KEA RESEARCH

Introduction & History

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

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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

Distributional Relationship between the Korean and the U.S. Stock Markets Analyzed by a Functional Regression Approach

Gyung Mo Kim (Sungkyunkwan University) and Heejoon Han (Sungkyunkwan University)

Year 2019 / Vol 67 / No 2

This paper investigates spillover effects from the U.S. stock market to theKorean stock market by considering a functional regression model. Instead ofusing stock market indices, we consider cross-sectional distributions of allstock returns that comprise the KOSPI index and the S&P 500 index. We usedaily data from January 2005 to December 2013 and consider threesubsamples: pre-crisis, crisis and post-crisis period. We estimate a functionalregression model and adopt novel econometric tools recently proposed by Huet al. (2016) to analyze the relationship between cross-sectional distributionsof two stock markets. We use response functions to examine how eachmoment and tail probability of the Korean stock market distribution react toshocks in the US stock market distribution. We also conduct variancedecomposition and provide interpretations on spillover effect from the U.S.stock market to the Korean stock market. The spillover effects to mean,variance and left tail probability were higher in the post-crisis period than inthe pre-crisis period and were the highest during the crisis period. On thecontrary, the spillover effect to right tail probability was the highest in thepost-crisis period.

Health Risks from Particulate Matters (PM10) and Averting Behavior: Evidence from the Reduction of Outdoor Leisure Activities

Young Sook Eom (Chonbuk National University) and Hyungna Oh (Kyung Hee University)

Year 2019 / Vol 67 / No 2

Using a national panel web survey data with 1,224 respondents, the tobitdemand model of outdoor leisure activity reduction was jointly estimated withrisk perceptions about particulate matters (PM10) using an instrument variableapproach. Respondents’ risk perceptions of PM10 had significant influences onthe participation and demand decisions of averting behavior, while they had nosignificant impact on demand for daily outdoor leisure activities. Whereas theobjective measure of PM10 concentration matched with respondents’ residentialregion had indirect impacts on averting behavior through changes inrespondents’ subjective risk perceptions, Based on estimates of tobit demandmodel of averting behavior, respondents were willing to pay at least a monthlyaverage of 16,000 won for a one unit reduction(based on a 0-10 linear likert)in their risk perceptions.

Interest Rate Differential and Capital Flows: A Theory and Empirical Analysis

Youngjin Yun (The Bank of Korea) and Jongwook Park (The Bank of Korea)

Year 2019 / Vol 67 / No 2

We study the effect of interest rate differential between Korea and US oncapital flows of Korea. We first build a simple small open economy modelwhich shows that the capital flow is a function of interest rate differential,growth and financial friction. Guided by the model, we empirically test theeffect of interest rate differential on capital flows using the financial account ofmonthly balance of payment data of Korea from 2002 to 2018. Deploying theautoregressive distributed lag model and the local projection method, we findthat capital flows of Korea became more sensitive to interest rate differentialafter the Global Financial Crisis. The effect is mainly coming from residentbanks’ borrowing from abroad, and non-residents’ bond investment. The smallopen economy model suggests that this may be a result of reduced barriers tointernational capital flows and economic growth.

KOREAN ECONOMIC REVIEW

Within-District School Lotteries, District Selection, and the Average Partial Effects of School Inputs

Eleanor Jawon Choi (Hanyang University), Hyungsik Roger Moon (University of Southern California) and Geert Ridder (University of Southern California)

Year 2019 / Vol 35 / No 2

This study proposes an econometric framework to consistently estimate the average partial effects (APE) of school inputs on academic achievement when students are randomly assigned to schools within each school district but endogenously sort across school districts.We illustrate our method by estimating the APE of single-sex schooling and class size on standardized test scores using data from Seoul, Korea in the period of 2008-2009. Our APE estimates are smaller than the estimates from conventional linear regressions with school district fixed effects, which do not fully correct for endogenous district choice and thus suffer from selection bias. 

Endogenous Growth and Equilibrium Cycles under Altruistic and Envious Preferences

Hyun Park (Kyung Hee University)

Year 2019 / Vol 35 / No 2

This study examines how habit persistence in preferences affects short- and long-run economic growth in a dynamic competitive economy and addresses the possibility of equilibrium cycles in the presence of habit persistence in preferences. The study shows acontinuum of transitional competitive equilibrium paths, each of which converges to a unique balanced growth path when external habits influence a household’s preferences and when a firm’s productivities increase in public capital services financed by consumption taxes. The self-fulfilling sunspot equilibrium path exhibits equilibrium cycles underaltruistic or envious preferences in a growing competitive economy with exogenous fiscal policies. The study also demonstrates that a distortionary fiscal policy, including consumption tax, acts as a stabilizer for sunspot-driven fluctuations among rational expectation agents, selects a unique transitional path around the unique balance growth path, and eradicates equilibrium cycles in the social optimum. 

Endogenous Timing with a Socially Responsible Firm

Arturo García (Tecnológico de Monterrey, Campus Monterrey), Mariel Leal (Tecnológico de Monterrey, Campus Monterrey) and Sang-Ho Lee (Chonnam National University)

Year 2019 / Vol 35 / No 2

This study considers a duopoly model in which a socially responsible (SR) firm competes with a private firm by incorporating environmental externality and clean technology. We analyze the endogenous market structure where both firms strategically, sequentially, or simultaneously decide quantities, which also affect abatement activities. We reveal that depending on the relative concerns on environment and consumer surplus, the SR firm can be less or more aggressive in production and abatement, and it may earn high profits. Thus,not only the significance of externality but also the instrumental conflict of social concerns are crucial factors in determining the equilibrium of endogenous timing game. Finally, we indicate that unless the concern for externality is high, the simultaneous and sequential move game with SR firm leadership are socially desirable. 

KOREAN ECONOMIC FORUM

Fair Society and Sustainable Economic Development: Policy Direction for Korean Economy

Biung-Ghi Ju (Seoul National University)

Year 2019 / Vol 12 / No 2

The outdated economics of equity and growth, emphasizing the efficiency lossof redistributive government intervention and the trade off between equity andgrowth, is inconsistent with the experience of developed economies in recent 30years and the experience of economic development in developing countries.Conventional wisdom of development economists that low inequality, higheducation and human capital accumulation served as the driving force ofeconomic miracles in Japan, Korea, and Taiwan assumes various causalmechanisms among inequality, redistribution and economic growth. Recenttrends in economics of equity and growth emphasize the study of these causalmechanisms. It has provided a deeper insight into the relationship betweendistribution and growth, which classical economics was unable to account for.Inequality can act as a barrier to sustainable development and economic growth,and government redistribution can create greater social benefit than its ownefficiency loss, and thus drive economic growth. Based on these researchachievements, major international organizations have emphasized the importanceof inclusive state systems. The current status of Korean society, exhibiting highinequality and polarization, ever-growing hierarchical disparity and opportunityinequality, high perception of corruption and low social trust, indicates theurgent need for developing an inclusive state system. Strengthening welfaresystem, social safety net, and redistributive role of the state and establishing afair market order is necessary for that purpose. In addition, sufficient stateinvestment in early childhood care, child care, primary, secondary and highereducation has the dual effect of not only reducing inequality of opportunities butalso strengthening the human basis for sustainable economic growth.

Income-led Growth, Innovative Growth, and New Business Ecosystem: Complementary? or Contradictory?

Choong Yong Ahn (Chung-Ang University)

Year 2019 / Vol 12 / No 2

The current Moon Jae-in administration of Korea, during more than two yearsin office, has adopted as its flagship economic policy an income-led growthcoupled with an innovative growth to urgently create jobs and resolve rampantunemployment, acute income polarization and slowing growth. The highestpriority income-led growth policy has been implemented through a recordminimum wage hike. The innovative growth policy with a far-lesser priority hascentered on government-led subsidized venture businesses. The dual policieshave produced significantly opposite results deviating from the intendedobjectives, being not harmonious each other but mutually contradictory. Koreaneeds to make a fundamental shift from the wage-led growth to an innovativegrowth regime. Specifically, the minimum wage for 2020 needs to be frozen,together with flexible working hours, digitalization, globalization, the humancapitalization of micro businesses and adequate social safety nets. Korea alsoneeds to create a new business ecosystem between big and small businesses.

Labor Productivity, Wage and the Labor Income Share in the Korean Economy

Kang-Kook Lee (Ritsumeikan University)

Year 2019 / Vol 12 / No 2

This study presents an empirical analysis to criticize Park(2019) about therelationship between the growth of labor productivity growth and wage in Koreaafter 2000. He argues that former studies that reported the largeproductivity-wage gap in Korea were wrong in terms of interpretation of statisticsbecause of the difference between price indices. However, this study argues thathis conclusion is not correct because it uses problematic wage data that do notcover all workers in the whole national economy. This study finds that there wasa large gap between nominal gross labor productivity and nominal wage for the2000-2017 period, using data from national accounts. It also reports there wasa gap between net productivity and wage though it was relatively smaller. Thissuggests that the growth of wage was lower than that of labor productivity after1997, which led to the fall of the adjusted labor income share. In addition, afterexamining debates about the measurement of the labor income share in Korea,this study argues that we should rigorously analyze the labor income share.