Evaluation of sectoral innovation system with productivity decomposition: Application to Korean healthcare sector

Sectoral system of innovation and production is the engine of economic growth. However, sectoral system is hard to understand. This study provides the methodology to evaluate sectoral innovation system and then to make a policy proposal which is appropriate to sectoral characteristics. This paper applies decomposition of total factor productivity (TFP) growth to Korean manufacturing industries, including HT manufacturing industries which are the pharmaceuticals and the medical devices, from 1990 to 2008. Comparing to other manufacturing industries, HT sector has higher TFP growth and some characteristics of a promising sector. This study then regress estimated TFP growth on many variables to find more detail information. The second stage regression suggests importance of capital intensity and R&D investment to increase TFP growth. Empirical grounds are given which is supporting that the HT sector is quite different from other manufacturing industries in Korea. Some policy implications for increasing productivity of the HT sector are also given.