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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Thank you for your support for the Korean Economic Association (KEA). The KEA has been representing Korean economists for the last 70 years. Now we have about 5,000 members including more than 1,000 life members.

KOREAN JOURNAL OF ECONOMIC STUDIES

The Effect of Child Support Payment Coupons in Response to COVID-19 on Household Spending

Chulhee Lee (Seoul National University) and Sujin Lee (Seoul National University)

Year 2021 / Vol 69 / No 3

This paper examines the household spending effects of child support payment coupons in South Korea, which were granted to subsidize households suffering from COVID-19. The results of difference-in-differences estimation suggest that child support payment coupons increased household spending by a weekly average of 22,355 South Korean Won (KRW) over 10 weeks, which is 8.8% of the treatment group’s average consumption for the period of analysis. Child support payment coupons have positive impacts on supporting both children and small-scale business-owners. The effect on household spending is shown to be significantly larger for low-income households, compared to that of the top 20% of households. We find that coupon redemption replaces some of the household spending that would occur if there was no support from the government. The size of the net effect (weekly average of 22,355 KRW over 10 weeks) is determined by the difference between coupon redemption (57,620 KRW) and the size of the substitution effect (35,256 KRW). These results imply that the net effect of the coupons is estimated to be approximately 39% of the coupon redemption for 10 weeks. We also discuss the implications of our findings on the effects and design of government subsidies.

The Impact of Greenhouse Gas Abatement Policy on Manufacturing Industries in South Korea

Eunsun Gil (Korea Institute for Industrial Economics & Trade), Sul-Ki Lee (Korea Institute for Industrial Economics & Trade) and Mira Rim (Bank of Korea)

Year 2021 / Vol 69 / No 3

CO2 emissions in Manufacturing industry account for about half of national greenhouse gas emissions in South Korea. To control for endogeneity between output and greenhouse gas emissions, this paper uses employment and total payroll as instrumental variables in an analysis of 2012-2018 linked panel data. Following the implementation of climate policy, CO2 emissions from production activities in the manufacturing sector increased significantly, running counter to policy objectives. Since the primary metals industry shows a high degree of regional heterogeneity in carbon dioxide emissions relative to its production level, it is necessary to upgrade facilities and adopt technologies for particularly ‘brown’ firms.

Theoretical and Empirical Analysis on the Effects of ‘Social Progress Credit Program’ on Participating Social Enterprises

Hyunwoo Hong (Institute of Economic Research, Seoul National University) and Biung-Ghi Ju (Seoul National University)

Year 2021 / Vol 69 / No 3

The purpose of subsidizing social enterprises is to help supporting innovative social enterprises and their growth through providing incentives of their social impacts. However, to function as an effective incentive scheme, the subsidy allocation must be designed to reward social impact performances properly. This study uses data from the “Social Progress Credit Program” in the private sector to theoretically and statistically analyze the effect of the subsidy program on the performances of social enterprises, in particular, their social impacts. The program is designed to measure social impact in monetary units and provide monetary incentives in proportion. If participating firms maximize theirperformances expressed as weighted averages of profit and social impact, the program will provide firms incentives to increase their social impacts and more support is provided to firms that generate social impact more efficiently. It also provides incentives for firms to increase their social impact in each period, being designed to provide proportional support for the growth in their social impacts over a three-year period. Empirical analysis shows that the subsidy program incentivized the firms to increase their social impacts and their social impacts increased year by year, which is consistent with our theoretical results.

KOREAN ECONOMIC REVIEW

On the Long-Term Effect of Recent Housing Policies in Korea

Byoung Hoon Seok (Ewha Womans University) and Hye Mi You (Hanyang University)

Year 2021 / Vol 37 / No 2

This paper explores the long-term effect of recent housing policies in Korea. Using a twosector general equilibrium model with heterogeneous agents, we conduct three policy experiments: i) a reduction in the loan-to-value (LTV) ratio; ii) an increase in the house acquisition tax rate; iii) an increase in the property tax rate. We find that all three policies increase the relative price of housing structures in the long run, yet their quantitative effect is small, and that the reduced LTV ratio is effective in reducing the household debt. Heterogeneous responses to these policies depending on household wealth are crucial in these results. 

The Economic Costs of Diplomatic Conflict: Evidence from the South Korea–China THAAD Dispute

Hyejin Kim (Bank of Korea) and Jungmin Lee (Seoul National University and Institute of Labor Economics (IZA))

Year 2021 / Vol 37 / No 2

We examine the economic effect of the diplomatic conflict between South Korea and China that resulted from the joint decision by South Korea and the U.S. to deploy the Terminal High-Altitude Area Defense system in the Korean peninsula. Using the synthetic control method, we estimate the conflict’s effects on Chinese tourists to Korea and stock prices of China-related Korean firms. We find that a negative effect on the inflow of tourists appeared with a lag of 3 months after the announcement of the decision and persisted for approximately 18 months. By contrast, the effects on the stock market appeared immediately but were insignificant and short-lived. 

The Uniqueness of Dynamic Groves Mechanisms on Restricted Domains

Kiho Yoon (Korea University)

Year 2021 / Vol 37 / No 2

This paper examines necessary and sufficient conditions for the uniqueness of dynamic Groves mechanisms when the domain of valuations is restricted. Our approach is to appropriately define the total valuation function, which is the expected discounted sum of each period’s valuation function from the allocation and thus a dynamic counterpart of the static valuation function, and then to port the results for static Groves mechanisms to the dynamic setting. 

KOREAN ECONOMIC FORUM

Development of Korea’s National Health Insurance System: Political Economy and Macroeconomic Considerations

Joon-Kyung Kim (KDI School of Public Policy and Management) and Jun Il Kim (IMF)

Year 2021 / Vol 14 / No 3

Korea’s national health insurance system (NHIS), which played a pivotal role in responding to the COVID-19 pandemic, has been considered as one of the most efficient and affordable public health insurances in the world. This case study is a historical account of political economy and macroeconomic considerations involved in the development process of NHIS. Since first instituted in 1977 for workers in large firms only, NHIS has expanded rapidly and in several steps to cover the entire population by 1989 and achieve maximum risk pooling and adequate social equity by 2000. Underlying such apparent success were the government’s commitment to fiscal prudence, balanced considerations on affordability and social equity, adequate government control on health cost, and political democratization.

Fiscal Policy in Post Covid 19 Periods

Jong-Suk Han (Ajou University)

Year 2021 / Vol 14 / No 3

This paper suggests the mid-term fiscal plan to recover fiscal sustainability after the massive government expenditure reacting to the Covid-19. We conduct the debt sustainability analysis to examine the main driving forces for the government debt increase. As expected, the primary deficit mostly drives the debt increase; meanwhile, the low interest rate environment does not provide alarge fiscal space in Korea. Using the debt dynamics, we project the debt trajectory from 2026 to 2030. Our analysis suggests that the overall balance deficit should be set around 2% to carry out the recently proposed fiscal rule.

International Comparison of Distribution and Allocation of Cognitive Skills

Yoonsoo Park (Sookmyung Women’s University)

Year 2021 / Vol 14 / No 3

This study compares the distribution and allocation of cognitive skills of 16-65 year old population in 33 countries including Korea. Comparing the distribution of cognitive skills by country reveals that Korea ranks higher at the bottom of the skill distribution but ranks lower at the top of the distribution. Comparing the allocation of cognitive skills between public and private sectors by countryshows that the cognitive skills of public sector workers tend to be higher than that of private sector workers in Korea and that the superiority of the public sector workers in Korea is evident at the top of the skill distribution. These results suggest that Korea has fewer high-skilled workers compared to major countries, and that in Korea, high-skilled workers are mainly allocated in the public sector.