Introduction & History


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



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Did Pro-natal Policy in Korea Fail?: A Decomposition of Fertility Change from 2000 to 2016

Chulhee Lee (Seoul National University)

Year 2018 / Vol 66 / No 3

The result of decomposition analysis of the change in total fertility rate(TFR) suggests that marital fertility substantially increased during the lastdecade after the government started to implement pro-natal policy measures in2005. The rise of marital fertility was offset by rapid decline in nuptiality (thefraction of women who are married). The results of panel fixed-effect modelestimations based on county-level data show that local characteristics related topro-natal policies (such as the allowance for newborn children and availabilityof child care facilities) promoted marital fertility, whereas they were negativelyrelated to the marriage rates of single individuals. These results cast doubts onthe general consensus that the pro-natal policies since 2005 entirely failed. Theincrease in marital fertility, the major aim of the government policies,contributed to keep TFR from plummeting to an extremely low level. Hadmarital fertility remained unchanged since 2005, TFR would have plunged to0.73 by 2016 because of the sharp decline in nuptiality.

Economic Performance of Global Value Chain Participation: Evidence from Plant-level Data of Korean Manufacturing Sector

Jung Hur (Sogang University), Haeyeon Yoon (Sogang University) and Yongdae Lee (The Bank of Korea)

Year 2018 / Vol 66 / No 3

The purpose of this study is to analyze the effects of global value chain(GVC) participation on plants’ performance using Korean establishment-leveldata. To mitigate the selection bias in the global value chain participation, weutilize difference in difference model with propensity score matching technique.We find empirical evidence that participation in the global value chain increasesthe growth rate of plants’ performances. Furthermore, we found theheterogeneous effect of GVC participation by trading partner or the path of theparticipation. On the basis of the unique trade-establishment matched data,our results revealed that manufacturing plants participating in the global valuechain system can grow more than those not.

International Profit Shifting of Multinational Corporations with the Corporate Income Tax Rate Gap

Gyeong Lyeob Cho (Korea Economic Research Institute) and Yun Ho Chung Keimyung University)

Year 2018 / Vol 66 / No 3

We estimate the semi-elasticities of profit shifting of multinationalcorporations with corporate tax rate gap using firm-level micro panel data. Wedistinguish the estimation with the overseas subsidiaries of the Korean firmsfrom the foreign cases. We also distinguish the cases whether the parentcorporations or the subsidiaries are located in the low tax rate countries andtry to see any policy implication from this. The semi-elasticity with the Koreansubsidiaries facing the Korean corporate tax rate is estimated at 1.55, whichis higher than 1.05 with the foreign subsidiaries. If the corporate tax rate ofthe country where the Korean subsidiaries are located is higher than theKorea’s, the semi-elasticity is estimated to be 4.15, which is more than threetimes higher than the otherwise expected 1.36. In the case of foreigncorporations as well, if the corporate tax rate faced by the parent corporationsis lower than the subsidiaries, the estimated semi-elasticity of 2.196 is 1.8times higher than the otherwise estimated 1.246. We conclude that the effectof tax rate gap on profit shifting is greater when the parent corporations arelocated in the low tax rate countries than the subsidiaries. That is, the effectof profit shifting is greater when the countries of the parent corporations,rather than the subsidiaries, cut the corporate tax rate.


Price Discrimination with Loss Averse and Horizontally Differentiated Consumers

Jong-Hee Hahn (Yonsei University), Jinwoo Kim (Seoul National University), Sang-Hyun Kim (Yonsei University) and Jihong Lee (Seoul National University)

Year 2018 / Vol 34 / No 2

This paper considers a monopolist seller facing horizontally differentiated consumers,whose preferences are reference-dependent and loss averse in the frame of Kőszegi and Rabin(2006). Our results on optimal menu suggest that consumer loss aversion does not necessarily limit the benefits of screening under the horizontal demand structure, in contrast to the findings of Hahn, Kim, Kim and Lee (2018) and Herweg and Mierendorff (2013) who consider the case of vertically differentiated preferences. 

Peer Pressure with Inequity Aversion

Kangsik Choi (Pusan National University), Jae-Joon Han (Inha University) and Minhwan Lee (Inha University)

Year 2018 / Vol 34 / No 2

To examine the effects of peer pressure on outputs under symmetric and asymmetric information, we define a peer pressure function representing psychological costs and incorporate it into the agent’s utility function. Under symmetric information, an efficient agent who is averse to inequity (i.e., suffering from being ahead) produces less than he does without peer pressure whereas an inefficient agent suffering from being behind produces more such that the output gap between the two types of agents is lessened. Moreover,overproduction in total output will occur if the inefficient agent’s disadvantage inequity aversion is greater than that of the efficient agent’s. However, as the information structure becomes asymmetric, the overproduction disappears because the information rent paid to the efficient agent becomes too burdensome so that it countervails the active peer pressure effect.These results are consistent with previous findings from empirical and experimental studies. 

Retrospective Generational Accounts for Korea

Young Jun Chun (Hanyang University) and Ji Eun Song (National Assembly Futures Institute)

Year 2018 / Vol 34 / No 2

This study addresses fiscal sustainability and generational equity of Korea by using generational accounting (GA). Unlike previous Korean GA studies, we compute retrospective GA, assessing the value of net taxes paid in the past combining this with traditional forward-looking GA, appraising the rest-of-life net tax burden to obtain full lifetime accounts (FLGA). FLGA cover the entire life for all the cohorts. We find that the fiscal policies of Korea bring about generational inequity. The net tax burden of future generations should be raised to an unbearable level, higher than 40% of lifetime income, to service government spending under the current policies. In addition, we show that parametric reforms to resolve the problem have only limited effects even under the demographic assumptions that subsidy to childbirth and childcare and open-door immigration policy substantially reverse population aging and reduction, which indicates the requirement of many fundamental reforms.  


Principle of Innovative Growth and Start-up Finance --Econ 101 of Innovative Growth and Effective Ecosystem for Start-up Finance--

Chong Ook Rhee (Seoul Women’s University), Chi Seung Song (Wonkwang University) and Sang-Joon Kim (Ewha Womans University)

Year 2018 / Vol 11 / No 3

In the experience of developed countries, the driving force of growth in thelow-growth era is entrepreneurial innovation. In the low-growth period, theUnited States, Germany, and Japan also increased their R&D/GDP ratios andimplemented growth and job creation through innovation.The success of a country's innovation growth model requires a consensus onthe meaning of innovation. In Korean innovation, there is no government(administrative, legislative, judicial) role to determine the environment ofinnovation, and hence no mention of their responsibilities and obligations foremployees, workers, labor unions, NGOs including entrepreneurs to drive threetypes of innovation - social innovation, technological innovation and publicinnovation.While the role of existing conglomerates in Korea’s innovation is beingexcluded and misunderstood, large corporations can play a leading role in theinnovation of venture companies and SMEs. In 2017, the allocation ratio ofeconomic value distribution of Samsung Electronics accounted for 77.1% to2,436 suppliers, and that of Hyundai Motor Company for 76.15% to first-tier480 firms which is connected with the second-tier 5,020 suppliers, The largestshare of economic value resulting from the innovation generated byentrepreneurs and workers in large corporations is distributed to their suppliers.As Schumpeter emphasized the role of economic circulation, newcombination, and finance as the three elements of economic development,innovation can be better promoted through communication and cooperationamong government - enterprise –employee-finance, not conflicts among them.In Korea, it is necessary to accumulate and share innovation knowledgecorresponding to Econ 101 based on the widely known research results oninnovation found by economists and business scholars.Ideological conflicts between entrepreneurs and workers and betweenentrepreneurs and society are expressed, and efforts to promote favorableenvironments to create entrepreneurial innovations are not easy. To driveinnovation nationally, government has to resolve conlicts and needs to stimulatecommunication among start-up executives as well as existing large companies’and SMEs’.In order to get out of the low growth of Korean economy, it is necessary topursue economic innovative activities led by technological innovators such asventure companies as well as innovation of big firms.

A Study for Improvement of IP Financing to Support Innovative Firms

Gemma Lee (Kyung Hee University)

Year 2018 / Vol 11 / No 3

IP(Intellectual Property) financing refers to all financing activities based on theuse of IP assets (patents, trade marks, design rights and copyright) such astechnology financing based on technology credit ratings, IP-backed lending,IP-based VC(venture capital) investment, IP funds, listing on technologyspecial, etc. Although many different forms of IP financing exist, bank lendingbased on the technology financing counts on the significantly largest part of theoverall IP financing activities. In addition, the majority of government policiesalso centers on facilitating technology financing and IP-backed lending.However, it is well known that “investment” rather than “lending” is a morereasonable and efficient type of IP financing to enhance innovation. This studyproposes two ideas promoting the virtuous circulation of providing innovationcapital in the form of investment and IP financing quality growth. First, a largeamount of co-investment IP fund supply is needed by the use of public moneymatching private investments. This co-investment IP funds are structured toallocate a higher proportion of the returns to the private sector investors and agreater part of the losses to the public sector investors in order to provide apremium to private sector investors to compensate for the risk. Second, theactive exit market is necessary for the success of IP fund investment. Variousways of constructing an IP based stock index are proposed for the enhancementof the competitiveness of KOSDAQ as a technology leading stock market.

Moon Jae-in Government's Financial Policy and Future Tasks

Jae-Joon Han (Inha University)

Year 2018 / Vol 11 / No 3

The financial policy of Moon Jae-in regime can be divided into productivefinancial policy, which aims to flow funds into the productive field, and inclusivefinancial policy in an effort to relieving polarization. Productive financial policyconsists of four tasks: recovery of dynamics of the financial market, re-leap ofthe capital market, contribution to the fourth industrial revolution and jobcreation. Meanwhile, the inclusive financial policy consists of reducing thefinancial burden of vulnerable citizens, protecting vulnerable debtors, supportingthe formation of household financial assets, and strengthening socialresponsibility of finance. We generally agree with the necessity and the directionof productive finance policy. However, in the course of policy implementation,we’d like to recommend that ①expanding the supply of financial products for theshort-term performance perspective should be avoided, rather the efforts toimprove the price discovery function and the risk management capability of thefinancial market should be enhanced furthermore; that ②the financialadministration be switched into a negative system, while the efforts of improvingmarket predictability should be made together; and that ③supervision bybusiness sector should become more flexible, while the efforts to maintain thesoundness of the financial system should be enhanced in order to preventfinancial instability. We also agree with the necessity of inclusive finance, but itshould not undermine the basic principles of the financial industry, such as theprinciple of repayment and high-return with high-risk. In the case of small-loanfinancial policy, now it is necessary to revise and supplement the policyimplementation while testing the effectiveness of the policy quantitatively. Lastly,for the financial business sector, it is necessary to dispose the real estatemortgage lending-oriented business practices but rather to concentrate on theenhancement of information production and risk evaluation & managementcapacities, which are the financial intermediary’s main tasks.