KEA RESEARCH

Introduction & History

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The Korean Economic Association was launched in Pusan on November, 30, 1952.

Greetings

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Since its foundation in 1952, the Korean Economic Association has been constantly evolving and establishing a position as Korea's prestigious economics representative society.

KOREAN JOURNAL OF ECONOMIC STUDIES

Capital Opening and Ramsey Model (Sungkyunkwan University)

Kyungsoo Kim

Year 2019 / Vol 67 / No 1

This paper explores the impact of capital opening in a small open economybased on Ramsey model. In the neo-classical framework when the autarkyinterest rate is higher than the foreign interest rate, capital opening triggersimmediate capital inflows in order to exploit an arbitrage opportunity. Theeconomy moves to new saddle point path. Both capital stock and consumptiondiscretely increase. An increase in lifetime income supports such consumptionincrease. Moving to the new saddle path per capita consumption decreases atthe rate of the autarky and foreign interest difference. As consumptiondecreases trade account turns into positive, but current account is negative,always. In steady state external debt grows constantly. When the autarkyinterest rate is lower than the foreign rate, all adjustment processes will be theopposite. The results of this analysis are closer to the pessimism of capitalopening in emerging economies that emphasizes economic imbalances such asexternal account worsening rather than the benefits of capital opening due tocommon sense views such as consumption smoothing. Here, the deficit in thispaper reflects the benefits of capital opening. The current account surplus insome emerging economies is a phenomenon due to the precautionarymotivation of savings in a second best world, which is in line with building upforeign exchange reserves as self-insurance.

Spillover Effects from Environmental Education: Focusing on Spillover Effects of an Action-based Environmental Education within Environmental Issues and Across Social Issues

Hyungna Oh (Kyung Hee University), Young Sook Eom (Chon Buk National University) and SungHyun Jun (Seoul National University)

Year 2019 / Vol 67 / No 1

In this study, we analyze the spillover effects of environmental education onpro-environmental and pro-social behavior. The environmental educationproject analyzed in this study is an action-based learning project called SawdustToilet Project(STP). STP is one of 8 projects that comprise the “Making aSustainable School” program conducted at Seondeok Girls’ High School inGyeong-ju since 2014. Compared to the control group, students whoparticipated in the STP showed pro-environmental attitudes toward the mediadirectly related to the STP (e.g. water and human excrement). An empiricalanalysis using the BiProbit model finds that environmental education not onlyinduces similar pro-environmental behaviors but also increases the likelihood of participation in poverty eradication activities, regardless of the intensity ornature of the education experiences. In terms of the level of spillover effects,we find that education projects that need strong action-involvement and haveto overcome social norms in the education process have a greater spillovereffect within environmental issues and across social issues than thoseotherwise.

The Growth of Employment and Gibrat's Law

Jong In Yoon (Baekseok University)

Year 2019 / Vol 67 / No 1

This article analyzes the growth of employment and tests Gibrat’s law in theemployment of Korean firms. It is reasonable to suppose that sample selectionbias plays an important role in the estimated results. Therefore, we utilize theprocedure in which a probit survival equation is first estimated to correct forsample selection bias. To test the validity of Gibrat’s law, we use Heckman’stwo-step estimator and Arellano and Bonhomme(2017)’s quantile selectionregression.Most of the results by Heckman’s procedure reject Gibrat’s law on anaggregate level, which means that small firms grow faster than large firms.But Gibrat’s law is confirmed more often than it is rejected for firms over acertain size(firms larger than 40% quantile). And for firms larger than 80%quantile, the results show that large firms grow faster than small firms.Results by quantile selection model show that the employment of medium-sizefirms growth faster than small and large firms. We think the results mighthighlight the validity of Zipf’s law in the employment of Korean firms.

KOREAN ECONOMIC REVIEW

CO2 Emissions, Foreign Direct Investments, Energy Consumption, and GDP in Developing Countries: A More Comprehensive Study using Panel Vector Error Correction Model

Suyi Kim (Hongik University)

Year 2019 / Vol 35 / No 1

This paper examines the causal relationships among carbon dioxide (CO2) emissions,energy consumption, gross domestic product (GDP), and foreign direct investments (FDI)in 57 developing countries from 1980 to 2013. The results of the analysis based on panelvector error correction model (VECM) indicate no direct short-run causality exists fromFDI to CO2 emissions. These results are also confirmed by regional analysis, wherein thedeveloping countries are divided into three regions. In the long run, a cointegratedrelationship is found among CO2 emissions, energy consumption, GDP, and FDI, whichsupports the environmental Kuznets curve hypothesis. However, the long-run elasticity ofFDI on CO2 emissions is very small even though it is statistically significant. These results donot support the pollution haven hypothesis of CO2 emissions through inward FDI indeveloping countries. 

Reassessing the Inflows and Outflows of Unemployment in Korea

Jong-Suk Han (Korea Institute of Public Finance) and Jiwoon Kim (Korea Development Institute)

Year 2019 / Vol 35 / No 1

Using data from the Economically Active Population Survey from 1986 to 2014, wecomprehensively examine Korean unemployment dynamics using worker flows: inflow ratesand outflow rates. We estimate both flow rates by carefully correcting for time aggregationbias, and quantify the contribution of changes in each flow rate to unemploymentvariability through steady-state and non-steady-state decompositions. Our baseline analysisreports the average of inflow rates as 1.6% and that of outflow rates as 48%. Moreover,despite the small size of the inflow rates, inflows account for 90% of unemploymentvariability. The significant contribution of inflows to unemployment fluctuation stillappears even under a three-state model that includes inactive workers and heterogeneousflow rates by reasons for unemployment. The large contribution of inflows tounemployment changes despite high outflow rates is a unique feature of the Korean labormarket not seen in previous studies of OECD countries. 

Optimal Partial and Full Disability Insurance with an Application to Korea

Kyung-woo Lee (Yonsei University)

Year 2019 / Vol 35 / No 1

In this paper, I investigate the optimal disability insurance (DI) when partial and fulldisability are privately observed over the life cycle. I demonstrate that in the social optimum,partially disabled agents are induced to supply labor despite substantial government transfersunless labor supply is relatively elastic and their productivity is significantly reduced. I thenapply the framework to quantitatively evaluate Korea’s DI programs, which include partialand full disability benefits. In the calibrated model, I find that welfare gains from replacingKorea’s DI programs with the corresponding optimal system amount to a 1.17% increase inconsumption. Such a reform significantly raises the utility of both types of disabled agents atrelatively small utility costs of able agents. Equity gains from this redistribution account for73.4% of the total welfare gains, whereas efficiency gains from the optimal allocationaccount for 26.6%. 

KOREAN ECONOMIC FORUM

The Role of Bank of Korea Revisited

In June Kim Seoul National University)

Year 2019 / Vol 11 / No 4

economy and accumulation of domestic structural problems. At this juncture, theBank of Korea should aim at achieving not only price stability but also financialstability. Financial stability can be obtained by preventing occurrence of financialsystemic risks. Three major financial risks in Korea are those; boom bust cyclein real estate markets, a large amount of abrupt capital flows due to thedifferentials between domestic and international interest rates, and risks involvedin increased connectedness among financial institutes and increased share ofnon-bank financial institutes. The Bank of Korea should put major emphases onachieving financial stability, watching and analyzing the developments of realestimate markets, flows of capital and the speed of increasing household debts,when it carries out monetary policies.For the financial stability, the optimal combinations of monetary andmacro-prudential policies are required. The monetary policies have influences onthe macro-prudential policies and vice versa. In Korea, however, the Bank ofKorea is in charge of monetary policies while the financial authorities areresponsible for macro-prudential policies. To resolve the current problems, it isdesirable to establish tentatively named “Financial Stability Board” consisting ofMinistry of Strategy and Finance, Bank of Korea, and financial authorities.Financial Stability Board can take full responsibilities for macro-prudentialpolicies and making important decisions concerning financial stability.The Bank of Korea, however, should remember the first line of responsibilityfor financial stability falls upon the monetary policies of the Bank of Korea.Independence of the Bank of Korea only can be secured when the Bank of Koreafulfills its responsibility for price and financial stability successfully.

Total Factor Productivity and Tax Policy

Hag-Soo Kim (Korea Institute of Public Finance)

Year 2019 / Vol 11 / No 4

As the economy matures, Korea needs to make more policy efforts to achieveadditional innovative growth. This study reviewed the importance of theimprovement of TFP, which is the main growth driver of innovation-driveneconomies. It also reviewed that Korea did not improve it’s TFP since 2011. Italso analyzed the impact of major tax policies on the growth rate of TFP usingpanel data from OECD countries over the period of 1991~ 2016. According to theempirical analyses, the highest corporate tax rate that the current governmenthas raised right after its inauguration is expected to have a negative impact onimproving TFP. However, the tax reform plan of enhancing property taxcurrently being pushed will not negatively affect the overall productivityimprovement.

The Political Economy in the Three East Asian Countries and International Development Cooperation

Yeon Seung Chung (Korea Lap. of Developing Countries) and Sunju Kwon (Changwon National University)

Year 2019 / Vol 11 / No 4

We investigate the historic origins of the differences on the political economyof Japan, Taiwan, and Korea which have been the most successful in economicdevelopment since the World War II. Following the literature our research isfocused on the independence of bureaucracy and the relationship between thestate and the private capital.Then we apply the analyses of the political economy of the three East Asiancountries to the sub-Saharan African countries. While there are a few countriesthat succeeded to maintain the independence of bureaucracy, most countries donot have a basis for co-operative relationships between the state and the privatecapital due to not enough private capital. To accumulate private capital for thedevelopment, the sub-Saharan African countries may adopt first, theTaiwan-style policies providing the competitive eco-system for private firms,after waiting the realization of some firms’ growth, then the Korean-style policyof direct support to the proven firms.