HOW PRODUCTIVE IS AUTOMATION INVESTMENT - EVIDENCE AND RESULTS FROM THE MANUFACTURING SECTOR IN TAIWAN

Study findings conducted at the macro level using aggregate industry d ata or at the micro level using firm level data, have not shown convin cing evidence that investment in automation will improve productivity and provide high enough return on investment. Problems of mismeasureme nts, mismanagement, time lags, and redistribution of profit may accoun t for part of the reasons for the so-called 'productivity paradox'. Co mplexity, interactions, mixtures of strategic and operational issues m akes it extremely difficult to isolate the effect of automation invest ment even at the firm or enterprise level. This empirical study is bas ed on a survey conducted by the Statistics Division, Ministry of Econo mic Affairs in Taiwan on the status of automation in the manufacturing sector at the factory level that allows a better resolution of produc tivity. Two variations of the Cobb-Douglas are specified to model the production function of the 18 industries in the manufacturing sector. The results show that automation investment provides high enough retur n on investment (ROI) and return on productivity (ROP). Cross industry analysis indicates that for those industries with higher output capit al ratios, the ROI and ROP will also be higher. Investment in automati on may provide synergistic effect, if it will improve the output-capit al ratio of the automation capital that in turn will lead to increasin g ROI and ROP for both the automation and non-automation capital.