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



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Uncovering Regional Economic Fluctuations by Factors and Their Impacts on the Regional Confidence Cycle: Evidence from Busan

Inhwan So (Bank of Korea), Choon Sung Lim (Bank of Korea) and Soosung Moon (Bank of Korea)

Year 2023 / Vol 71 / No 3

This paper investigates the economic fluctuations in different regions of South Korea, focusing on Busan, which has experienced significant disparities in growth rates compared to other regions. Using a dynamic factor model, we decompose variations in regional economic variables into a common national factor and a regional factor and assess the impacts of each factor. Our findings indicate that a national factor has a more significant impact on Busan’s economic fluctuations than regional factors. Nevertheless, despite its association with the national business cycle, the persistence of negative regional factors has hindered Busan’s growth rate from narrowing the gap. To explain this phenomenon, we examine a potential cause—a vicious cycle in which negative regional factors can exacerbate economic expectations and adversely affect regional factors again. Using a VAR model, we demonstrate that such concerns are not significant, as the regional factor does insignificantly impacts local consumer expectations, while positive national shocks positively affect consumer sentiment in Busan over an extended period.  

Random Forest for Stationary Time Series: The Case of Forecasting Inflation in Korea

Heejoon Han (Sungkyunkwan University)

Year 2023 / Vol 71 / No 3

This paper first investigates whether adopting the stationary bootstrap or the moving block bootstrap, instead of the usual independent bootstrap, in the random forest method improves forecasting of stationary time series. It is shown that the block bootstrap procedures adopted in the random forest method do not make any statistically significant improvement in Korean or US inflation forecasting. Secondly, we consider inflation forecasting in Korea using 93 macroeconomic/financial variables and various machine learning methods. The samples are from September 2004 to March 2022. Comparing total 13 models, one model outperforms the rest models for most forecast horizons, which is a simplified method of the model proposed by Kim and Han (2022). The method consists of the following two steps: 1) Select important variables based on the Boruta algorithm, 2) Using only those selected variables, implement the random forest and produce a forecast. The tests by Giacomini and White (2006) and Hansen et al. (2009) show that the model provides significantly better forecasts for most forest horizons. In particular, the Boruta algorithm selected total economically active population, total employed persons, BSI, house price as important variables for Korean inflation forecasting. 

Corporate Diversification Strategy and Business Cycles: Empirical Evidence

Jiyoon Oh (Myongji University)

Year 2023 / Vol 71 / No 3

We empirically analyze whether geographic market diversification, or product diversification, reduces firm performance fluctuations during recessions. The degree of diversification is measured by whether firms diversify geographically by entering export markets and by offering a variety of products and services. Using the financial data of externally audited firms, we examine the relationship between the degree of diversification and changes in business performance (sales growth rate, operating margin) and factors of production (labor cost and investment rate in tangible assets) during the recession. The results show that geographic diversification does not show a common portfolio effect during the recession, but exporters perform relatively better during the recession when domestic demand declines are more pronounced than abroad. Using the share of primary products as a measure of diversification, we find a portfolio effect of diversification across recessions. In manufacturing, the slowdown in labor and capital was significantly lower, and non-manufacturing firms had relatively higher sales growth during the recession. This suggests that when the decline in demand during a recession is different across industries, firms with a higher degree of diversification experience less variation in performance due to portfolio effects. 


The Rise of E-Commerce and the Local Wage Structure: Evidence from the Korean Retail Industry

Donghan Shin (Korea Institute for Industrial Economics & Trade) and Hyunbae Chun (Sogang University)

Year 2023 / Vol 39 / No 2

The widespread adoption of e-commerce by households has had a significant impact on local brick-and-mortar retailers, changing the wage structure of local service workers. In this study, we examine the effect of e-commerce penetration (EP) among households on the local wage structure during the period 2011–2016. Using the novel measure of county-level EP based on consumers’ credit card transactions for online shopping, we find that counties with rapid EP exhibit a broader difference in the local wage growth of skilled and unskilled workers. An increased skill wage gap can be mainly attributed to the wage gains of highskilled workers, whereas the wages of most unskilled workers show little change. These findings suggest that the skill premium associated with e-commerce diffusion may be concentrated in urban regions where high-skilled workers are in abundance.  

External Information and Fiscal Multipliers

Byung Ho Lee (Bank of Korea) and Kwangyong Park (Bank of Korea)

Year 2023 / Vol 39 / No 2

To quantify the effects of government spending accurately, exogenous changes in government spending must be identified. In this study, we estimate a proxy VAR, which was developed by Stock and Watson (2012) and Mertens and Ravn (2013), using a revised supplementary budget from the government as the instrumental variable to derive fiscal multipliers in Korea. Through this methodology, we identify government spending shocks that have purged effects, such as automated stabilizers, without assuming the timing restriction that is widely employed to estimate multipliers. The empirical analysis shows that exogenous increases in government consumption and investment, as well as government transfers, all increase GDP and private demand statistically significantly. To be precise, the one-year cumulative multipliers are 1.02 and 0.54 for government consumption plus investment and transfers, respectively.  

Welfare Aspects of Estate and Gift Taxes in Life Cycle Economies

Troy B. Felver (West Virginia University) and Jane Yoo (Ajou University)

Year 2023 / Vol 39 / No 2

We study the welfare implications of lowering estate and gift taxes in an overlapping generations model, wherein heterogeneous agents face uncertain lifetimes and leave both accidental bequests and voluntary gifts to their children. According to the findings from the Survey of Consumer Finances, we consider inter vivos giving made by a working parent while receiving bequests from his parent(s). We conduct numerical experiments by changing tax rates and exemption levels in closed and small open economy settings. By adjusting unified tax rates, we discuss the theoretical implications of optimal gift and estate tax rates on improving aggregate capital stock and expected lifetime utility. The welfare gains from higher and broader tax rate changes are measurable and significant in a model with revenue neutrality using an alternative tax rule of capital gain taxes, thereby leading to the possibility that these taxes can effectively provide additional resources for the government to level up disadvantaged populations. 


Regional Diffusion and Structural Changes in Apartment Price Fluctuations

Hongjai Rhee (Ajou University)

Year 2023 / Vol 16 / No 3

This study analyzes the regional diffusion pattern of fluctuations in domestic apartment transaction prices from 2010 to 2022. The distinctive features of this research compared to previous literature are as follows: (1) The sample is divided into two periods, and possible structural changes in the process of how apartment transaction price fluctuations in the Seoul area, particularly by Gangnam-gu, spread to other regions are analyzed. (2) To mitigate the issues of index integration and multicollinearity, the nationwide apartment market is divided into 19 regional markets based on the correlation of price indices time series and geographical proximity. Then, representative time series for each region are extracted to estimate the VAR (Vector Autoregression) models. The main results indicate that before 2016, the shock of Gangnam-gu’s price index had an overwhelmingly high, widespread, and statistically significant effect on other time series nationwide. However, after 2016, the magnitude and scope of this effect rapidly decreased. These findings support the hypothesis of structural changes, and this study establishes and interprets the hypothesis within an integrated framework of inter-regional substitutability. 

Natural Experiments on the Wage Differentials between Standard and Nonstandard Work

Jong In Yoon (Baekseok University)

Year 2023 / Vol 16 / No 3

This study estimated the wage gap between standard and non-standard workers. The wage differentials by employment status are often overestimated because it is not controlled using control variables or covariates. Nevertheless, finding appropriate control variables or covariates is very difficult. Therefore, this study conducted a natural experiment focusing on workers who experienced changes in employment status. According to the results, in the case of workers who switched from standard to non-standard workers, 77.2% of the wage change was explained by the employee attributes and the rest by the employment status. In addition, in the case of workers who switched from non-standard to standard workers, 70.5% of the wage change was explained by the employment status and the rest by the employee attributes. From this, comparing the wages of standard and non-standard workers, the latter was 12.5~18.4% lower than the former. 

Who Has Published Papers in MDPI Journals?: Analysis on the Research Performance of Korean University Professors in 2018-2020

Kigon Nam (Hanbat National University) and Jung Her, Eunhwa Kwon, Myeongjin Kim, Eunju Lim, Hyejin Jung (National Research Foundation)

Year 2023 / Vol 16 / No 3

In this paper, we analyzed which types of professors published papers in MDPI journals, and how much these MDPI journal papers contributed to professors’ promotion, using the data of the number of papers published by Korean university professors between 2018 and 2020. As a result of the analysis, the propensity to publish papers in MDPI journals was stronger when there was pressure for promotion, such as associate professors and assistant professors compared to full professors, and whaaren there was a strong demand for research performance due to participation in government’s financial support programs for universities such as the BK project. On the other hand, the tendency to publish papers in MDPI journals tended to decrease in universities whose research capabilities exceeded a certain level. In particular, in the case of the Institute of Science and Technology, the propensity of professors to rely on MDPI journals was significantly lower. When analyzing the effect on the probability of promotion to professorship, the effect of the number of papers in MDPI journals on promotion was slightly smaller in absolute value than that of SCI-level papers, but showed a positive effect similar to that of KCI-level papers. Contrary to the overall trend, however, the number of papers in MDPI journals on promotion was not significant in the Institute of Science and Technology. The results of the paper’s analysis suggest that economic incentives can influence professors’ choice of which journal to publish their papers, but that the culture or climate of the affiliated university can also affect this selection process.