Release of medium-to-long term outlook on respective agenda based
on the analysis of pending macroeconomic issues

Industrial Organization

Research Monograph

A Study on the Enhancement of the Small and Medium-sized Enterprises (SMEs) Policy in Korea (Ⅱ)

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SUMMARY Chapter 4 presents examples of systemic and scientific evaluations of SME policy outcomes, and suggests the adoption of an evaluation and feedback system which periodically reflects quantitative evaluation results on the policy to increase the effectiveness and efficiency of the SME support policy.

This chapter uses the PSME to calculate the policy effects of policy funds based on the establishments’ performance shown in Statistics Korea’s Mining and Manufacturing Survey in connection with the records of those establishments’ receipt of policy funds, and found worryingly insignificant effects of the policy fund provided in 2009. Conducting an in-depth analysis to grasp the effects in detail based on the type of establishment categorized according to business characteristics and the fund’s nature found different effects on the respective establishment types. This implies that there is plenty room to enhance the policy efficacy and efficiency by restructuring the current policy through policy performance evaluation and evaluation feedback.

Accordingly, this chapter suggests the execution of scientific evaluation on the SME support policy and formulation of a feedback system to realize evaluation results as soon as possible. Moreover, it also tries to provide certain insight into what should be considered to ensure that evaluators remain neutral and to secure credibility of the evaluation system, and how to effectively utilize evaluation results and manage regular assessments in order to increase the effects of the evaluation.

Chapter 5 looks into the effects brought on by the SME support policy on the productivity of beneficiary establishments. Several studies have shown that SMEs' productivity is lower than that of large enterprises, and the gap between the two continues to widen. In this context, using the Statistics Korea’s Mining and Manufacturing Survey in connection with the records of those establishments’ receipt of policy funds, this chapter examines the current situation of policy fund targeting and analyzes the effects of policy funds on establishments' productivity to draw policy implications.

The analysis results show that in terms of the TFP, policy funds have plenty room for improvement in their targeting process. Additional management is also necessary in policy execution for better productivity.

Now that concerns are being addressed about the weakening of growth engines of the national economy, it is hard to argue against the logic that it would be better to apply government capacity for other sectors in need of support, if indeed the SME support policy is not contributing to improving productivity. With a full understanding of such conditions, this chapter presents actual cases to accentuate that policy authorities should improve policy execution by driving the SME support policy to target a long-run improvement in productivity as its core objective and using the productivity as grounds for policy evaluation and reflect of evaluation results.

Chapter 6 studies the effects of public credit guarantee on the survival of establishments. To that end, it looks into how many of those that were given credit guarantees from the KIBO and KODIT in 2005 survived the next seven years.

The estimates from the Cox’s proportional hazard model with the time- varying covariates considered are as follows. First, with regards to selection, at least, the KIBO’s beneficiaries appear to have survived longer than those of the KODIT. Second, as for beneficiaries of public credit guarantees, a longer corporate history does not necessarily lead to longer survival. Third, among the cases of overlapping support, the survival rate is particularly low when the company was given the KODIT’s guarantee before being given additional loans from the SBC.

Based on these estimates, this study recommends the following policy suggestions. Above all, both of the KIBO and KODIT need to reduce its assistance to those with a long corporate history. Companies in a relatively stable phase should be encouraged to use market finance, unless they are temporarily experiencing a credit squeeze or liquidity difficulty. In addition, more consideration is necessary to improve the system which reaches beyond a mechanical division of labor between the KIBO and KODIT to simply deter overlapping support. In other words, instead of focusing on a mechanical process to prevent overlapping support, it is more necessary to consider how to develop a system that provides proper and timely assistance to promising young SMEs, even in the occurrence of a certain degree of overlapping.
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