KEA RESEARCH

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

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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

Estimating Long-term Economic Growth and National Income in North Korea: 1956-1989

Taehyoung Cho (Bank of Korea) and Minjung Kim (Bank of Korea)

Year 2021 / Vol 69 / No 1

This study estimates North Korea’s long-term economic growth rate from 1956 to 1989. After reconstructing production data series for major products such as grain, fabrics, coal, steel, electrical power, cement, etc., each industry’s GDP growth rate is estimated by linking relevant production data to that specific industry’s added value. Seven industries are considered:agriculture, forestry & fishing; mining; light industry; heavy chemical industry; electricity, gas & water supply; construction; and government services. Based on industry-specific growth rates, the growth rate for the total economy is computed using the chained Laspeyres index number formula. As a result, the North Korean economy is estimated to have grown on average at 4.7% annually from 1956 to 1989. This is roughly similar to the 4.2% for the same period suggested by Kim, Kim, and Lee (2007), a representative study in the field. By period, the economy achieved a high annual growth rate of 13.8% in the late 1950s, while it fell to the 4-5% range in the 1960s and further diminished to grow at a rate of 2-3% in the 1970s and 1980s. In other words,the economic growth of North Korea before 1990 can be interpreted as “one big jump.” By industry, mining and manufacturing grew at 7.3% annually over the whole period, while agriculture, forestry & fishing and services grew at 2.5%and 4.6%, respectively. The mining and manufacturing-centered growth in the economy resulted in excessive investment in the same industries and an imbalance in growth among all the industries. Meanwhile, this paper shows that South Korea’s per capita income, in terms of real GNI denominated in U.S.dollars, is estimated to have surpassed that of North Korea in the mid- to late 1960s. In addition, North Korea’s real GDP per capita grew relatively sluggishly compared to other socialist country cases

A Study on the Long-Term Trend of Inequality of Opportunity for Income Acquisition in Korea using KLIPS and HIES

Jisub Shin (Seoul National University) and Biung-Ghi Ju (Seoul National University)

Year 2021 / Vol 69 / No 1

Inequality of opportunity for income acquisition exists when the prospect(probability distribution) of income acquisition with a higher parentalsocio-economic status dominates the prospect with a lower parentalsocio-economic status. Our main objective is to analyze the existence and the long-term trend of this inequality of opportunity in Korea. Our concept of opportunity inequality relies only on simple information on parentalsocio-economic status such as education level, which facilitates our inquiry of the long-term trend. We use both the Household Income and Expenditure Survey (HIES) and the Korean Labor & Income Panel Study (KLIPS). We consider individual households in KLIPS and estimate their household permanent income using HIES. We show persistence of the inequality of opportunity over the period from 1990 to 2016. We analyze the degree of inequality of opportunity using Gini opportunity inequality index and the Rags-to-Riches opportunity inequality index. Both indices exhibit increasing long-term trends, which are statistically significant. We also find that the opportunity inequality indices decline more than 50% when they are measured among individuals with college education. This shows that education plays an important role in overcoming opportunity inequality due to ones’ parental or family background.

Event-Study Tests of the Effectiveness of Foreign Exchange Market Interventions in Korea

Namjong Kim (Korea Institute of Finance), Haesik Park (Korea Institute of Finance) and HyeonSang Jang (Korea Institute of Finance)

Year 2021 / Vol 69 / No 1

We conduct an empirical analysis to examine the effectiveness of foreign exchange market interventions in Korea. Daily data of both actual and or alinterventions are constructed using information extracted from media articles and market reviews of the Korean Money Brokerage Corporation during the period from January 2000 to December 2018. We employ an event study approach to take into account the clustering feature of constructed intervention data. The event study is implemented by identifying intervention events from the intervention data, estimating their success rates, and verifying statistical significance of the success rates through a non parametric test. Our main findings are as follows. We find that interventions in the Korean foreign exchange market exert significant influence on the won/dollar exchange rate.Actual interventions are estimated to have greater influence than or alinterventions. Repeated interventions are found to be more effective tha none-time interventions.

KOREAN ECONOMIC REVIEW

Burdens of Proof and Judicial Errors in Civil Litigation

Jeong-Yoo Kim (Kyung Hee University)

Year 2021 / Vol 37 / No 1

This paper considers the effect of whether burden of proof is assigned to plaintiffs or defendants in tort claims on the defendant’s care-taking incentive under the possibility of judicial error. We argue that it is socially better to place burden of proof on the plaintiff if the proof costs of both parties are low and the evidence is very accurate, thus reducing the wasteful incentive for defendants to commit over-precaution. If the burden of proof is placed on the defendant, it exacerbates the defendant’s over-precaution due to an accident avoidance effect whereby the defendant is incentivized to take more care to avoid an accident, thereby saving evidence costs. We also discuss the sine qua non rule in the case ofnoisy evidence and reconfirm the accident-avoidance effect. This is compared to the result of Gómez (2002).

Impacts of Liquidity Preference on Loan-to-Deposit Ratio and Regional Economic Growth: A Post-Keynesian View

Wonik Park (Gyeonggi Research Institute) and Byoungkil Min (Chungnam National University)

Year 2021 / Vol 37 / No 1

In this study, we analyze the loan-to-deposit ratios (LDRs) and regional economic growth from the perspectives of Post-Keynesian endogenous money theory and liquidity preference theory. We also discover policy implications from the simulation results of a stock-flow consistent model. Contrary to the interpretation of exogenous money theory, we find that a low LDR in a region implies a high level of economic activity. Furthermore,regional economic gaps may emerge through the differences in the liquidity preferences of regions, that is, the liquidity preference differences among regions may lead to differences in various economic behavior, such as willingness to lend, investment propensity, and consumption propensity, which may exacerbate the regional economic gap. Therefore, regional finance should be examined from the perspectives of endogenous money theory and Keynesian theory of liquidity preference. 

Payments Systems, Liquidity, Collateral, and Central Banking

Hyung Sun Choi (Kyung Hee University)

Year 2021 / Vol 37 / No 1

A monetary model is constructed to explore the risk-sharing role of gross settlement as a determinant of money demand for consumption in a credit economy. Due to a deferred payment system, the costs of gross and net settlement are sensitive to the nominal interest rate. Gross settlement may dampen a consumption loss against interest-rate risk arising from inflation by acquiring additional cash from a financial market. Hence, it is optimal for the government to influence inflation and to drive net settlement out of a payment system. For payment policy, the optimal collateral requirement ratio is one whereas for monetary policy the optimal money growth rate is infinity. Payment policy can be a useful alternative to monetary policy. 

KOREAN ECONOMIC FORUM

An Evaluation of the Reform and Opening of the North Korean Economy in the Kim Jong-un Era

Dongho Jo (Ewha Womans University)

Year 2021 / Vol 13 / No 4

Since taking power, Kim Jong-un has continued to pursue new economic policies and measures. In terms of slogans symbolizing his era, he put forward ‘byungjin’ which means simultaneous development of the economy and nuclear weapons, abandoning ‘military-first’ of the Kim Jong-il era. In 2018 he went one step further and declared the ‘all-out concentration on socialist economic construction’, which can be called ‘economy-first’. In fact, positive changes such as the utilization of market functions, decentralization of economic decision making, and expansion of special economic zones are observed. It is difficult to say that the North Korean economy has yet to enter a phase of reform and opening, from the standpoint that reform should not be a simple improvement but a fundamental change in the socialist planned economic system itself, represented by privatization and liberalization, and that opening is to upgrade the level of domestic economic system and policies by understanding international standards and acquiring the benefits of international division. North Korea also publicly and officially denies the need for reform and opening. Nevertheless, in terms of directionality, it is assessed that the North Korean economy has already entered a difficult phase to revert. The change towards reform and opening itself is not a matter of choice, but only a matter of scope and speed.

Changes in Economic Conditions Under COVID-19 and the Effects of Fiscal Policy

Soyoung Kim (Seoul National University) and Yonggun Kim (Seoul National University)

Year 2021 / Vol 13 / No 4

This paper briefly reviews the effectiveness of fiscal policy under low interest rates and the effects of fiscal policy under alternative financing methods, and discusses implications for the Korean economy. Previous studies suggested that an increase in government spending at zero lower bound could have a greater effect on the economy by raising inflation expectations and lowering real interest rates. This result can vary depending on a variety of factors, including the types of shocks and fiscal policy. In the case of the COVID-19, not only the demand side but also the supply side and the psychological side are causing overall difficulties in economic activities. So even if the policy rate reaches the effective lower bound, there is a limit to apply the results of existing studies on the premise of a demand shock. In addition, the effect of fiscal policy may be weaker than usual because economic activities are limited under the COVID-19. A structural VAR model using Korean data developed in past studies was used to analyze how the effect of government expenditures would change if the method of financing was changed. The results show that government spending has a greater effect on the economy with debt-financing than with tax-financing. However, it should also be noted that the risk premium could rise, which adversely affects the economy in the long run as government debt continues to grow under expansionary fiscal policies with debt-financing.

Equity in the Taxation of Labor and Asset Incomes

Byung Mok Jeon (Korea Institute of Public Finance) and Chul-in Lee (Seoul National University)

Year 2021 / Vol 13 / No 4

This study analyzes the equity in tax burden between labor income and asset income from savings and various forms of asset. The optimal taxation theory supports the validity of capital income taxation. Consideration should be given to macroeconomic stability and the theory supports a single tax rate approach to asset incomes. The estimated tax burden by asset income type and income level is generally higher than labor income in Korea, and the gap among asset income taxes is also found to be significant. We need to moderate high tax burdens and narrow the taxation gap among assets. In particular, the level of taxation on housing investment is very low and needs revision. The redistribution effect at the household level due to taxation of asset income was not significant.