Is Productivity Growth Correlated with Improvements in Management Quality? An empirical study using interview surveys in Korea and Japan

Bloom and Van Reenen (2007) show that differences in management practices are correlated with productivity differences at the firm level. In this paper, we conducted similar interview surveys on management practices in Japanese and Korean firms in 2008 and 2012. We find that overall management scores in Japan—as an average of organizational and human resource management scores—are higher than those in Korea. However, the second survey shows that the gap in management scores between the two countries has shrunken over time. In addition, the average management quality in Korean large firms has surpassed that of Japanese large firms. This result is consistent with the literature comparing big businesses in Korea and Japan. This study also compares additional aspects of management styles, such as speed in decision making and the role of various communication channels, which is not done in the literature. When we estimate a production function including management score using all samples, we find a positive and significant relationship between management scores and productivity. Most estimation results show that organizational management scores are correlated with firm performances in Japanese firms, while human resource management scores are correlated with performance in Korean firms. We also find that management practices are correlated with improvements in capital and labor efficiencies. In the case of Japan, better organizational management practices in the past improve current firm performance. Our results show that the Japanese government and firms should promote management reforms to restore international competitiveness.