The Korean Economic Review
Policy Implications of Investment Rate Distributions in the Korean Manufacturing Sector
Jinhee Woo (Korea Institute of Public Finance)Year 2020Vol. 36No. 2
AbstractA cross-sectional distribution of the investment rates of manufacturing establishments in Korea, based on the Mining and Manufacturing Surveys of 2011 through 2014, reveals a fatright tail and an asymmetry between positive and negative investment rates, reflecting the fixed cost of capital adjustment and the partial irreversibility of investment. This find in greveals that the aggregate responsiveness to the investment support policy will be greater during a boom than during a recession. A heterogeneous plant model designed to explain the cross-sectional distribution of investment rates observed in the data demonstrates that the response of aggregated investment to investment subsidy is 21.8% higher during a boom than during a recession. Our study also suggests that concentrating subsidies in establishments with small employment size will increase the investment inducement effect of the policy rather than provide equal subsidies for establishments of all sizes.