August 2006, The 2006 KDI-KAEA Conference
Enhancing Productivity and Sustaining GrowthThe emergence of China has had a significant effect on the Korean economy. China is now the largest market for Korean exports and an important supplier of its imports. It has also become a serious challenger of Korea in the global markets for manufacturing exports. This paper investigates the effect of the rapid industrialization of the Chinese economy on its export structure and the bilateral trade between the two countries and examines the role that Korea’s investment in China has played in transforming the export structures of the two economies. It presents evidence of increasing trade in parts and components and expanding production networks spanning the two economies. The paper concludes with a discussion of the prospects for future economic integration of China and Korea.
Technology has been a major driving force of economic growth. With the rapid pace of economic integration in recent years, the productivity of a country depends not only on domestic R&D, but also on foreign R&D through technology diffusion across countries. The advancement of information technology (IT) has made the international transmission of knowledge faster and more efficient in recent years, providing an important channel for international R&D spillovers. This paper investigates three channels of international R&D spillovers: trade, FDI and information technology. Applying panel cointegration and dynamic OLS analysis to the data for 21 OECD countries plus Israel during the period from 1981 to 1998, we find that bilateral trade remains as an important conduit for international R&D spillovers. Although bilateral FDI is found to be positively related to international R&D spillovers, their impact on productivity growth is relatively small at the national level. We also find that the development of information technology has played a more important role in international R&D spillovers and productivity growth in recent years.
There is an ongoing debate on whether cultural goods like movies and music albums should be protected from foreign competitors. One argument frequently used by protectionists is that domestic movies cannot compete against mega-budgeted Hollywood movies and they will disappear if trade protection is lifted. An implicit assumption under the argument is that consumers easily substitute cultural elements for other product characteristics. In this paper we assess how much consumers value cultural elements when other product characteristics are equal. We estimate demand for films in Korea using monthly data on admissions from 2002 to 2004. We include nationality variables in addition to other movie characteristics to measure consumers’ willingness to pay for cultural elements. Our result shows that Korean consumers are willing to pay more for home-produced movies compared to imported foreign movies. It suggests that consumers differentiate cultural goods based on nationality and there seems to be a cultural bias in consumption. Our estimate implies that the probability of watching a foreign movie would increase by 87.5 percent if its cultural elements were replaced by Korean.
Ideas do not become exhausted, and there are no diminishing returns in the creation of knowledge. Nonetheless, growth ultimately ceases in this simplest model of endogeneous innovation. But, if we treat knowledge capital as a public capital considering of its non-appropriable benefits, economic growth can be sustained in the economy. We showed that considering goodness of fit of regression model, we can see that the empirical evidence is strongly in favor of the character of knowledge as the public knowledge capital. So, we can expect that by product innovation, economic growth can be sustained in the Korean economy.
In the last half of the 1990s, labor productivity growth rose in the U.S. and fell almost everywhere in Europe. We document changes in both capital deepening and multifactor productivity (MFP ) growth in both the information and communication technology( ICT ) and non- ICT sectors. We view MFP growth in the ICT sector as investment-specific productivity ( ISP ) growth. We perform simulations suggested by the data using a two-country DGE model with traded and nontraded goods. For ISP , we consider level increases and persistent growth rate increases that are symmetric across countries and allow for costs of adjusting capital-labor ratios that are higher in one country because of structural differences. ISP increases generate investment booms unless adjustment costs are too high. For MFP , we consider persistent growth rate shocks that are asymmetric. When such MFP shocks affect only traded goods (as often assumed), movements in ‘international’ variables are qualitatively similar to those in the data. However, when they also affect nontraded goods (as suggested by the data), movements in some of the variables are not. To obtain plausible results for the growth rate shocks, it is necessary to assume slow recognition.
The essence of corporate entrepreneurship is innovation, risk taking and proactiveness. This paper investigates the relationship between theories of the firm and innovations in business practices. Stylized facts of the business survey results appear to support that the theories of the firm provide the basis on what to innovate and how to innovate for corporate entrepreneurs. The paper proposes that it is worth considering an establishment of business practice engineering to develop better business practices.
The politics of equalization that has come to dominate Korean politics is largely based on the perception that there is a pronounced tendency for bu-ik-bu-bin-ik-bin, (or \"the rich getting richer and the poor getting poorer”). Though the issue of RGR involves the subject matter of economics, it has scarcely been examined. The reason for the neglect is primarily that most people find it rather obviously true. This paper examines the validity of the thesis of RGR and finds it wanting based on the US data. For example, an implication of RGR, viz., increasing polarization of income and wealth distribution, or yang-keuk-wah, is not borne out by observation. Also, there is too much mobility across income strata to be consistent with RGR. RGR is at best a short term observation; it is a mistake to regard it as a long term tendency. The idea of RGR rests on a faulty understanding of the way the market economy works. The fault lies in taking a static view of a dynamic economy and ignoring its dynamo—entrepreneurship, which generates significant countervailing forces against RGR. What has been overlooked by traditional economics is that entrepreneurship is not the ownership of capital, but the discovery of opportunities. Attempts to redress the perceived tendency of RGR through various redistributive schemes and regulations will merely handicap entrepreneurship and reduce obility, creating more stratified society. The misperception of RGR, as expressed in the politics of equalization, will, ironically, result in a more permanent distinction between the rich and the poor.
This paper investigates the cyclical patterns of buffer capital using an unbalanced panel data for the banks in 30 OECD countries and 7 non-OECD Asian countries. We test whether the relationships between buffer capital and business cycle are systematically different across country groups controlling for other potential determinants of bank capital. We find that the correlation is positive for developed countries while it is negative for Asian developing countries. These findings suggest that, once Basel II is implemented, developing countries are more likely to observe an increase in output volatility. We then review the policy recommendations to mitigate the pro-cyclicality problem of Basel II.
We examine the relationship between the ownership structure of the Korean stock market and various firm characteristics around the Korean crisis period. We are especially interested in the implications for the active and passive roles of institutional investors in Korean firms. The active role of institutional investors is their influence on the governance structure, while their passive role is to invest in Korean stocks from the portfolio management perspective. We find empirical evidence supporting both roles of institutional investors. We also find different preferences by domestic and foreign investors toward firm characteristics. We discuss the implications of the differential behaviors.
Frankel and Wei (1994) developed and popularized a method for uncovering the implicit weights assigned to currencies constituting a currency basket. This technique has been applied to the East Asian countries and resulted in the characterization of the region as a “dollar bloc”. To better understand medium to long term exchange rate policy in East Asia, we extend the methodology in three dimensions: replace nominal exchange rates with real exchange rates; include regional competitive pressure; and employ a VAR model to overcome simultaneity bias. With these modifications, we confirm that the role of the US dollar is prominent even beyond the short term. However, there is also strong evidence that the East Asian countries exercise a fair degree of flexibility in real exchange rate management before the crisis. The findings for the post-crisis period suggest that exchange rate regimes have become more diverse, with greater benchmarking by the crisis countries (except Malaysia) towards regional competitors’ currencies including the yen.
Since Lilien (1982) proposed the cross-sectional dispersion of sectoral shocks as a measure of sectoral shifts it has been the most common measure used in the literature. This paper presents numerical examples that clearly illustrate the importance of skewness when sectoral shocks have an asymmetric distribution. We introduce the empirical measure of skewness into the unemployment rate equation and test the sectoral shifts hypothesis in the Lilien type models which generally support the hypothesis and in the Abraham and Katz (1984) type models which generally reject the hypothesis. Our empirical results show a strong support for the hypothesis in both models, and identify the source of the lack of support in the past studies of Abraham-Katz model.