singh (1985) estimated average cost elasticities for the Canadian lumber industry. Their results revealed that roundwood had the greatest elasticity (0.57), followed by labor (0.24), energy (0.17), and capital (0.02). Compared to other regional plywood industries in the previous studies, the differences of elasticities among inputs are much larger for the Korean plywood industry. This implies that production costs of the Korean plywood industry were extremely sensitive to the price of the material. 103 Table 5-3. Elasticities of Average Cost with Respect to Factor Prices. Input price Elasticities Labor 0.0950 Energy 0.0425 Material 0.8428 Capital 0.0195 104 5.9. Result of Test and Estimation of the Technological Change Bias Results (Table 5-2) of the likelihood ratio test indicate that the calculated value of x2 (i.e., 64.54) is within the rejection region (i.e., 11.34). Therefore, the test for Hicks neutral technological changes shows that the industry had biased technological changes, since the assumption of the Hicks neutral technological change was rejected at a 1% level of significance. Technological change biases are then estimated by using average factor share values and time as a proxy for technological change. Estimates presented in Table 5-4 are used to determine if technological changes are capital- saving, labor-saving, energy-using, and/or material- using.34 Only material-using technological change is indicated because it alone is significant at the 5% level. Material-using technological changes may be due to the use of inexpensive and plentiful supplies of tropical logs for most years of the sample period. As a result, the industry tended to use more materials. A study by Martinello (1987) found that the British 34As mentioned in chapter 4, if the indicator of the technological change bias has a negative value, thei technological change bias is factor-saving. If _ in positive, the technological change bias is factor us g. 105 Columbia plywood industry had capital-using, labor-saving, and material-neutral changes. Haynes and Merrifield (1985) indicated that the plywood industries in the western region of the Pacific Northwest had labor-saving and structure- using changes, while the eastern region's industries had equipment-saving technological changes. For the Pacific Northwest plywood industries, labor-saving, capital-using, and stumpage-using technological changes were found by Merrifield and Singleton (1986). Moreover, Greber and White (1982) discovered that the U.S. wood products industry also exhibited labor-saving technological changes. 5.10. The Allen Partial Elasticities of Substitution and Elasticity of Input Demand Table 5-5 presents the Allen partial elasticities of substitution estimates for all factors. Most elasticities are statistically insignificant. This implies that the substitution or complement among inputs is not available in many cases. All of the own Allen partial elasticities are less than zero. 106 Table 5-4. Technological Change Bias. ...--———-—-.——.—. i. rector Technological change bias Material 0.004" (0.002) Labor -0.025 (0.014) Energy 0.018 (0.019) Capital -0.098 (0.055) "" indicates 5; significance fever. Notes: 1. Figures in the parentheses are the standard errors of the estimates. 2. Elasticities are calculated based on the average factor shares over time. 3. The standard errors are calculated by S.E.(61) = S.E(aTi)/Si. 107 Labor, energy, and capital are all substitutable with material.34 Among them, capital has the largest value of the elasticity (1.66) followed by energy (0.98) and labor (0.30). The results of the Allen partial elasticities of substitution indicate that substitutes are available for the material input, which has the greatest impact on the average plywood production costs. Substitutability of material input indicated that the industry tried to reduce production costs through substitution of inputs, however substitutability is physically limited in the actual plywood manufacturing process because plywood is made mostly of wood. Table 5-6 shows own and cross-partial elasticities of factor demand estimates. Labor quantity demanded is inelastic for the price of material. Quantity demanded for energy is inelastic for the price of material and its own price. Demand for material is inelastic for the prices of energy and capital input. Also the demand for material is inelastic for its own price. The demand for capital is elastic for the price of material. 34If the value of elasticity between inputs is negative, they are complements. If the value of elasticity is positive, they are substitute each other. 108 Table 5-5. The Allen Partial Elasticity of Substitution Estimates. w I fl Input Labor Energy Material capital ——__— Labor -2.21 -3.75 o.30** -2.15 (1.66) (2.22) (0.11) (4.84) Energy -3.76 -11.9o** 0.98** 0.52 (2.22) (2.00) (0.15) (2.52) Material 0. 30" 0. 98" -0 . 09" 1. 66" (0.11) (0.15) (0.01) (0.47) Capital -2.15 0.52 1.66** -11.00 112 ~52) _ a , . (U) (112“ " significance leve . Note: 1. Figures in the parentheses are the standard errors of the estimates. 2. Elasticities are calculated based on the average factor shares. 3. The standard errors are calculated by S.E.(aij) = 109 Table 5-6. Own and Cross Partial Elasticity of Factor Demand Estimates. u _ Price , . , -_L!§9?_ 3‘9??? ”‘t'r191_ 9991F9l1 Labor -0.21 -0.02 0.25** -0.04 (0.15) (0.06) (0.09) (0.04) Energy -0.35 -0.50** 0.32** 0.01 (0.20) (0.08) (0.12) (0.07) Material 0.02 o.03** —0.08** 0.03** (0.03) (0.01) (0.02) (0.01) Capital -0.20 0.02 1.39** -0.22 (0.63) (0.25) (0.39) (0.23) indicates 5: significance level. Note: 1. Figures in the parentheses are the standard errors of the estimates. 2. Elasticities are calculated based on the average factor shares. 3. The standard errors are calculated by S.E.(uij) = SeE (aij)/Si. 110 5.11. Test of Structural Changes The result of production structure changes (Table 5-1) shows that the coefficient of the dummy variable is highly significant at a 1 % level of significance. Therefore, the industry changed its production structure when it faced the altered conditions of the material market in 1979. Since the value of the coefficient for the dummy variable was negative, the industry adjusted its production structure to reduce production costs. 111 CHAPTER 6 SUMMER! AND CONCLUSION This study was conducted to analyze the production structure and cost performance of the Korean plywood industry. The objectives of the study were: (1) to investigate the impact of input prices on the production costs of the Korean plywood industry, and (2) to analyze the industry's adjustment methods and processes following altered circumstances (e.g., factor substitutions, technological changes, and structural changes). In more detail, the following questions were presented: (1) What input costs were the major causes of increasing production costs? For example, what was the effect of the increased prices of tropical logs on the production costs of the industry? Has the cost of labor been a significant factor in modifying the cost performance of manufacturing plywood in Korea? What other input prices may affect the production cost of the plywood industry? (2) To be more competitive in the world market, how has the Korean plywood industry adapted to external shocks? In other words, what are the major adjustments that the Korean industry made when it faced different situations? Did it substitute specific inputs for other inputs due to the changed prices of inputs? Or, did it develop a technology toward using a certain 112 input, while saving other inputs? Or, did the Korean plywood industry change its production structure to dilute the impact of the changed conditions of input markets? In order to reveal the adjustment behaviors of the industry, these questions regarding structural changes and input substitutions were addressed. Based on study objectives and a review of relevant literature and theory, the transcendental logarithmic cost function was selected to analyze the behavior of the Korean plywood industry. It is a "flexible form" cost function, which was applied and estimated by using the annual time series data for the period of 1966-87. To select the best econometric model based on production technology and to investigate technological change bias, the likelihood ratio test was used. A test for structural changes of the production function was also conducted. 6.1. Findings and Implication of the Analysis The major findings of the study are: (1) Regarding the production structure of the Korean plywood industry, results of the likelihood ratio test show that all imposed restrictions (i.e., homotheticity, homogeneity, and unitary elasticity of substitution) were 113 rejected at a 5% level of significance. Therefore, homothetic, homogenous, and unitary elasticities of substitution production structures for the Korean plywood industry were not valid for the study period. In other words, the production structure of the Korean plywood industry was nonhomothetic and nonhomogeneous with nonunitary elasticity of substitution. Nonhomotheticity and nonhomogeneity of the production structure imply that the relative composition of the inputs in the production process can be changed when the output level changes. Equivalently, if the output level increases autonomously (holding all input prices constant), the slope of isoquants along a radial expansion will be changed from the original tangency. In other words, the output elasticities for all inputs are not invariant at any level of production along a radial expansion path. This means that the relative compositions of inputs, holding all input prices invariant, will be different at a certain production level from that of other production levels. This provides an important implication for the factor demand because the relative demand of inputs will change as the level of output changes. Using the likelihood ratio test as the criterion, Model 1 was selected as the best model. Model 1 is an unrestricted model. The conditions for the well—behaved 114 cost function, which are homogeneity, positivity, continuity, and concavity, were investigated for Model 1. All four of these necessary and sufficient conditions were fulfilled for Model 1; therefore, the Model 1 is a well- behaved cost function. (2) Effects of the input prices on the average production cost of the outputs were investigated. The elasticities of average costs with respect to factor prices showed that the elasticity associated with material price is the highest, followed by energy, capital, and labor. The elasticities are 0.8428, 0.095, 0.0425, and 0.0195 for material, labor, energy, and capital, respectively. If the price of material changes 1%, then the average cost of plywood production will change approximately 0.85%. Other elasticities are interpreted in the same manner. The estimates for elasticities imply that the cost of material was a dominant factor affecting plywood production costs. Therefore, the production costs of the plywood industry were mainly determined by the prices of materials. During the late 70's, the price of tropical logs significantly increased. Because of the significant impact of tropical log prices on plywood production costs, the almost two-fold increase in the prices of tropical logs caused a significant increase in plywood production costs at that time. Hence, increased import prices of tropical logs 115 in the late '70s, were a major factor in the loss of competitiveness by the Korean plywood industry in the world market, and in the subsequent contraction of the industry after the late '705. (3) The test for Hicks neutral technological change showed that the industry had a technological change bias. Results of the likelihood ratio test indicated that the assumption of the Hicks neutral technological change was rejected. The rejection of this assumption implies that the marginal rate of the technical substitution of inputs for other inputs will change along with the changes in output levels. The technological change bias is estimated by using (1) the average value of a factor share and (2) time as a proxy for technological change. The technological change is material-using for the Korean plywood industry. The technological change bias is an important factor in the input demand and income distributions. For example, if the technology changes material-using direction, the relative demand for the material will be increased and consequently the material sector will earn proportionally more income. Other technological change biases are not statistically significant. Material-using technological changes indicate that the demand for material will increase pr0portionally as the output level increases. Results of material-using 116 technological changes are the same as those of other studies (e.g., Merrifield and Singleton (1986)). Material-using technological changes are expected since the industry enjoyed inexpensive prices for tropical logs for most of the sample period. However, since the material price has significantly increased over the past 10 years, the industry should develop technology to save more materials in order to reduce production costs. (4) The Allen partial elasticities of substitution estimates for all factors showed that all the own Allen partial elasticities are less than zero. Labor, energy, and capital are all substitutable for material. Capital has the largest value of the elasticity (1.66), followed by energy (0.98) and labor (0.30). The estimation results of the Allen partial elasticities of substitution indicate that the other inputs are substitutable for material inputs. However, the substitution between logs and other inputs may not be effective and may be limited in the actual plywood manufacturing process. Engineering studies would be necessary to determine the physical limits of substitutability. (5) The own and cross partial elasticities of the factor demand were calculated. Demand for labor is inelastic for the price of material. Demand for energy is inelastic for the price of material and its own price. 117 Demand for material is inelastic for the prices of energy and capital input and its own price. The demand for capital is elastic for the price of material. (6) Tests for production structure changes with respect to the tropical log price change in 1979 were conducted. The results show that the coefficient of the dummy variable is highly significant at a 1% level of significance. The results can be interpreted in two ways: first, the production structure might have changed because many plywood mills were closed, even though the remaining mills maintained their production structures; or second the remaining firms might have changed their production structures in order to dilute the impacts of highly priced materials. However, if we assume all of the individual firms had similar production structures, it may be inferred that the industry changed its production structure when it faced the heightened prices of trOpical logs starting in 1979. 6.2. Implications of this study These findings have important implications for the Korean plywood industry. Since the cost of material is a dominant factor in 118 forming production costs, the industry should find alternatives for reducing production costs. Further exploration of alternative sources of tropical logs should be continued. The other possibility is a substitution of temperate logs for tropical logs even though using temperate logs for plywood manufacturing would be still more costly. To save material inputs, the industry should enhance its utilization rates of logs through technological progress and by using more efficient machinery. According to the results of this study, the future outlook for the Korean plywood industry may be bleak for several reasons. First, the industry relies heavily on the condition of the material market over which it has no control. What if the tropical log market changes dramatically again? Can the industry survive? This is of major concern to the industry because imported tropical logs are a major input of plywood production. Second, the difficulty for the industry will be increased if protectionism is removed in the future since countries such as Indonesia produce tropical logs in their backyard and have cheaper labor inputs. Therefore, comparative advantage issues should be considered at this stage in order for the industry to survive in the future. Since the findings of this study confirm that the industry is very vulnerable to tropical log market conditions, Korea may not have a 119 comparative advantage in the production of plywood anymore, although it might have had it at one time. The differences between now and the '70s in terms of input markets and ! government policies are very significant. The price of tropical logs is much higher now than it was 15 years ago. Also, the availability of tropical logs is limited, and labor costs is getting more expensive nowadays. Most export assistance programs are no longer available for the plywood industry, and domestic markets may erode because protective tariff rates are currently much lower. The industry has also had much more difficult times in the world plywood market since Indonesia entered this arena. Should plywood manufacturing continue in Korea? Is producing plywood economically desirable in terms of efficient allocation of national resources? The answer may be negative based upon current input market conditions, the political climate, world plywood markets, and domestic plywood market considerations. In order to overcome these problems, several options can be pursued: (1) The supply of logs should be considered and secured for the long run through finding and contracting other supply sources. (2) Substitution among different types of logs should be pursued in order to compensate for future shortages of tropical logs. Temperate logs from North America may be the best source of substitution for 120 tropical logs. Growing trees in Korea may be substitutable for tropical logs in the future.35 (3) The industry needs to convert its major products from the less processed plywood to the more highly processed plywood. The third option should be considered seriously because: (a) Korea has accumulated improved technologies for manufacturing plywood for over 30 years. (b) Competing with newer plywood manufacturing countries, which own inexpensive materials and labor factors (e.g., Indonesia), in the highly processed plywood market may not be as difficult as in the minimally processed plywood market. Also, competing with incumbent countries in the highly processed plywood market may not be impossible because Korea still owns cheaper labor and similar levels of technologies.36 6.3. Scope and Limits of the Analysis There are several limitations of this analysis. These resulted mainly from the finite scope of the study and capabilities of the model employed. Six major limitations 35 Since logs in Korea are small, technology similar to the U.S. southern pine plywood industry's may be appropriate (Leefers 1981). 36Eagon Industrial Corp. LTD was successful in exporting highly processed plywood products in recent years. 121 of the analysis are presented below. First, the analysis results revealed that the material market had been a major factor affecting the shape of the Korean plywood industry throughout its history. However, the material market was treated as an exogenous factor, and therefore was not analyzed in this study. The major reason for excluding the material market was that this market has been controlled by major tropical log-supplying countries. Consequently, the omission of a material market analysis may limit the usefulness of the present study. Furthermore, several limits of this analysis may have been incurred from including the trend (T) variable in the cost equation. Since the trend variable can be the explanatory variable for the several development stages of the Korean plywood industry (as well as concealing other trends), the assumption of the trend variable as only a proxy of technological progress in this study may not provide information exclusively regarding technological progress. Also, the trend variable may not explain any specific technological changes. For example, it cannot specifically indicate how the technology changed and what kinds of technology were involved. Therefore, the use of the trend variable as a bias technological change indicator in the study may provide only limited information regarding specific technological changes in the industry's development 122 progress. In the product markets, product prices can explain the competitiveness of the industry. Further, the relationships between the price of merchandise and its production costs addresses how the industry creates profits. However, the exclusion of the issue of plywood prices and production cost relationships from this study may result in limited information regarding the industry's ability to be competitive in the plywood market. Another important consideration is that, several Korean-owned plywood firms are located in tropical-log producing countries such as Indonesia. These plywood firms face significantly different input-market conditions in comparison to the domestic plywood firms. They use less expensive material (with possibly even better quality) and labor than do the domestic firms. The exclusion of these Korean-owned plywood firms from this analysis may limit implications for the future Korean plywood industry. Moreover, since the dummy variable for the test of production structure change only explains the shift of the \ intercept of the total cost equation, it may not fully address specific production structure changes. Interpretation of the shift, therefore, reflected the effects on the cost function rather than concerning production structure changes. 123 Finally, owing to the plywood industry's history, the trend of the industry can be divided into two major periods. From its establishment to its peak (1978), the industry continued to expand. Subsequently, the industry contracted until recent years. The analysis of these two different stages as a single progress may provide less information in comparison to an analysis which conducts a separate analysis for both periods. Since the short sample period (i.e., small data sets) did not allow for a separate analysis for this study, a separate analysis for both periods could be conducted in the future. 6.4. Further Studies Further studies can be conducted based on alternative objectives and research methods. For example, implications of commercial policies on the industry's production performance could be studied. High priority should be given to investigating the comparative advantage of manufacturing plywood in Korea. The possible substitution of temperate logs for tropical logs in the plywood manufacturing process also should be investigated. Further study may utilize different concepts of time in the analysis. Since this study used a comparative static analysis, a dynamic analysis 124 could be conducted in further studies. Also, only one of the flexible functional forms was used for this study, the use of other flexible forms could be pursued. More specific suggestions on these topics are presented in the remainder of this chapter. Policy issues should be examined for a more comprehensive understanding of the industry's production performance. Since the industry was developed with government assistance, a study of policy issues would be an important factor in understanding how the industry behaved in the production process. Effects of the protectionist policy on the industry can be evaluated in more detail. How did it affect the production performance of the industry? Did it hurt the industry's productivity and cost effectiveness or not? How did it affect the industry's production performance and cost efficiency when the industry faced different conditions in its input markets? Next, effects of these commercial policies on income distribution among producers and consumers should be investigated. In other words, who gains and who loses from these protectionist policies? If there are losers and gainers, what is the extent of the losses and gains? How did the protectionist policy for the plywood industry affect the country's economy? These questions are important to answer in evaluating the effects of commercial policies on the 125 industry and on the whole economy. The issue of comparative advantage is important to investigate in further studies. Does the Korean plywood industry have comparative advantages over other countries in certain plywood products? The answer to these questions may i“ ”I_ provide a better answer as to whether the industry should be expanded and the direction of the expansion. Since the industry relies heavily on tropical log markets, the economic feasibility of substituting temperate logs for tropical logs may be an important issue. To avoid further shocks from the tropical log markets, the industry should find alternative material inputs. Since this study employed a static analysis, which assumed an instantaneous adjustment of factor uses, the usefulness of this study may be limited. The reason for using a comparative static analysis in this study is that one year is a long enough period to completely adjust the industry's production process, and only annual data were used. In the real world, when conditions in input markets change, the industry may not be able to adjust its input mixtures instantaneously. It may not have enough time to adjust its production processes, or it may be reluctant to change its input mixtures because of extra transaction costs, its conservativeness, or the uncertainties of future input markets. In the long run, however, the industry may 126 indeed have enough time to adjust its production process when it faces changing input prices. Therefore, a dynamic analysis divides a short-run from a long-run situation in the industry's response to such price changes by changing its production process. The separation of the short-run from the long-run situation in the analysis may be more appropriate in many cases. Therefore, dynamic analyses can be pursued in future studies. Further study may be conducted using different types of flexible forms. The use of different flexible forms may bring about a better conclusion in some cases because a particular flexible form may perform better on certain data. However, seeking better flexible functional forms requires tremendous time and efforts. A further study of the application of the Fourier flexible form may bring a better estimation of the functional form since it has a global approximation property, which is considered to be better than a local approximation property on a theoretical basis. '“EFI'II‘ APPENDIX A Data for the Korean Plywood Industry 128 Table A-1. Production, Production Capacity, Exports and Domestic Consumption, 1954-1988 (1000 M , 4mm basis). ‘ m production Export Domestic Capacity Level Total U.N. °°nO“IP' Year Force tion 1954 n.a. 15.8 0.0 0.0 15.8 1955 n.a. 22.3 0.0 0.0 22.3 1956 n.a. 24.9 0.0 0.0 24.9 1957 n.a. 27.1 1.4 1.4 25.6 1958 n.a. 38.7 3.6 3.6 35.1 1959 n.a. 46.9 4.0 3.9 42.8 1960 n.a. 55.2 5.6 5.5 49.5 1961 50.6 45.0 14.9 5.4 30.0 1962 91.5 83.7 21.7 1.4 62.0 1963 124.0 99.0 55.02 0.3 44.0 1964 177.1 148.0 103.4 0.4 44.5 1965 250.9 215.3 169.7 0.2 45.5 1966 360.2 353.7 276.9 1.8 76.8 1967 442.9 440.0 334.5 0.2 105.5 1968 744.1 703.9 523.7 3.4 180.1 1969 1084.5 853.4 571.7 2.7 281.6 1970 1177.5 1053.3 835.5 0.1 217.8 1971 1527.0 1351.5 994.3 0.1 357.1 1972 1705.9 1535.9 1343.0 0.0 192.6 1973 2123.3 1840.2 1435.0 0.0 404.3 1974 2394.0 1534.5 1014.0 0.0 520.1 1975 2454.0 1810.7 1289.0 0.0 520.9 1976 n.a. 2107.1 1663.0 0.0 443-6 A 129 Table A-1. Continued. production Export Domestic Year Capacity Level Total r3361; “Writ: 1977 n.a. 2305.2 1717.0 0.0 587.3 1978 2734.2 2559.3 1618.0 0.0 940.4 1979 2790.0 2338.3 1308.0 0.0 1029.9 1980 2343.6 1576.6 953.8 0.0 622.8 1981 2281.8 1600.6 1004.0 0.0 596.2 1982 1933.6 1224.0 590.3 0.0 633.6 1983 1899.4 1226.6 330.3 0.0 896.3 1984 1748.0 1063.9 240.3 0.0 823.6 1985 1748.0 955.5 140.6 0.0 796.8 1986 1516.6 893.3 171.1 0.0 804.9 1987 1160.6 1001.9 172.2 0.0 850.0 .1988 1155.0 1068.7 129.4 0.0 893.8 Note: n.a. = not available. . Source: Korea Plywood Industries Association. Various years. Statistics of Plywood. Table A-2. Export of P1 (1000 M3, 130 4mm basis. ywood by Year and Area, 1967-1988 Million dollars ($)). YOEI' 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 I Worth America Quantity value 382.12 653.79 560.01 742.18 940.45 1086.90 851.36 677.19 969.39 1056.50 1081.80 988.14 729.60 438.85 386.32 199.35 84.52 22.13 9.63 25.44 7.89 1.75 39.7 67.4 77.4 87.5 124.7 153.2 185.8 124.9 174.4 217.4 274.0 235.3 254.5 156.3 136.1 63.5 28.9 7.7 2.9 8.2 3.5 1.6 Asia 20.31 1.82 35.82 89.88 50.44 123.62 366.87 288.41 150.29 119.97 75.03 74.33 40.18 46.87 62.94 3.39 1.23 0.52 0.71 11.38 32.33 5.02 Quantityvalue 1.6 0.3 3.9 12.3 6.3 20.4 97.0 27.8 23.7 14.0 8.9 13.0 15.9 16.1 22.9 1.2 0.3 0.1 0.2 3.1 11.0 2.6 0.00 0.00 0.00 0.00 0.00 0.00 3.98 0.82 17.15 78.90 76.63 177.96 236.33 257.42 320.18 274.98 158.36 124.73 61.45 10.90 354.89 0.00 Middle East Quantity_value 0.0 0.0 0.0 0.0 0.0 0.0 1.2 0.3 3.0 19.1 22.7 41.8 74.1 88.1 107.4 84.9 47.5 34.8 14.4 2.8 0.1 0.0 131 Table A-2. Continued. = Year Europe Central and Others South America Quantity_value Quantityvalue Quantity Value 4 1967 0.00 0.0 0.00 0.0 0.00 0.0 1968 0.00 0.0 0.00 0.0 0.00 0.0 1969 0.00 0.0 0.00 0.0 0.93 0.2 1970 1.75 0.2 0.00 0.0 1.64 0.2 1971 1.49 0.2 0.00 0.0 0.52 0.1 1972 9.60 4.5 0.00 0.0 2.60 0.3 1973 20.87 5.7 0.00 0.0 7.33 2.3 1974 8.22 2.7 1.41 0.4 5.73 2.2 1975 78.83 17.8 1.12 0.3 66.96 10.2 1976 276.40 64.8 0.00 0.0 131.32 26.4 1977 236.96 59.1 6.32 1.5 218.36 46.6 1978 344.55 96.3 6.44 1.6 27.71 6.1 1979 288.45 109.6 0.52 0.2 13.43 6.1 1980 153.19 58.0 0.56 0.2 56.95 22.0 1981 168.40 64.9 3.39 1.2 63.35 22.7 1982 32.74 13.0 8.82 2.5 71.20 26.1 1983 29.65 11.5 13.21 3.5 43.45 16.9 1984 11.98 4.3 12.05 2.8 69.04 27.5 1985 6.44 2.7 1.75 0.5 60.78 22.8 1986 28.38 10.6 2.12 0.3 92.85 31.0 1987 34.82 17.1 14.06 4.8 82.70 33.9 1988 23.32 16.6 4.58 2.5 94.53 36.9 Note: All values are nominal values. . . i Source: Korea Plywood Industries Assoc1at1on. Var ous years. Statistics of Plywood. Table A-3. 132 Total Value and Unit Value of Plywood Exports in Korea, 1966-1987 (Million $, s/M3). Plywood Export Year Total value Unit vglu. 1966 30.6 111 1957 41.3 117 1953 67.7 109 1969 81.5 115 1970 100.2 125 1971 131.3 125 1972 178.4 147 1973 292.0 207 1974 158.3 187 1975 229.4 182 1976 341.7 214 1977 412.8 240 1978 394.1 257 1979 460.4 345 1980 340.7 372 1981 355.2 367 1982 191.2 313 1983 108.6 316 1984 77.2 316 1985 43.5 313 1986 56.0 296 1987 70.4 318 :gfigce:vaF::§ 2:; xggiggitzgiugiganization of the United Nations (FAO). Various years. Yearbook of Forest Products. 133 Table A-4. Major Plywood Producing Countries, 1965-1988 (1000 M3, 4mm basis). Year World Korea USA Canada Japan Indo- nesia 1965 20312 118 10606 1384 2097 3 1966 25577 353 13208 1803 3101 3 1967 26559 440 13059 1868 3778 3 1968 29884 703 14509 1959 4743 4 1969 30839 821 13635 2004 5893 7 1970 32959 847 14078 1851 7058 7 1971 36595 1048 16184 2066 7340 7 1972 39835 1214 17746 2202 7748 4 1973 42278 1459 18054 2451 8596 9 1974 36150 1233 15172 2085 7443 n.a. 1975 34133 1436 14579 2051 6168 1976 38609 1671 16727 2442 7120 1977 41453 2289 17981 2660 7476 279 1978 42030 2560 17056 2807 8016 424 1979 42774 2338 17128 2510 8532 624 1980 39383 1575 14857 2338 8000 1011 1981 40302 1599 16300 2086 7096 1552 1982 38891 1423 14803 1850 6742 2487 1983 44092 1491 18169 2270 7291 3138 1984 44000 1326 18425 2050 7083 3600 1985 44791 1229 18580 2190 7033 4615 1986 47657 1111 20484 1877 6824 5750 1987 50997 1179 21500 2221 7340 6400 1988 51135 1269 21315 2162 7260—32-0- Source 3 FAQ. Various years. Yearbook of Forest Products. I 134 Table A-5. Major Plywood Exporting Countries, 1965-1988 (1000 M3, 4mm basis). Year ‘lorld Korea Japan China Indo- Canada nesia 1965 2005 72 357 158 0 217 1966 2781 277 377 283 0 330 1967 3021 311 337 308 0 401 1968 3832 600 425 412 0 429 1969 4191 709 393 521 0 400 1970 4477 822 322 589 0 369 1971 4981 1028 327 810 0 342 1972 5733 1195 270 951 0 429 1973 6498 1322 155 953 0 471 1974 4923 1030 123 685 0 341 1975 5185 1258 116 758 1 313 1976 5995 1623 133 768 1 249 1977 6496 1703 262 946 17 388 1978 7175 1605 197 1240 70 499 1979 6979 1297 152 1091 117 493 1980 6623 946 104 868 245 548 1981 7296 1068 107 951 760 408 1982 6859 642 94 822 1232 413 1983 7859 348 100 867 2106 434 1984 8083 211 83 601 3021 474 1985 8835 127 78 556 3964 473 1986 9628 171 54 505 4607 337 1987 11632 176 29 544 5648 330 19 501 6372 479 1988 12807 100 Yearbook of Forest Products. Source: FAO. Various years. 135 Table A-6. Production of Raw Panel by Thickness in Korea, 1971-1988 (1000 M3, 4mm basis). Year Total Below 3 . 6mm- 6 . 0mm- Over 3.5!. 5.9.3 11.9mm 12.0mm 1971 992.53 24.86 923.90 8.35 35.42 1912 1011.54 14.67 930.93 9.57 56.37 1973 1309.17 98.47 1071.50 23.99 115.21 1974 1276.69 108.85 863.97 44.31 259.56 1975 1464.15 64.11 1121.65 53.10 225.29 1976 1798.00 44.09 1235.89 117.53 400.49 1977 2006.53 62.66 1363.51 118.85 461.51 1978 2241.08 33.93 1369.99 185.11 652.05 1979 2073.16 16.72 1228.06 172.27 656.11 1980 1467.22 27.93 767.42 139.31 532.56 1981 1490.73 52.60 743.02 151.47 543.64 1982 1152.78 75.15 463.38 133.02 481.23 1983 1132.12 99.30 382.95 97.58 552.29 1984 988.90 91.48 307.40 74.71 515.31 1985 887.36 123.09 241.38 73.02 449.87 1986 809.58 219.13 156.84 54.54 379.07 1987 919.22 268.59 121.56 73.52 455.55 1988 977.20 266.71 109.46 53.44 547.59 Note: Data for 1971, 1972, and 1973 are based on panel surface basis. . . , Source: Korea Plywood Industries Assoc1ation. Various years. Statistics of Plywood. 136 Production of Processed Plywood by Kinds in Korea, 1971-1988 (1000 M3, 4mm basis). Table A-7. Year 1971 238.97 1972 347.91 1973 220.11 1974 256.32 1975 344.69 1976 307.05 1977 296.39 1978 315.97 1979 262.59 1980 107.75 1981 108.32 1982 69.99 1983 93.32 1984 73.95 1985 67.17 1986 82.82 1987 81.70 1988 Note: Source 3 90.46 199.33 260.55 112.70 103.42 134.94 88.34 78.85 46.74 42.74 10.19 14.35 8.30 8.60 7.41 7.62 9.40 6.54 9.26W 34.98 54.56 64.84 48.65 91.09 123.59 145.16 167.69 136.78 62.87 62.87 34.93 53.45 39.72 38.66 44.01 47.07 57.40 Data for 1971, 1972, and 1973 are based on panel surface basis. Korea Plywood Industries Association. years. Statistics of Plywood. Various Table A-8. 137 Domestic Consumption of Raw Panel by Thickness in Korea 1971-1988 (1000 M3, 4mm basis). Year Total Below 3.6- 6.0- Over 3.5.3 5.9ll 11.9mm 12.0mm 1971 216.81 10.14 180.33 6.25 20.08 1972 190.29 5.16 166.28 3.90 14.93 1973 197.00 14.80 143.87 9.14 29.17 1974 387.94 36.55 197.46 22.57 131.35 1975 449.26 35.16 229.57 28.77 155.75 1976 477.08 22.56 250.02 36.87 167.62 1977 600.18 21.54 300.34 35.55 242.73 1978 820.04 13.70 431.08 55.74 319.18 1979 863.16 5.11 463.35 48.57 346.11 1980 618.08 8.94 296.67 37.94 274.52 1981 552.77 31.49 228.47 41.41 251.39 1982 654.15 59.72 230.91 50.12 313.38 1983 858.74 83.66 249.48 64.61 460.98 1984 803.24 79.59 227.10 54.50 442.03 1985 759.05 117.39 178.85 61.97 400.84 1986 762.16 193.70 126.08 48.78 393.58 1987 795.96 264.69 88.00 54.15 389.10 1988 834.99 251.44 104.06 42.41 437.28 - n n - Note: 1?:92m”?'azgd"gv::e1;?:;;w"Brigggctigegy?.gggta ageo based on 4 mm panel. Data for 1971, 1972, and 1973 Source?reK::::dPg;wgggeingggigizsbzzézciation. Various years. Statistics of Plywood. 138 Table A-9. Domestic Consumption of Processed Plywood by Kinds in Korea, 1971-1988 (1000 M3, 4mm basis). Y9” ““1 P "1 11‘ 1’1“! 9”“) 1971 17.74 13.87 2.14 0.19 1.54 1922 15.49 11.85 1.03 0.80 1.81 1973 20.70 9.35 2.21 3.23 5.91 1974 29.25 10.21 4.05 1.55 13.44 1975 39.19 4.02 7.70 2.22 25.25 1976 45.02 4.55 14.61 20.70 5.16 1977 41.17 3.86 12.96 18.44 5.91 1978 88.79 4.29 23.85 23.42 37.23 1979 112.53 26.99 26.16 10.23 49.15 1980 49.57 1.74 23.31 0.50 24.02 1981 28.05 2.21 9.27 0.25 16.32 1982 31.41 1.21 8.90 1.22 20.08 1983 34.89 1.15 12.35 0.68 20.71 1984 38.48 1.75 15.65 0.51 20.57 1985 37.04 1.14 19.71 0.61 15.58 1986 41.98 2.65 18.97 3.55 16.81 1987 53.25 3.92 29.11 2.36 17.86 1988 '57.76 6.39 36.80_ 2.60 11.97 1972, and 1973 are based on panel Note: Data for 1971, surface basis. . . Source: Korea Plywood Industries Assoc1at1on. Various years. Statistics of Plywood. Table A-lo. 139 1971-1988 (1000 M3, 4mm basis). Export of Raw Panel by Thickness in Korea, .__...._..................._..=___.___=____==_===I _3 Year Total Below 3.6- 6.0- over 3.5]: 5.9mm 11.9mm 12.013 1971 775.72 14.71 743.57 2.09 15.32 1972 821.25 9.50 764.64 5.66 41.43 1973 1112.17 83.66 927.62 14.85 86.03 1974 888.74 72.29 666.51 21.74 128.20 1975 1014.89 28.94 892.08 24.33 69.53 1976 1320.91 21.52 985.87 80.66 232.85 1977 1406.35 41.11 1063.16 83.30 218.76 1978 1421.04 20.22 938.91 129.04 332.85 1979 1209.99 11.60 764.70 123.69 309.99 1980 849.13 18.98 470.74 101.37 258.02 1981 937.95 21.10 514.54 110.05 292.24 1982 498.63 15.42 232.46 82.90 167.84 1983 273.37 15.64 133.46 32.97 91.28 1984 185.66 11.89 80.30 20.20 73.25 1985 128.30 5.70 62.53 11.05 49.00 1986 131.24 25.43 30.75 5.75 69.31 1987 123.25 3.89 33.55 19.36 66.43 1988 141.99 15.27 5.39 11.03 110.29 Note: Data for 1971, 1972, and 1973 are based on panel Sourcezsu§:::: 313;:68 Industries Association. Various years. Statistics of Plywood. Table A-11. 140 1971-1988 (1000 M3, 4mm basis). Export of Processed Plywood by Kinds in Korea Year Total, Pretinish overlaid Printed Cosmetic 1971 221.23 185.45 32.83 2.63 0.30 1972 332.42 248.69 53.52 21.10 9.10 1973 199.41 103.34 62.63 17.01 16.42 1974 227.07 93.20 44.60 26.09 63.17 1975 305.49 130.91 83.39 41.45 49.73 1976 262.03 83.78 108.98 17.34 51.91 1977 255.22 74.99 132.19 5.95 42.08 1978 227.17 42.45 143.83 9.87 31.01 1979 150.05 15.74 110.62 3.65 20.03 1980 58.17 8.45 39.55 1.45 8.71 1981 80.27 12.13 53.59 1.18 13.35 1982 38.57 7.09 26.02 2.05 3.41 1983 58.43 7.44 41.10 3.16 6.72 1984 35.47 5.65 24.10 1.65 4.09 1985 30.12 6.47 18.95 2.66 2.03 1986 40.83 6.75 25.03 1.20 7.84 1987 28.45 2.61 17.96 0.85 7.02 1988 32.69 2.86 _20.60 6.50 _2.72 Note: Data for 1971, 1972, and 1973 are based on panel surface basis. . 0 . Source: Korea Plywood Industr1es Assoc1ation. Various years. Statistics of Plywood. Table A-12. 141 Building Construction Permits in Korea 1966- 1988 (1000 units, Million M2). Year number of building Floor area 1966 36.8 4507 1967 57.3 5888 1968 67.9 7717 1969 75.1 9572 1970 92.9 10787 1971 89.1 9619 1972 74.1 8701 1973 117.3 16572 1974 128.2 16884 1975 120.9 18420 1976 111.5 17985 1977 142.4 22342 1978 149.7 30818 1979 129.3 27505 1980 104.4 25727 1931 75.0 20846 1982 101.5 29798 1933 126.5 39693 1934 101.5 39563 1935 95.4 38217 1935 100.1 43543 1937 114.0 47982 1933 137.1 59770 — Source: The Korea Economic Statistics. Bank of Korea. Various years. The 142 00.~ 0N 0N.0¢N 00mH 0~.0NN mafia 00.n mm 000M 00.0 0 0~.>0m mndm 00.00H «mma m¢.0 m 0n0H 00.0 0 00.v0~ «Ham nm.0h 0NNH 00.H hm mn0H 00.0 0 0H.Nmm mwhn 00.00 omvd 00.0 0 nn0H 00.0 0 00.00H warm 00.00H wvha a0.fi 0H mums 00.0 0 «v.00 000M N0.¢h NomH ~0.¢ «0 mn0~ 00.0 0 0N.00H anH 0~.hw 00NH 0H.w H0 vn0H 00.0 0 wm.00 han 0H.N0 0m¢H 0¢.NH 0am mn0H 00.0 0 0m.H¢ vmnH 00.50 omnH ¢¢.HH mom Nn0H 00.0 0 hn.¢n #05 mm.0¢ 00HH 0n.0m 00m HNOH 00.0 0 0v.0H Nwm 00.5e m0HH 0m.0m mam oan 00.0 0 00.H mw mm.Hv 0¢0H nm.~m >00 000M 00.0 0 H~.0 m H0.nn 050 N0.mH ohm mmmn 00.0 0 00.0 0 an.- «50 m0.va waw nm0H 00.0 0 00.0 0 mm.ma 0nv 0¢.0 bum mw0H 00.0 0 00.0 0 00.HH omm mm.m Hwa mm0H esne> Na«»aaso esae> Muwunesa esaub wuavseso esaab wuuuonaa eeswso sex esmem eaeesocsn daemons: enwmnuuwnm anew ununnnnnnflnflnnnnnnflu .3 .823: .083 85 m: coo: wmmalmmma .oouox ca ocausuomussmz coo3>~m you 00A Hmoamoua mo uHOQEH .mH|< wanna \ 1 ‘ [5 l Aunts. . \ .1. no moflumfiumum .0300» muoHum> .cOwHMfloomms mwwuumacsH uoos>amomwmwm “mouaom 3 Imm.om QWN 00.0 OH.mwN vwmd 00.0 0 QQQH 4 wh.¢N OMN 00.0 OO.HON FNFH 00.0 0 BQQH Nhofim ¢H¢ 00.0 Oh.N@H ¢hmH 00.0 0 hams. Nb.0N Nmm 00.0 Om.m¢.n wbmfl 00.0 0 mmmH mm.mm mnw mm.N GN Om.mmH meH N¢.O ¢ mefl wb.nN won mm.w ww on.NmH NMHN mN.h ¢® MQQH mm.nm HNn #H.OH Mn. om.mbN wwfim FH.¢N mm.” Nmmfl vmflvN mNN Hw.mm HMV Om.N¢n ##Om mm.®H and HmmH eaud> humususo enaa> mawunusa enueb Muquaasa eanab Nuuunosa aesaso he: osmom awueaooau naewedel enamanddnm nee» .omssfiusoo .mauc 03069 144 Table A-14. Quantity, Value, and Unit Value of Tropical Log Imports in Korea, 1965-1988 (1000 M3, 4mm basis. 1000 s. $/M3). ‘ J Year Total quantity Total value Unit value 1965 511 17430 34.11 1966 707 24646 34.86 1967 992 36962 37.26 1968 1259 46243 36.73 1969 2020 75289 37.27 1970 2270 88360 38.93 1971 2851 122077 42.82 1972 2979 90368 30.34 1973 3205 181158 56.52 1974 3003 201663 67.15 1975 3576 179079 50.08 1976 4479 296864 66.28 1977 5256 341171 64.91 1978 5069 345172 68.09 1979 4662 587324 125.98 1980 3356 472188 140.70 1981 3842 440372 114.62 1982 3055 347401 113.72 1983 2588 232291 89.76 1984 2016 197568 98.00 1985 2028 172050 84.84 1986 2388 197430 82.68 1987 1963 225854 115.06 1988 2232 295521 _}32.40 Nate:" ,A_fl “Values are nominal values. Korea Plywood Industries Association. Various Source: years. Statistics of plywood. 145 Table A-lS. Plywood Price Index, Nominal Plywood Price, Deflated Plywood Price, and Log Price Index in Korea, 1966-1987. Statistics Summary. — I Year Plywood Nominal Detlated Log Price Plywood Plywood Price Infigx, Priqg Eziflfi‘A Index. 1966 11.3 169 1495 14.5 1967 12.2 171 1401 14.5 1968 12.4 175 1411 14.2 1969 12.5 176 1408 14.4 1970 15.7 202 1286 14.5 1971 16.9 220 1301 14.7 1972 19.0 252 1326 18.5 1973 19.1 252 1319 24.9 1974 22.9 700 3056 35.2 1975 30.8 780 2532 35.5 1976 32.3 820 2538 40.4 1977 35.6 890 2500 46.5 1978 40.6 1000 2463 50.5 1979 59.4 1563 2631 75.9 1980 100.0 2401 2401 100.0 1981 102.8 2442 2375 99.5 1982 112.3 2673 2380 96.7 1983 114.0 2709 2376 87.3 1984 116.9 2791 2387 97.3 1985 116.0 2750 2370 99.4 1986 113.1 2755 2435 110.6 1987 117.0 2800 2393 1178 Note: unit fornomina1wandrreai plywoo- price 18 Source:woghgmggnggg4gorea. Various years. The Price 146 Table A-16. Investment and Value-added of the Plywood Industry in Korea, 1966-1987 (million won). — E Year Investment value added 1966 1311.0 2840.7 1967 2395.4 2872.3 1968 3406.1 7365.7 1969 4005.2 8149.8 1970 7916.2 12192.7 1971 4820.9 16125.8 1972 4117.3 25381.1 1973 n.a. 43382.8 1974 5860.5 15896.5 1975 4834.0 35796.5 1976 15646.4 59737.1 1977 7782.9 67770.4 1978 24508.0 99496.0 1979 54714.0 70995.0 1980 17794.0 45978.0 1981 32997.0 69154.0 1982 8079.0 71833.0 1983 13314.0 99067.0 1984 20852.0 94804.0 1985 9446.0 75562.0 1986 5332.0 73141.0 1987 19145.0_ 90493.0 Note: All values are nominal terms . Source: Economic Planning Board. various years. Report on Mining and Manufacturing Survey (Census). 147 Table A-17. Log Import Price by Year and Month in Korea, 1978-1987 (s/M3, 4mm Basis). Mon '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 1 67 83 150 108 114 99 92 92 79 103 2 68 96 142 116 77 92 95 94 84 106 3 69 113 145 115 124 86 93 91 86 102 4 71 118 160 120 116 88 99 89 86 102 5 71 119 158 115 114 85 109 85 84 101 6 70 121 151 115 114 87 112 86 87 101 7 68 135 146 115 113 85 115 84 87 102 8 73 152 132 112 108 85 109 84 84 114 9 75 160 133 111 106 90 102 82 85 121 10 79 168 128 106 106 92 98 79 84 132 11 82 167 125 103 104 94 93 75 88 138 12 87 156 113 107 99 96 89 73 90 134 w J Source: Korea Plywood Industries Association. Various years. Statistics of Plywood. 148 Table A-l8. Interest Rates on Loans and Discounts of Deposit Money Banks in Korea 1965-1986 (%). Year Discounts on Loans for 1 1408118 on Commercial Foreign Trade Supplies in \ Bills Bills Foreign Currency_ 9/30/1965 24.0 6.5 6/29/1967 24.0 6.0 10/1/1968 26.0 6.0 6/1/1969 24.6 . 6.0 6/18/1970 24.0 6.0 6/28/1971 22.0 . 6.0 1/17/1972 19.0 6.0 8/3/1972 15.5 . 6.0 10/2/1972 15.5 . 6.0 2/9/1973 15.5 6.0 5/14/1973 15.5 7.0 1/24/1974 15.5 9.0 11/12/1974 15.5 . 9.0 12/7/1974 15.5 9.0 9.0 4/17/1975 15.5 7.0 7.0 10/1/1975 19.0 7.0 7.0 8/2/1976 18.0 8.0 8.0 7/1/1977 16.0-19.0 8.0 8.0 10/4/1977 16.0-19.0 8.0 8.0 6/16/1978 19.0 9.0 9.0 12/7/1978 19.0 9.0 9.0 9/7/1979 19.0 9.0 9.0 1/12/1980 25.0 12.0 12.0 6/5/1980 24.0 12.0 12.0 8/1/1980 24.0 12.0 12.0 1.. 149 Table A-18. Continued. Year Discounts on Loans on Loans for commercial Foreign Trade Supplies in Bills Bills Foreign Currency 9/16/1980 22.0 12.0 12.0 11/8/1980 20.0 12.0 12.0 12/29/1981 17.0 12.0 n.a. 1/14/1982 16.0 12.0 n.a. 3/29/1982 13.5 11.0 n.a. 6/28/1982 10.0 10.0 n.a. 1/23/1984 10.0-10.5 10.0 n.a. 11/5/1984 10.0-11.5 10.0 n.a. 4/19/1985 10.0-11.5 10.0 n.a. 10/11/1985 10.0-11.5 10.0 n.a. 3/24/1986 10.0-11.5 10.0 n.a. _ m Note: n.a. is not available Source: The Bank of Korea. Various years. The Korea Economic Statistics Yearbook. 150 Table A-19. Tariff Rates for Plywood and Tropical logs in Korea 1962-1988 (%). Year Tropical log Plywood 1964 10 50 1965 10 50 1966 10 50 1967 10 50 1968 10 50 1969 10 50 1970 10 50 1971 10 50 1972 10 50 1973 10 50 1974 10 50 1975 10 40 1976 10 40 1977 10 30 1978 10 3° 1979 10 3° 1980 5 3° 1981 5 3° 1982 5 3° 1983 5 3° 1984 5 3° 1985 5 3° 1986 5 3° 1987 5 3° 1988 5 2° KoreaInstitutE of Cugtoms Research.Var1ous SourCe:w years. Tariff Schedules of Korea. APPENDIX B Data Used in Models 152 Table B-1. Prices of capital (K), labor (L), energy (E), and Material (M), 1966-1987 (All prices are nominal. All units are explained in the Chapter 4.). Year K L B H 1966 0.484407 0.852418 0.0000398 0.094631 1967 0.913536 1.138369 0.0000425 0.102316 1968 0.986445 1.126305 0.0000424 0.103395 1969 0.910612 1.580108 0.0000430 0.113492 1970 0.426790 1.800681 0.0000477 0.123276 1971 10128383 2.052087 0.0000507 0.159800 1972 0.955351 2.238292 0.0000625 0.121006 1973 1.113081 2.886905 0.0000664 0.224681 1974 0.350249 3.338426 0.0001230 0.325025 1975 0.640947 4.302174 0.0003000 0.242378 1976 0.720160 5.708486 0.0003210 0.320791 1977 0.811697 7.860019 0.0003440 0.314168 1978 1.406132 10.68375 0.0003530 0.329578 1979 0.707345 12.85207 0.0003870 0.609749 1980 0.507162 15.70455 0.0009420 0.928477 1981 0.514131 16.92934 0.0011910 0.802917 1982 0.592594 18.35648 0.0011720 0.851502 1983 0.795369 21.18800 0.0011430 0.714016 1984 0.807151 25.38539 0.0011550 0.810852 1985 0.799182 27.25720 0.0011020 0.755221 1986 0.772319 29.12372 0.0011280 0.722456 1987 0.831276 32.26252 0.0010010 0.911585 153 Table 8-2. Total Cost (C), Quantity of Products Produced (Q), Trend (T), and Dummy (D), 1966—1987 (Total cost is nominal. All units are explained in the Chapter 4.). i Year c 9 TR 3 1966 105191.3 445.2 1 0 1967 97908.48 553.8 2 0 1968 181834.5 885.9 3 0 1969 347097.1 821.0 4 0 1970 439185.3 1055.4 5 0 1971 442914.8 1231.5 6 0 1972 555110.3 1359.4 7 0 1973 1244070.0 1529.2 8 0 1974 1189163.0 1533.0 9 0 1975 1399569.0 1808.8 10 0 1976 1987098.0 2105.0 11 0 1977 2544434.0 2302.9 12 0 1978 2944334.0 2557.0 13 0 1979 4346424.0 2335.7 14 1 1980 3858808.0 1574.9 15 1 1981 4454513.0 1599.0 16 l 1982 2984348.0 1222.7 17 1 1983 3199217.0 1225.4 18 1 1984 3283477.0 1062.8 19 1 1985 2981914.0 954.5 20 1 1986 2842481.0 892.4 21 1 22 1 1000.9 1987 3573072.0 154 Table B-3. Share of Capital (SK), Labor (SL), Energy (SE), and Material (SM), 1966-1987. Year as 8L SE 88 1966 0.019512 0.077396 0.026631 0.876459 1967 0.011239 0.092084 0.021115 0.875559 1968 0.014372 0.097576 0.037826 0.850225 1969 0.009024 0.100848 0.027176 0.862950 1970 0.039029 0.094157 0.029684 0.837128 1971 0.019359 0.079870 0.030560 0.870209 1972 0.028715 0.085493 0.039831 0.845958 1973 0.018797 0.062677 0.025751 0.892773 1974 0.022899 0.072155 0.045142 0.859801 1975 0.023942 0.072744 0.055211 0.848101 1976 0.029220 0.090093 0.052222 0.828463 1977 0.026250 0.100278 0.049552 0.823918 1978 0.016822 0.122907 0.041673 0.818596 1979 0.011546 0.095091 0.035861 0.857500 1980 0.011746 0.087223 0.061262 0.839766 1981 0.015097 0.082998 0.055765 0.846137 1982 0.020308 0.098316 0.051026 0.830348 1983 0.019466 0.108038 0.051531 0.820963 1984 0.017885 0.114144 0.053680 0.814289 1985 0.015853 0.121509 0.051943 0.810693 1986 0.016658 0.121485 0.052243 0.809613 1987 0.021326 0.113020 0.041350 ”0°3?4391 155 Total Labor Cost, Total Labor, Total Capital Cost, and Total Fixed Asset, 1966-1987 (1000 won, nominal term). 12517 Year Total Total Total Total labor cost labor capital fixed cost asset 1966 814145 9551 205250.9 5864314 1967 901589 7920 110048.4 3144240 1968 1774269 15753 261342.2 7466922 1969 3500414 221153 313243.4 8949812 1970 4135266 22965 1714107 28568460 1971 3537593 17239 857467.8 14291131 1972 4745852 21203 1594041 26567359 1973 7797533 27010 2338525 38975430 1974 8580528 25398 2723173 45386226 1975 10181095 23665 3350964 55849400 1976 17902386 31361 5806489 82949845 1977 25515195 32462 6679381 83492264 1978 36188000 33872 4953102 70758608 1979 41331000 32159 5018411 100000000 1980 33658000 21432 4532868 90657360 1981 36972000 21839 6725320 130000000 1982 29341000 15984 6060893 120000000 1983 34564000 16313 6227732 120000000 1984 37479000 14764 5872750 120000000 1985 36233000 13293 4727456 94549121 1986 34532000 11857 4735152 94703044 7620224 110000000_ L. 156 Table B-5. Material Cost, Fuel Cost, Power Cost, and Total Energy Cost, 1966-1987 (1000 won, nominal term). Year Material Cost of Cost of Total cost fuels power energy cost 1966 9219596 125016 155129 280145 1967 8572472 66270 140470 206740 1968 15460032 369836 317977 687813 1969 29952781 464712 478569 943281 1970 36765468 563430 740263 1303693 1971 38542856 642850 710720 1353570 1972 46960035 1078578 1132532 2211110 1973 111067200 1781483 1422235 3203718 1974 102244400 2239651 3128564 5368215 1975 118697600 4877140 2850114 7727254 1976 164623800 6443723 3933391 10377114 1977 209640500 7863829 4744466 12608295 1978 241022000 7081000 5189000 12270000 1979 372706000 8382000 7205000 15587000 1980 324050000 14208000 9432000 23640000 1981 376913000 13352000 11489000 24841000 1982 247805000 6514000 8714000 15228000 1983 262644000 7419000 9067000 16486000 1984 267370000 7281000 10345000 17626000 1985 241742000 5660000 9829000 15489000 1986 230131000 5937000 8913000 14850000 1987 294529000 5930000_ _88g5000 _14775000 157 Table B-6. Fuel Cost Share, Power Cost Share, Bunker-C Price, and Power Price, 1966-1987 (nominal term). Price of Bunker-C Price of Fuel cost Power cost (won/ power Year share (t) share (%) liter) (won/KWH) 1966 44.62 55.38 3.56 4.32 1967 32.05 67.95 3.60 4.55 1968 53.76 46.24 3.60 4.98 1969 49.26 50.74 3.69 4.89 1970 43.21 56.79 4.06 5.31 1971 47.49 52.51 4.79 5.32 1972 48.77 51.23 6.38 6.12 1973 55.60 44.40 7.11 6.06 1974 41.72 58.28 17.47 8.66 1975 63.11 36.89 38.74 15.10 1976 62.09 37.91 41.00 17.52 1977 62.37 37.63 43.00 20.14 1978 57.70 42.30 46.00 20.72 1979 53.77 46.23 46.00 30.30 1980 60.10 39.90 124.00 49.28 1981 53.74 46.26 168.00 62.35 1982 42.77 57.23 182.00 68.76 1983 45.00 55.00 172.77 66.50 1984 41.30 58.70 185.76 66.10 1985 36.54 63.46 185.76 66.64 1986 39.97 60.03 185.76 64.21 1987 40.13 i 159197_,1_ _157.35 61.74 REFERENCES Abt, R.C. 1987. An analysis of regional factor demand in the U.S. lumber industry. Forest Science 33:164-173. Allen, R.C.D. 1938. 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