The Effects of New Technology on Productivity : Technological Improvement and Reallocation Efficiency in the Japanese Steelmaking Industry

This paper analyzes the effect of new technology for steel refining -- the basic oxygen furnace (BOF) -- on productivity growth using the productivity decomposition method. I employ a technique that decomposes productivity growth into four factors: operational improvement, within- and between-technology reallocation, and entry-exit effects. I demonstrate that the following two factors were equally important: (i) the rapid operational progress of new technology and (ii) between-technology reallocation both among existing furnaces and through entries. I also find that although the overall allocation efficiency improved, the within-BOF allocation efficiency declined. The results suggest that productivity growth followed the spread of BOF with rapid technological advancement while sacrificing allocative efficiency within the BOF furnaces