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  • KDI Journal of Economic Policy, August 2022
  • Date August 31, 2022
  • Language English
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    The Effects of Lowering the Statutory Maximum Interest Rate on Non-bank Credit Loans / Meeroo Kim
    I. Introduction
    II. Literature Review
    III. Data and Descriptive Statistics
    IV. Empirical Strategy
    V. Empirical Results
    VI. Conclusion
    REFERENCES

    The Impact of Tax Treaties on Foreign Direct Investment: The Evidence Reconsidered / Siwook Lee and Daeyong Kim
    I. Introduction
    II. Literature Review
    III. Empirical Strategy and Data Description
    IV. Empirical Results
    V. Conclusion
    REFERENCES

    Effects of Fiscal Instability on Financial Instability / Sunjoo Hwang
    I. Introduction
    II. Background
    III. Empirical Analysis
    IV. Concluding Remarks
    REFERENCES

    Job Creation during Korea’s Transition to a Knowledge Economy / Kyungsoo Choi
    I. Introduction
    II. Shifts in Job Creation Patterns
    III. Local Labor Market Job Creation Model
    IV. Empirical Estimates
    V. Summary and Conclusion
    REFERENCES
The Effects of Lowering the Statutory Maximum Interest Rate on Non-bank Credit Loans / Meeroo Kim
This paper analyzes the effects of the cut in the legal maximum interest rate (from 27.4% to 24%) that occurred in February of 2018 on loan interest rates, the default rates, and the loan approval rate of borrowers in the non-banking sector. We use the difference-in-difference identification strategy to estimate the effect of the cut in the legal maximum interest rate using micro-level data from a major creditrating company. The legal maximum rate cut significantly lowers the loan interest rate and default rate of low-credit borrowers (i.e., highcredit-risk borrowers) in the non-banking sector. However, this effect is limited to borrowers who have not been excluded from the market despite the legal maximum interest rate cut. The loan approval rate of low-credit borrowers decreased significantly after the legal maximum interest rate cut. Meanwhile, the loan approval rate of high-credit and medium-credit (i.e., low credit risk and medium credit risk) borrowers increased. This implies that financial institutions in the non-banking sector should reduce the loan supply to low-credit borrowers who are no longer profitable while increasing the loan supply to high- and medium-credit borrowers.

The Impact of Tax Treaties on Foreign Direct Investment: The Evidence Reconsidered / Siwook Lee and Daeyong Kim
This paper reconsiders the empirical evidence of the relationship between tax treaties and FDI using U.S. outbound FDI to 78 countries over the period of 2007?2018. Unlike previous studies, we explicitly consider differences in the tax environments of recipient economies, including their tax-haven status, transfer pricing rules, CFC rules and anti-avoidance regulations, in our estimations. Our results confirm the importance of controlling for country-specific tax environments, especially the tax-haven status and transfer pricing rules. We find that tax treaties positively contribute to FDI inflows in developing countries, while they have no statistically significant impacts on OECD countries. Recently signed tax treaties still foster FDI but less than older ones do. Finally, our results indicate, all other things being equal, that the weaker the transfer pricing regulations, the greater the amount of U.S. direct investment into a non-OECD economy.

Effects of Fiscal Instability on Financial Instability / Sunjoo Hwang
This paper empirically examines how fiscal instability affects financial instability. According to an IMF forecast (2021a), the fiscal space in Korea will be steadily reduced in the future. The theoretical literature predicts that if fiscal stability is undermined, financial stability will also be in danger given that government guarantees on banks are weakened and/or sovereign bonds held in banks become riskier. This paper empirically finds the existence of this negative impact of fiscal instability on financial instability. I also find that the intensity of this fiscal-financial relationship is greater in a country where (i) its currency is not a reserve currency such as the US dollar or euro, (ii) its banking sector is large relative to government sector, and/or (iii) its private credit to GDP is high. Korea has all of these three characteristics and hence needs to put more effort into maintaining fiscal stability.

Job Creation during Korea’s Transition to a Knowledge Economy / Kyungsoo Choi
This paper analyzes job creation when the Korean economy transitioned to a knowledge economy from the 1990s to the 2010s. During this period, the ratio of service to manufacturing jobs increased, knowledge intensive industries grew, and job creation became geographically concentrated around Seoul. The changes slowed down in the 2010s, and overall job growth weakened. To analyze the effect of job creation driver industries during this period, the main part of which are knowledge intensive tradable service industries, on local service job creation, I use a modified version of the local labor market of Moretti (2010). I analyze the job changes during 1995-2005 and during 2006-2016 in 237 Si-Gun-Gu areas in the Census on Establishments datasets. I find that one manufacturing job creates 0.5 local service jobs and that one tradable service job creates 1.1 jobs within Gu areas of metro cities and 2.3 jobs in Si-Gun areas. The job creation relationship between the tradable and local service sectors was not altered in this period. As more jobs were created in the tradable sector driven by the transition to a knowledge economy, job creation overall remained active, with the opposite also being true.
Article list
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    This paper analyzes the effects of the cut in the legal maximum interest rate (from 27.4% to 24%) that occurred in February of 2018 on loan interest rates, the default rates, and the loan approval rate of borrowers in the non-banking sector. We use the difference-in-difference identification strategy to estimate the effect of the cut in the legal maximum interest rate using micro-level data from a major creditrating company. The legal maximum rate cut significantly lowers the loan interest rate and default rate of low-credit borrowers (i.e., highcredit-risk borrowers) in the non-banking sector. However, this effect is limited to borrowers who have not been excluded from the market despite the legal maximum interest rate cut. The loan approval rate of low-credit borrowers decreased significantly after the legal maximum interest rate cut. Meanwhile, the loan approval rate of high-credit and medium-credit (i.e., low credit risk and medium credit risk) borrowers increased. This implies that financial institutions in the non-banking sector should reduce the loan supply to low-credit borrowers who are no longer profitable while increasing the loan supply to high- and medium-credit borrowers.

  • Read more

    This paper reconsiders the empirical evidence of the relationship between tax treaties and FDI using U.S. outbound FDI to 78 countries over the period of 2007?2018. Unlike previous studies, we explicitly consider differences in the tax environments of recipient economies, including their tax-haven status, transfer pricing rules, CFC rules and anti-avoidance regulations, in our estimations. Our results confirm the importance of controlling for country-specific tax environments, especially the tax-haven status and transfer pricing rules. We find that tax treaties positively contribute to FDI inflows in developing countries, while they have no statistically significant impacts on OECD countries. Recently signed tax treaties still foster FDI but less than older ones do. Finally, our results indicate, all other things being equal, that the weaker the transfer pricing regulations, the greater the amount of U.S. direct investment into a non-OECD economy.

  • Read more

    This paper empirically examines how fiscal instability affects financial instability. According to an IMF forecast (2021a), the fiscal space in Korea will be steadily reduced in the future. The theoretical literature predicts that if fiscal stability is undermined, financial stability will also be in danger given that government guarantees on banks are weakened and/or sovereign bonds held in banks become riskier. This paper empirically finds the existence of this negative impact of fiscal instability on financial instability. I also find that the intensity of this fiscal-financial relationship is greater in a country where (i) its currency is not a reserve currency such as the US dollar or euro, (ii) its banking sector is large relative to government sector, and/or (iii) its private credit to GDP is high. Korea has all of these three characteristics and hence needs to put more effort into maintaining fiscal stability.

  • Read more

    This paper analyzes job creation when the Korean economy transitioned to a knowledge economy from the 1990s to the 2010s. During this period, the ratio of service to manufacturing jobs increased, knowledge intensive industries grew, and job creation became geographically concentrated around Seoul. The changes slowed down in the 2010s, and overall job growth weakened. To analyze the effect of job creation driver industries during this period, the main part of which are knowledge intensive tradable service industries, on local service job creation, I use a modified version of the local labor market of Moretti (2010). I analyze the job changes during 1995-2005 and during 2006-2016 in 237 Si-Gun-Gu areas in the Census on Establishments datasets. I find that one manufacturing job creates 0.5 local service jobs and that one tradable service job creates 1.1 jobs within Gu areas of metro cities and 2.3 jobs in Si-Gun areas. The job creation relationship between the tradable and local service sectors was not altered in this period. As more jobs were created in the tradable sector driven by the transition to a knowledge economy, job creation overall remained active, with the opposite also being true.

 
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Office of Global Economy
Providing Economic Forecast and Macroeconomic Policy Direction, the Groundwork for a Brighter Future

The Department of Macroeconomics is conducting researches on the macro economy and macroeconomic policy, particularly focusing on suggesting the analysis of macroeconomic trends and current status of the economy at home and abroad, the economic forecast, and the policy direction of the macro economy. The Department is also in charge of establishing, sustaining and maintaining various econometric models, based on which it analyses policy effects and develops a long-term economic forecast.

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  • Economic trend analysis, short- and long-term forecast
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Department of Macroeconomic Policy
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    Research Associate

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    Research Associate

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