Introduction & History


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



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Growth Model with Declining Population and Its Application to the Korean Economy

Jong-Wha Lee (Korea University)

Year 2023 / Vol 71 / No 1

Facing population decline, Korea is expected to experience a continuous fall in its economic growth rate in the future. This study analyzes the growth path of an economy with a negative population growth rate. The growth model implies that the equilibrium economic growth rate is not determined proportionally to the rate of population growth. Other important factors, such as physical and human capital accumulation, technological progress and elasticity of substitution between physical capital and labor, also play an important role in determining the growth rate. Assuming the future population projections of the National Statistical Office, we simulate the model to predict Korea’s economic growth rates until 2060. Depending on the parameter values, average annual GDP growth in 2050-2060 is estimated to be 0.2-1.5%, and per capita GDP growth is 1.5-3%. The Korean economy can grow on a higher growth path by improving the quality of the labor force and promoting technological progress and investment in physical capital. 

A Study on the Characteristics of Domestic Banks’ SME Loans

Han Ik Jang (IBK Economic Research Institute) and Nam Hyun Kim (Korea Deposit Insurance Corporation)

Year 2023 / Vol 71 / No 1

 In this study, the characteristics of deposit banks’ SME loans due to changes in macroeconomics, loan market, and SME production were examined through Jorda (2005)’s local cubic projection model. According to the empirical analysis results, SME loans responded most sensitively to changes in SME loan interest rates among macroeconomic variables. In the relationship between SME production and SME loans, the effect of policies included in SME loans was greater than procyclicality. In other words, when the SME economy declines (rises), SME loans increase (decrease). Through the rolling regression, the procyclicality of SME loans has been reduced over time, however policies included in SME loans are expected to expand and maintain SME production. 

COVID-19 and Life Satisfaction: The Role of Personality Traits

Young-Geun Goh (Busan Development Institute) and Taehyun Ahn (Sogang University)

Year 2023 / Vol 71 / No 1

This study shows how life satisfaction changed after the pandemic according to demographic characteristics and analyzes how these changes are related to individual personality. Using the fixed effect model based on the Korea Labor and Income Panel Study (KLIPS), we find life satisfaction decreased after COVID-19, especially for women and young people. In particular, the effects of COVID-19 are heterogeneous across the personality and noncognitive characteristics of individuals. By including the interaction term between Big Five and COVID-19, we find the higher extroversion gets, the more life satisfaction decreased after COVID-19. However, neuroticism offsets the negative influences of COVID-19, which can lead to a slight increase in life satisfaction. 


Does the College Tuition Regulation in Korea Improve Social Welfare?

Dhongkyu Yoon (University of Washington) and Kyung-woo Lee (Yonsei University)

Year 2023 / Vol 39 / No 1

Since 2009, Korea’s college tuition regulation has reduced tuition by more than 20% in real terms. This paper examines the welfare effects of tuition regulation using a model of education choices depending on ability and wealth. College is costly but improves productivity and job prospects, whereas high school is free but has no benefits. If firms can observe workers’ abilities, tuition regulation can benefit most people because it makes college more affordable. However, if only workers can observe their ability, the welfare gain can be counteracted by the reduction in wages due to changes in education choices. In the simulated model, a 20% tuition reduction hurts approximately 90% of the population if only workers know their abilities. In contrast, it benefits more than 80% of the population if firms can also observe workers’ abilities. These findings suggest that tuition regulation may require complementary policies to facilitate the evaluation of workers’ abilities.  

A Study on the Causal Effects of Childbirth on Maternal Labor Supply in Korea

Cheolsung Park (Hanyang University) and Yuyeong Son (Korea Institute of Finance)

Year 2023 / Vol 39 / No 1

We estimate the causal effect of additional childbirth on mothers’ probability of working by using the two-stage least squares estimation method. Samples of mothers drawn from the 10%–20% Restricted Access Samples of the 2000, 2005, 2010, and 2015 Censuses are used. We use children’s gender composition as the instrumental variable for childbirth. We find that additional childbirth had significantly adverse effects on mothers’ probability to work up to 2010, but it is no longer likely to be the case. The ordinary least squares estimates still show a strong negative correlation between childbirth and maternal labor supply, which, our results indicate, is driven mainly by endogenous self-selection. We find that the labor supply of less-educated mothers is more adversely affected by childbirths.  

Regression Discontinuity with Integer Score and Non-Integer Cutoff

Myoung-Jae Lee (Korea University), Hyae-Chong Shim (Korea International Trade Association) and Sang Soo Park (Korea University)

Year 2023 / Vol 39 / No 1

In regression discontinuity (RD), the treatment is determined by a continuous score G crossing a cutoff c or not. However, often G is observed only as the ‘rounded-down integer S’ (e.g., birth year observed instead of birth time), and c is not an integer. In this case, the “cutoff sample” (i.e., the observations with S equal to the rounded-down integer of c) is discarded due to the ambiguity in G crossing c or not. We show that, first, if the usual RD estimators are used with the integer nature of S ignored, then a bias occurs, but it becomes zero if a slope symmetry condition holds or if c takes a certain “middle” value. Second, the distribution of the measurement error e G S = - can be specified and tested for, and if the distribution is accepted, then the cutoff sample can be used fruitfully. Third, two-step estimators and bootstrap inference are available in the literature, but a single-step ordinary least squares or instrumental variable estimator is enough. We also provide a simulation study and an empirical analysis for a dental support program based on age in South Korea. 


Recent Trends and Risk Assessment of Household Debt in Korea

Young-Il Kim (NICE Information Service)

Year 2023 / Vol 16 / No 1

This study analyzed the impact of recent changes in the macroeconomic environment on household debt insolvency risk by using CB data that can identify the most recent loan status by borrower and the Survey of Household Finances and Living Conditions that can identify financial status by household. It was confirmed that interest rate hikes, housing market slowdown, and sluggish incomes acted as factors that increased the insolvency risk of borrowers with household loans. This suggests that the household loan delinquency index will continue to rise during this year, following last year, considering the economic outlook for this year. As a result of analyzing the repayment capacity of indebted households based on cash flow and net assets by household, it was found that among indebted households, there were many households with weak cash flow, but in terms of net assets(equity capital), they secured repayment capacity above a certain level. Although the household loan delinquency index may rise rapidly in the short term due to the macroeconomic tightening policy, the trend is likely to be somewhat gradual as the technical and institutional factors that have led to the long-term downward trend in the delinquency index are expected to remain in effect. Meanwhile, as uncertainty in the financial market has recently increased, it seems imperative to check and respond to the possibility that the liquidity supply function of financial institutions may shrink, which could increase the risk in the household loan market. Of course, we cannot rule out the possibility that the risk of insolvency will greatly increase in some financial institutions and loan products due to the rapidly changing macro environment, so monitoring and management using timely data is necessary for borrowers, financial institutions, and loan products with high vulnerabilities in particular. The analysis in this paper is expected to provide meaningful implications for timely inspection and management of household debt risks that have recently emerged. 

A Stress Test on the Household Sector of the Contractionary Monetary Policy Shock

Yeongwoong Do (Seoul National University)

Year 2023 / Vol 16 / No 1

This paper assesses how raising monetary policy rates could affect the vulnerability of the financial institutions exposure to the household sector using the Survey of Household Finances and Living Conditions data in Korea. To measure the financial vulnerability, I calculate the probability of default (PD), exposure at default (EAD), and loss given default (LGD) from the micropanel data. The main result of the stress test indicates that the aggregate risk deriving by interest rate hikes is still within manageable levels for financial institutions since the delinquency rate and the expected loss less than the historical peaks. However, the stress test results also show that the non-bank sectors are more vulnerable than the bank sector and that increasing policy rate non-linearly exacerbates the household financial fragility.  

Integrated Policy Framework and Its Policy Implications

Ahrang Lee (Bank of Korea), Seungho Nah (Bank of Korea) and Dongwoo Chai (Bank of Korea)

Year 2023 / Vol 16 / No 1

This paper summarizes recent discussions on the integrated policy system centered on the IMF and the BIS and derives policy implications for Korea. The approach to an integrated policy system starts from the recognition that capital flows and exchange rate volatility in emerging countries tend to be heightened due to changes in global financial conditions, such as monetary policies in advanced countries, thus active responses are needed. It can be seen as a progress of the existing view of the interest rate policy with free floating exchange rate system as an ideal policy framework. In the short term, Korean foreign exchange policy and capital flow management measures will not change significantly under the influence of this discussion. In establishing long-term foreign exchange market advance development plans and policy directions, however, it is necessary to preemptively judge the depth of Korea’s foreign exchange market, the currency mismatch embedded in external assets and liabilities position, and the degree of foreign investors’ influence on the government bond market.