Introduction & History
The Korean Economic Association was launched in Pusan on November, 30, 1952.
KOREAN JOURNAL OF ECONOMIC STUDIES
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
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
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.
KOREAN ECONOMIC REVIEW
The Rise of E-Commerce and the Local Wage Structure: Evidence from the Korean Retail Industry
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
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
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.
KOREAN ECONOMIC FORUM
Functional Income Distribution in Korea: Labor Productivity, Wages, and Labor Income Share
Year 2023 / Vol 16 / No 2
This article reviews the debates (Park Jongkyu, 2013; Park Jungsoo, 2019; Kim Yu Seon, 2019; Joo Sangyong and Jeon Su Min, 2019; Lee Kang-Kook, 2019; Park Jeong-soo, 2020) surrounding labor productivity, wages, and labor share in Korea. Self-employment is important in this debate. However, previous studies omitted quasi-corporations from the scope of self-employment income and included operating surplus of housing unrelated to self-employment, but this is corrected here. And while it has been argued that the gap between real GDP per employed person and real wage per worker (divided by consumer price index) has widened significantly since the financial crisis (1997) or the global financial crisis (2008), such gap disappears when labor productivity and real wages are compared on a consistent basis. Looking back to 1975, periods in which real wage growth was faster than labor productivity alternated between 1987 (democratization), 1997 (financial crisis), and 2010, respectively. The average rate of increase of both over the entire period was balanced. Reflecting this trend, the labor income share also rose, then fell, and recently turned to rise again. This trend in the labor income share explains well the trend of the top income share relatively well, but it is found to have poor explanatory power in the income distribution index including the wider class.
The Effects of the Female Ratio in Industries on Wages
Year 2023 / Vol 16 / No 2
This study analyzes the effects of the female ratio in industries on wages using the Korean Labor and Income Panel (KLIPS) from 2009 to 2019 and the Korean Survey Report on Labor Conditions by Employment Type. The main estimation results are summarized as follows. First, the higher the female ratio in industries, the more negatively it affects wages. Second, as the proportion of woman in the industry increases, men’s wages decrease more than women’s wages. These results can be attributed to differences in human capital accumulated by workers rather than individual abilities. We suspect that the reason of these results are the labor choice of Korean women with high human capital who entered high paying jobs hesitate to renter a labor market due to the low expected wages after women’s career break, and it might cause this phenomenon. The results of the study suggest that the quality of women's labor market should be improved and we need to make significant efforts to resolve the gender wage gap.
Are the Lending Behaviors of State-Owned Banks Different from Those of Private Banks?
Year 2023 / Vol 16 / No 2
This paper analyzes whether lending behaviors of state-owned banks differ from commercial banks in terms of counter-cyclicality of loans; their function as a financial safety net during the crisis period; and financial accessibility for SMEs. In order to examine counter-cyclicality of loans, we conducted panel regression using 1999-2022 domestic banks data and found that, unlike existing domestic studies, state-owned banks’ loans showed strong counter-cyclicality, while commercial banks’ loans showed pro-cyclicality. The analysis of lending behavior by type of state-owned banks revealed that loans of state development banks showed strong counter-cyclicality, while statistical significance of state commercial bank loans was relatively weaker. We also found that the degree of counter-cyclicality of state-owned bank loans was stronger during the crisis period than normal times, confirming their function as a financial safety net. Analysis by loan category showed that state-owned banks’ role of providing much-needed liquidity during the crisis period was particularly conspicuous in their loans for the self-employed who are typically severely affected by economic fluctuations. Lastly, a panel regression based on the 2017-2021 financial and credit information of SMEs revealed that state-owned banks provided greater financial access to vulnerable SMEs with lower credit worthiness when compared to commercial banks during the COVID-19 crisis period.