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

Tax Structure, Economic Growth, and Income Inequality: Long-term Analysis and Policy Implications

Young Lee (Hanyang University)

Year 2021 / Vol 14 / No 1

Using unbalanced panel data of countries, the paper investigates tax structure,economic growth, and income inequality. We observe three different types of welfare and corresponding tax system among countries with steady growth.Growth regression results show that countries with lower corporate income tax rates tend to grow faster, consistent with existing studies. Income ineqaulity regression results show that personal income tax rates and their progressivity are associated with lower income inequality. Main policy implication of the paper is that countries need to have progressive personal income tax and low corporate income tax to pursue economic growth and equity simultaneously.

Assessing the Impact of Legislating the ILO Agreement on Full-Time Union Officers

Joonmo Cho (Sungkyunkwan University) and Ki Duk Kim (Sun Moon University)

Year 2021 / Vol 14 / No 1

In February 2021, the bill, removed provisions that prohibited the payment of wages to full time union officer, passed in the National Assembly as an acceptance of recommendations raised in the agreement of ILO thereby changes in activity contents of labor unions are expected. In the present study, the trend and changes in distributed times for the past five key activities of labor unions within the limit of time-off system were observed. The key activities dominant among entire hours granted by the time-off system were occupied by the collective bargaining on determination of level of wages, which appeared increasing by 1.38% in 2019 comparing to that of 2013 except for other activities of labor unions. Contrastingly, the increase in distributed times for the activities of the Industrial Safety and Health Committee is still negligible despite its increase by 23.47% comparing to that in 2013. The total amount of hours granted by time-off system is expected to be increasing to a certain extent as an effect of legislation. In this case, the increase in activities to prevent industrial disasters and improvement in times granted by the time-off system biased to collective bargaining of wages is needed. Thus the government is suggested to support both employers and employees to get reasonable balance of times granted by the time-off system through monitoring and pertinent consult in gadded to regular factual surveys of respective industries. And it is also needed to socially propagate the recognition of activities, to prevent industrial disasters by labor unions through exploiting the time-off system, as soc

A Capitalist Manifesto: The Capitalist Economy is a Corporate Economy

Sung-Hee Jwa (Park Chung Hee Memorial Foundation)

Year 2021 / Vol 14 / No 1

The purpose of this paper is to argue that the capitalist economy is a corporate economy dominated by corporate organizations based on theoretical analysis and historical experience. The joint-stock company system, a social technology invented by mankind, despite Karl Marx’s stigma as a means of exploitation and ignorance of market-oriented economics, has led to the prosperity of the capitalist economy today. Like the market, the corporate organization is a device that induces shared growth by motivating production factors through selection and differential compensation based on economic performance. However, unlike market transactions that rely on consensus, the corporate organization is a device that internally allocates resources through hierarchical control, so it cannot only correct market failures by saving transaction costs, but also monitor and evaluate the performance of production factors more efficiently. By presenting a general theory of economic development that explicitly introduced the role of economic development of the corporation as well as the market and the government, this paper clarified the nature of capitalist economic development and, thereby, could theoretically substantiate the capitalist manifesto that capitalist economy is a corporate economy.