KDI - Korea Development Institute - RESEARCH - Research Areas

Summary

Journal of Economic Policy KDI Journal of Economic Policy, August 2024

The Impact of US Export Controls on Korean Semiconductor Exports / Hanhin Kim and Jaehan Cho

This study empirically investigates the impact of recent US export controls on China on South Korea’s semiconductor exports. We analyze South Korean export data to shed light on the repercussions of US export restrictions on a third country. Our findings reveal a significant decline in Korean semiconductor exports following the October 2022 imposition of US controls. This decline was most pronounced in the memory, discrete devices, and discrete device components subsectors of the semiconductor industry. In addition, we observed a decrease in unit prices, especially for memory semiconductors, pointing to downward pressure on South Korea’s high-value-added semiconductor exports. These results provide some evidence of substantial negative impacts of US export controls on South Korea’s semiconductor industry, and particularly with regard to its high-tech products.

Trump Tariffs and Roundabout Trade / Tadashi Ito

Although there are many news articles of tariff dodging via the rerouting of made-in-China goods through third countries, relabeling these goods as made in Mexico or made in Vietnam, there have been no scientific studies on this issue. This paper provides statistical evidence regarding whether such practices are taking place. Using monthly trade statistics at the most disaggregated level and analyzing data up to 2019, the year before the COVID-19 shock, little evidence of roundabout trade is found. With an extended dataset up to 2023, overall there is little sign of roundabout trade, although some slight signs of roundabout trade are found for Mexico and Vietnam.

Experts to the US and Imports from China during the US-China Tariff War: Evidence from Regional Trade Data in Vietnam / Kazunobu Hayakawa

This study empirically investigates how the exports of downstream products to the US change the imports of their upstream products from China during the US-China tariff war. To accomplish this, we use province-level trade data in Vietnam, known to be a country that increased its exports to the US market in place of China, i.e., known to enjoy a trade diversion in the US market. The use of regional trade data enables us to capture the input-output linkages more precisely. Specifically, focusing on the trade in general and electrical machinery industries from January of 2019 to December of 2023, we regress imports of upstream products from China on exports of their downstream products to the US, finding that the rise of exports of downstream products to the US significantly increases imports of their upstream products from China. On the other hand, the rise in these products does not significantly increase the imports of upstream products from Japan, Korea, and Taiwan. Furthermore, the inputoutput linkage between exports to the US and imports from China was found to be greater in provinces with better business environments in terms of entry costs, transparency in public services, and public support to businesses.

Economic Effects of Unemployment Insurance for Entrepreneurs in South Korea / Jiyeon Kim

This paper aims to examine the economic impact of the implementation of an unemployment insurance (UI) program for entrepreneurs in South Korea. Despite facing labor market risks similar to paid employees, entrepreneurs are often not eligible for UI in many countries. South Korea, where entrepreneurs represent over 20% of the workforce, is considering a design of UI for entrepreneurs, with the goal of providing coverage to this group by 2025. This study examines how the addition of UI for entrepreneurs would impact the economy using a model of entrepreneurship based on a search and matching framework. The study’s findings suggest that the implementation of UI for entrepreneurs would lead to increased business closures and reduced hiring, resulting in a slack labor market, which in turn would reduce social welfare overall. However, social welfare can be improved by subsidizing UI contributions paid by entrepreneurs, which provides the greatest improvement in social welfare compared to other social protection systems such as unemployment assistance.

Summary

Policy Study KOR Demographics and Inflation in Korea

This study empirically analyzes Korean data focusing on the impact of the demographic change on the inflation. The analysis indicates that the ongoing aging of the population does not statistically significantly induce inflation in terms of the aggregate price index. However, an analysis of the sub-items of the price index shows that changes in the age composition of the population are associated with sector-specific inflation. Particularly in the service sector, the increase in the population of the young and the elderly appears to have an inflationary effect, while a relative increase in the working-age population seems to be deflationary. In conclusion, this study finds that the relationship between population structure and inflation varies by sector, with a more pronounced correlation in the service sector. This is an analytically significant finding that deserves policy attention. It suggests that policy decisions for price stability should carefully evaluate and distinctively respond to the potential impacts of demographic changes on a sector-by-sector basis.

Summary

Research Monograph KOR Green Transition Strategy and Implementation

It is imperative for the Republic of Korea to prioritize the development of elaborate green transition strategies and implementation plans. In light of this urgency, this study offers ten chapters addressing select issues on green transition, which provide policy recommendations drawn from identification of problems, assessment of current policies, and empirical analysis.

Chapter 2 (Dr. Yong Hyeon Yang) assesses the national greenhouse gas emission reduction plan the Korean government announced in Oct. 2021. It finds the sectoral strategies to be insufficient for the stated targets and suggests that an energy transition ambition has to be increased as either targets have to be decreased in other sectors or there could be a need for more extensive electrification. Chapter 3 (Prof. Wonhyuk Lim) offers insights on energy transition strategies and their implication for the electricity industry. Periodical simulations should be conducted for multiple scenarios, and the overall cost of transition, including the expenses for networks and standby facilities as well as the levelized cost of energy, should be minimized. Accordingly, transition and phase-out of fossil fuel plants should be systematically planned in stages.

Chapter 4 (Dr. Yeochang Yoon) points out the limitations of the Korean emission trading system (ETS) and presents potential solutions. The current restrictions on banking need to be relaxed to keep the ETS allowance prices from dropping, but such adjustments should be introduced gradually to prevent a sudden decline in supply. Chapter 5 (Prof. Hyungna Oh) raises a possibility of insufficient investment in decarbonization technologies due to first-mover disadvantages. It advocates introduction of carbon contracts for difference to incentivize R&D in green technologies, especially when carbon prices are low or uncertain. Chapter 6 (Dr. Karam Jo) presents the empirical result that patents in some digital transformation technologies can increase patents in climate technologies by an average of 17.3% and underscores the need to promote such digital transformation technologies.

Chapter 7 (Dr. Junghyun Kwon and Dr. Joseph Han) reveals that elevated outdoor temperatures decrease working hours in an inequitable manner and deteriorate workers’ health. These observations imply that climate change could magnify income inequality. As such, protective measures for outdoor workers against high temperatures and support for their job transitions are crucial. Chapter 8 (Dr. Hyunseok Kim) proposes selective subsidies for regions heavily impacted by climate change and green transition, and highlights the necessity of assessing those impacts objectively. Most importantly, local governments should formulate transition plans in line with central government guidelines.

Chapter 9 (Prof. WooRam Park) indicates that a large portion of greenhouse gas comes from establishments with more than 300 workers, and in such industries as petrochemical and steel. It also shows higher carbon productivity in industries with lower greenhouse gas emissions and establishments using less energy. Chapter 10 (Dr. Joseph Han) reveals the empirical result that firms who entered in the first stage of ETS had significantly lower greenhouse gas emissions, energy usage, annual turnover, and employment than those who did in the second stage. The performance of these firms was influenced by the design of the ETS, for example, on what basis the allowances were assigned free of charge or for a fee. Hence, policy design for green transition should pay particular attention to its effects on businesses and employment. Lastly, Chapter 11 (Dr. Sora Chon) observes that the global green transition might trigger both green and energy inflation. Analyzing the effect of inflation factors on the Korean economy finds that such impacts vary based on whether inflation arises from a demand or a supply shock. Consequently, the Korean government's responses should differentiate between inflation factors that are demand-side and supply-side.

Summary

Policy Study KOR Land Investment and Its Impact on Corporate Performance

This study builds upon the 2019 research, The Macroeconomic Implications of Land Purchases: A Study on the Net Purchase of Land by Corporations, by focusing on the accumulation of land assets by manufacturing firms. Utilizing microdata from the Mining and Manufacturing Survey, it examines the ratio of land assets to tangible assets and observes a pronounced increase in land assets among these firms. The study conducts a regression analysis to compare the performance of firms that invested in land with those that did not, covering a two-year period before and after the investment. Firms that invested in land showed a significantly higher rate of value-added growth compared to their counterparts, though this gap in growth rates diminished after the investment. In particular, the year of land investment coincided with considerably new investments in buildings and machinery, as well as an increase in employment.

In light of these results, the study confirms the role of land as a productive resource. Firstly, land investment exhibits substantial complementarity with other capital goods, evidenced by increased investments in buildings and machinery during land investment periods. Secondly, similar to machinery investment, firms often expand their capital stock in response to positive productivity or demand shocks. However, land investment tends to be more strategically aligned with expanding the firm's scale, which is reflected in the simultaneous increases in employment and value-added, leading to a reduction in labor productivity during periods of land investment.

While land investment is mainly observed in small and medium-sized enterprises and has increased since the 2000s, this study does not provide specific reasons for this trend. The causes of land investment, presumably linked to Korea's unique institutional, regulatory, and economic changes, call for further detailed research.

Summary

Journal of Economic Policy KDI Journal of Economic Policy, May 2024

Effects of Stockholders’ Secondary Tax Liability on Corporate Investment / Jangwook Lee

This study analyzes the impact of secondary tax liability borne by stockholders, an exception to the principle of limited liability, on corporate investment. The paper constructs a model of a firm to examine the effect of this secondary tax liability, finding that the violation of limited liability increases firms’ expected bankruptcy costs, thereby reducing investments. By means of an empirical analysis, the paper examines whether firms with the largest shareholder stake exceeding 50%, the condition under which secondary tax liability is incurred, decrease their investments. The results show that firm investment is highly concentrated in observations of cases in which the largest shareholder stake does not exceed 50%. Investments decrease sharply in cases where the largest shareholder stake exceeds 50%. The results here provide implications pertaining to how exceptions of the limited liability principle, existing only in Korea, affect corporate investments.

A Theoretical Analysis of Public Procurement for Innovation / Sunjoo Hwang

This paper provides a new theoretical rationale for public procurement for innovation (PPI), a unique policy encouraging public procurers to purchase innovative products. In contrast to existing studies that primarily emphasize the advantages of PPI, this paper takes a comprehensive approach, examining both the costs and risks associated with PPI, alongside its benefits. It finds a general condition under which PPI outperforms traditional public procurement. Under this condition, this paper demonstrates that PPI enhances social welfare by facilitating optimal risk-sharing between public procurers and the general economy. Additionally, it draws policy implications from a comparative analysis between the current PPI policy in Korea and an optimal PPI policy.

New Indicators of Global Integration Using Input-Output Analysis / Dongseok Kim

The import content of export (ICE) has served as an indicator of global integration for several decades. It is defined as the share of imported products embodied in exports and can be interpreted as the relative degree of the utilization of global production network (GPN) over the domestic supply chain (DSC) in terms of ‘value-added.’ This paper proposes two new indicators of global integration. They are defined as the ratios of imports (foreign products) to gross output (domestic products) generated by exports and can be interpreted as the relative degrees of the utilization of GPN over DSC in terms of ‘production.’ Both indicators are easy to compute and can be compared between years, between countries, between industries, and between groups of industries. The paper applies the new indicators to the recent edition of the OECD’s Input-Output Database. Finally, the paper shows that the recent slowdown in international trade is mostly due to the decrease in the international trade of intermediate goods, with significant implications regarding the future of global integration.

Summary

Journal of Economic Policy KDI Journal of Economic Policy, February 2024

China’s Slowdown / Barry Eichengreen

This paper evaluates explanations for China’s growth slowdown. The natural tendency for rapidly growing economies to slow down is a major factor, along with problems bequeathed by unbalanced growth, including a declining ICOR, slowing total factor productivity growth, and rising indebtedness. A number of other mechanisms are of lesser importance: demographics, President Xi’s centralization of political power and anti-corruption campaign, and U.S. export controls. Sustaining growth in the longer term will require China to step away from investment, debt and export-fueled growth in favor of a balanced growth model with household consumption playing a larger role. Doing so will require hardening of the budget constraints of regional and local governments and restructuring of the nonperforming debts of property and construction companies.

Assessing the Contributions of Non-bank Financial Institutions (NBFI) and ELS Issuance to Systemic Risk in Korea / Jong Soo Hong

Since the Global Financial Crisis of 2008-2009, the importance of nonbank financial institutions in macroprudential management has increased significantly. Consequently, major countries and international financial institutions have been actively discussing and implementing macroprudential supervision and regulation for non-bank financial institutions (NBFI). In this context, this paper analyzes the systemic risk of both banks and non-bank sectors (securities firms and insurance companies) in South Korea over different time periods. Using the widely recognized ΔCoVaR methodology for measuring systemic risk, the analysis reveals that systemic risk increased substantially across all three sectors (banks, securities firms, and insurance companies) during the Global Financial Crisis, the European Sovereign Debt Crisis, and the COVID-19 pandemic. Although the banking sector exhibited relatively high systemic risk compared to the securities and insurance sectors, the relative differences in systemic risk varied across the different crisis periods. Notably, during the margin call crisis in March of 2020, the gap in systemic risk between the banking and securities sectors decreased significantly compared to that during both the Global Financial Crisis and the European Sovereign Debt Crisis, indicating that securities firms had a more substantial impact on risk in the overall financial system during this period. Furthermore, I analyze the impact of the issuance of equity-linked securities (ELS) by financial institutions on systemic risk, as measured by ΔCoVaR, finding that an increase in the outstanding balance of ELS issuance by financial institutions had an impact on increasing ΔCoVaR during the three crisis periods. These findings underscore the growing importance of non-bank financial institutions in relation to South Korea’s macroprudential management and supervision. To address this evolving landscape, enhanced monitoring and regulatory measures focusing on non-bank systemic risk are essential components of maintaining financial stability in the country.

Effects of Intellectual Property Rights Protection on Services Export Diversification in Developing Countries / Sena Kimm Gnangnon

The effects of the betterment of enforced intellectual property rights (IPRs) provisions on services export diversification are investigated. The analysis used an unbalanced panel dataset of 76 developing countries over the period of 1970-2014. The empirical analysis is based on the feasible generalized least squares estimator. It suggests that the implementation of weaker IPR protection fosters services export diversification in less developed countries (i.e., those whose real per capita incomes are less than US$ 1458.60), including those with a low level of export product upgrading. Conversely, in relatively advanced developing countries (countries whose real per capita income exceeds US$ 3356.80), including those with high levels of export product upgrading, the implementation of stronger IPR laws induces greater services export diversification. Finally, the analysis revealed the existence of a non-linear relationship between IPR protection and services export diversification. The implementation of stronger intellectual property laws spurs services export diversification in countries with high degree of IPR protection, especially when IPR protection exceeds a certain level, recorded here as having a score of 1.197. In contrast, in countries with weaker IPR protection, in particular those with IPR protection levels that score less than 0.915, it is rather the implementation of weaker intellectual property laws that promotes services export diversification.

Optimal Monetary Policy System for Both Macroeconomics and Financial Stability (KOR) / Joonyoung Hur and Hyoung Seok Oh

The Bank of Korea, through a legal amendment in 2011 following the financial crisis, was entrusted with the additional responsibility of financial stability beyond its existing mandate of price stability. Since then, concerns have been raised about the prolonged increase in household debt compared to income conditions, which could constrain consumption and growth and increase the possibility of a crisis in the event of negative economic shocks. The current accumulation of financial imbalances suggests a critical period for the government and central bank to be more vigilant, ensuring it does not impede the stable flow of our financial and economic systems. This study examines the applicability of the Integrated Inflation Targeting (IIT) framework proposed by the Bank for International Settlements (BIS) for macro-financial stability in promoting long-term economic stability. Using VAR models, the study reveals a clear increase in risk appetite following interest rate cuts after the financial crisis, leading to a rise in household debt. Additionally, analyzing the central bank's conduct of monetary policy from 2000 to 2021 through DSGE models indicates that the Bank of Korea has operated with a form of IIT,

Summary

Journal of Economic Policy KDI Journal of Economic Policy, November 2023

The Effectiveness of Capital Controls and Macroprudential Measures / Junyong Lee, Kyounghun Lee, and Frederick Dongchuhl Oh

We review the literature on the effectiveness of capital controls and macroprudential measures. First, we explain the purposes and examples of capital controls and macroprudential policies. We then analyze various theoretical models and empirical findings from prior studies that investigate the effectiveness of each instrument. Moreover, we review several studies that directly compare the two instruments and discuss whether policymakers should implement capital controls or macroprudential measures to overcome financial crises. Finally, based on a discussion of the findings of previous studies, we suggest several possible avenues for future research.

From Miracle to Mediocrity? Explaining the Growth Slowdown of the Korean Economy / Duyong Kang and Sungkeun Park

To investigate the causes of Korea’s growth slowdown over the past thirty years, we estimate the contributions of major developmental factors, including i) demographic factors (changes in population growth and workforce age due to the demographic transition), ii) quality-of-liferelated choice factors (changes in working hours, education, and the female employment rate), iii) structural change, and iv) the effects of productivity catch-up. Our estimates show that these four groups of factors account for approximately 90 percent of the growth slowdown, with demographic factors contributing approximately 30 percent and the other three groups of factors each contributing about 20 percent. We also show that the same factors explain most of Korea’s high growth in the 1980s. These results suggest that Korea’s growth slowdown is basically a consequence of its successful economic development and that the high growth and subsequent slowdown can be regarded as a single process. In addition, given that the factors examined here exhibit similar patterns of change in the course of economic development of most countries, we think that our estimation results of the relationship between economic development and changes in economic growth trends could have more general implications that go beyond Korea’s experience.

전세가격의 비용화와 소비자물가지수: 소비자물가지수 자가주거비 반영을 중심으로 / 오지윤
The Conversion of Chonsei into Monetary Costs and its Relationship with the Consumer Price Index / OH,Jiyoon

The Chonsei component holds the highest level of weight (5.4%) in the composition of the Korean consumer price index (CPI). The variations in Chonsei prices are directly reflected in the CPI as a representation of cost swings. The Chonsei refers to a deposit that accumulates the costs related to housing services and is mostly affected by variations in rental rates. Nevertheless, it is important to note that Chonsei prices are also susceptible to fluctuations in interest rates, regardless of the rent prices. Therefore, if Chonsei were directly and one-to-one indexed to the CPI, they could include changes other than residential service prices. After analyzing the time series data of the Chonsei index and rent index inside the CPI, it becomes apparent that the Chonsei index displays an average annual growth rate of 2.3%, whilst the rent index reveals a growth rate of 0.9%. The observed disparity in growth rates indicates a divergence in trends between the two indices. It is posited that the Chonsei index, when capitalized, has had a more rapid increase compared to the rental index, owing to the gradual drop in interest rates. To effectively reflect fluctuations in the housing service costs, proxies for the Chonsei index were utilized in the construction of a consumer price index. The findings of our study suggest that, overall, the newly developed CPI demonstrates a comparatively lower rate of inflation when compared to the official CPI. Furthermore, the inclusion of imputed rents for owner-occupied housing in CPI amplifies this effect.

Summary

Journal of Economic Policy KDI Journal of Economic Policy, August 2023

The Peace Effects of Inter-Korean Trade and the Political-Economic Separation: Analysis of the Reciprocal Effects of Inter-Korean Relations and Inter-Korean Trade / Kyoochul Kim

This paper empirically examines the relationship between inter-Korean trade and inter-Korean relations over the past three decades. It asks two questions: (1) Does inter-Korean trade contribute to improved inter-Korean relations and peace on the Korean Peninsula? (2) Does improved inter-Korean relations lead to increased inter-Korean trade? The study employs a time-series causal relationship analysis methodology to answer these questions. The findings show that during the progressive government’s reign, inter-Korean trade was not impacted by inter-Korean relations. This is due to the implementation of a political-economic separation policy towards North Korea. Moreover, the increase in general trade and processing on commission did enhance inter-Korean relations, reflecting the “inclusive policy” aimed at achieving peace on the Korean Peninsula through inter-Korean trade. In contrast, during the conservative government’s reign, inter-Korean relations had a direct impact on inter-Korean trade, with deteriorating relations leading to a significant decrease in trade. This was due to the implementation of North Korea policies that were linked
to politics and the economy.

Productive Capacities, Structural Economic Vulnerability and Fiscal Space Volatility in Developing Countries / Sena Kimm Gnangnon

The current article has explored the effect of productive capacities (as defined by the United Nations Conference on Trade and Development) and of structural economic vulnerability (as defined by the United Nations) on fiscal space volatility in developing countries. It relies on the definition and measure of fiscal space proposed by Aizenman and Jinjarak (2010; 2011) and Aizenman et al. (2019). To compute the indicator of fiscal space and hence that of fiscal space volatility, fiscal space is considered as the ratio of outstanding public debt to the ‘de facto tax base’, the latter being the number of years of tax revenues needed for a country to repay its debt. Results based on a sample of 116 countries from 2000 to 2018 have revealed that the enhancement of productive capacities is associated with lower fiscal space volatility, while higher structural economic vulnerability heightens fiscal space volatility. On another note, highly vulnerable countries tend to experience a higher negative effect of productive capacities on fiscal space volatility than relatively less vulnerable countries.

변호사검색상담 플랫폼의 경제적 가치 추정 / 박민수·김정민·이홍
Estimating the Economic Value of the Online Marketplace for Legal Services / Minsoo Park··Jungmin Kim··Hong Lee

This study examines the usage status of legal services provided by lawyers targeting domestic consumers and investigates empirically how much online platforms that facilitate lawyer search and consultation can increase consumers' utility, and how much the lawyer legal service market will expand through this. To this end, this study applies a discrete choice demand model to the data collected through a conjoint survey to estimate the value of the lawyer search and consultation platform perceived by consumers, and estimates the effectiveness of the platform in expanding the market for lawyer legal services through a simulation method. As a result of the analysis, the relative value that consumers place on finding and consulting a lawyer using the online platform instead of being introduced to a lawyer by an acquaintance or searching for a lawyer offline is estimated to be about 70,414 won. It was found that the existence of lawyer search and consultation platforms could increase the market size of legal services by as little as 18.9% to as much as 70.2%. In particular, the platforms are expected to increase the accessibility of legal services to vulnerable groups.

SITEMAP

HOT ISSUE

Summary

Summary

Summary

Summary

Summary

Summary

Summary

Summary