Does the adoption of emerging technologies improve technical efficiency? Evidence from Korean manufacturing SMEs

ABSTRACT

Despite the proliferation of innovative technologies during the Fourth Industrial Revolution (4IR), there is a severe lack of quantitative and empirical studies that deal with the effectiveness of recently emerging technologies. This study examines the impact of employing core technologies of the 4IR on small and medium enterprises (SMEs). We used the firm-level cross-sectional data on Korean manufacturing SMEs, including the information on technology utilization. The stochastic production frontier estimation with selectivity correction is employed, besides matching technique to obtain unbiased estimates on technology efficiency. The empirical analysis finds that adopting emerging technologies enhances the productivity of SMEs. After observed and unobserved factors are controlled, the technical efficiency of adopters is higher by more than 26% on average, compared to non-adopters. Moreover, if the gap among production frontiers is considered, the difference in productivity would rise further. Additionally, a strategic alliance is a crucial route for SMEs to accept new technologies. Plain English Summary Adopting emerging technologies in the Fourth Industrial Revolution makes production process more efficient by more than 26% on average. This research using the data on Korean manufacturing small and medium enterprises (SMEs) revealed that new digital technologies have a significantly positive impact on the productivity improvement. More specifically, SMEs adopting emerging technologies like "AI," "Big Data," and "Robotics" in the production process have remarkably higher productivity by more than 26%, compared to non-adopters. This result suggests that digital transformation is an unparalleled opportunity for SMEs suffering from lower productivity attributed to some reasons like the outbreak of COVID-19 pandemic. Additionally, the government needs to establish a pan-government control tower and consider a variety of policy measures to promote SMEs to utilize advanced technologies in their production.