The Korean economy experienced a slowdown in both productivity growth and exports in the 2010s. Here we analyze the relationship between changes in exports and in the growth of total factor productivity (TFP). Our empirical analysis of data from the Mine and Manufacturing Survey (2000 ∼ 2017) shows that there is a positive relationship between exports and productivity. We find that the positive relationship was stronger during periods in which exports decreased. We find that while the decrease in exports may have slowed or reduced the growth in productivity, the increase in exports did not necessarily increase productivity since 2000. We focus on the irreversibility of inputs as a possible explanation of the asymmetric relationship between exports and productivity growth. Our results show that in the input-inelastic sectors in which inputs are not flexibly adjusted, productivity declined further as export growth decreased.
We propose a canonical form of the CES production function. It includes the normalized CES function as a special case. It can represent factor-augmenting technological progresses through the factor efficiency term. In general, it can represent a family of CES-type function indexed by a parameter. The parameter may represent time, nations, regions, or industries. Finally, it treats well the concern on dimensional homogeneity.
We consider a multinational global firm that adopts corporate social responsibility (CSR) in two countries and examine international privatization policies with the strategic transmission of CSR. We find that the strategic level of CSR crucially depends on the percentage of the global firm’s shares held in each country. We show that single privatization increases (decreases) CSR when the share is small (large), while dual privatization always leads to the highest CSR. We also show that domestic welfare under global standard of CSR, which is set to improve global welfare, is higher (lower) than that under the global firm’s strategic CSR when the share is small (large). Finally, we show that dual nationalization is a unique equilibrium in an international privatization choice game, irrespective of imposing the global standard of CSR, which causes global welfare loss.
This paper introduces dynamic mechanism design in an elementary fashion. We first examine optimal dynamic mechanisms: We find necessary and sufficient conditions for perfect Bayesian incentive compatibility and formulate the optimal dynamic mechanism problem. We next examine efficient dynamic mechanisms: We establish the uniqueness of Groves mechanism and investigate budget balance of the dynamic pivot mechanism in some detail for a bilateral trading environment. This introduction reveals that many results and techniques of static mechanism design can be straightforwardly extended and adapted to the analysis of dynamic settings.
This paper investigates the impact of air quality pollution on respiratory health risk in Korea. In particular, we consider transboundary effects of particulate matter (PM10) on the health risk of pneumonia by using the spatial panel model. PM10, generated by natural phenomena and anthropogenic activities, migrates to neighboring areas contributing to not only local but also ambient regional health risks. We employ the spatial panel model to explain the spillover effects of air pollution on the respiratory health risk. The panel data covers environmental, demographic and economic variables that are associated with pneumonia of 120 local districts in Korea during the period from 2010 to 2015. Empirical evidence based on non-spatial and spatial models commonly indicates that the impact of air pollution on pneumonia-related risk is significant. The spatial panel model assessment reveals improvement in explanation and evidences more significant effect of ambient air pollution on pneumonia related hospital visits. As such, evidences of spatial dependence and borderless impacts of air pollution on the health risk of pneumonia are found to be strong. We also investigate the spatial dynamics of the potential association between air pollution and respiratory diseases with respect to variations in wind direction by extending the conventional weight matrix specification. Empirical results imply that transboundary effects of PM10 on health risk are stronger for districts located downwind from Northwest districts than from other directions.
In this paper, we consider a labor market consisting of a firm and a worker and study employment contracts that the firm chooses when the worker has reference-dependent preferences with respect to wages. The firm offers an employment contract, which specifies the effort level and the wage in each period, and if the worker accepts the contract, she decides whether to continue working for the firm in each period. The worker forms a reference wage in each period based on the past wages, and we introduce gain-loss utility into the worker's payoffs from employment and unemployment. We show, among other results, that when the initial reference wage is low, the firm's optimal employment contract has initial high wages if the worker is loss averse and initial low wages if she is gain seeking. Our results provide explanations for signing bonuses and seniority-based pay systems based on reference-dependent preferences.
As the Earned Income Tax Credit(EITC) massively expanded in 2019, 20% of total households benefit from the credit. Due to this large reform, we expect that any future reform will also largely affect the aggregate economy; thus, the heterogeneous agent life cycle dynamic stochastic general equilibrium (HA-LC-DSGE) model will be widely used in future research. This paper reviews the EITC reforms in Korea since the first implementation and surveys the previous studies, examining the labor supply effects. We address why the HA-LC-DSGE model is necessary to examine the current EITC system in Korea. Then, we provide an example of the HA-LC-DSGE model with a policy simulation of the EITC expansion and explain the model's salient ingredients to understand the results.
This study examines the time series characteristics of residential electricity demand and its determinants in Korea and the short-run and long-run relationship among them. We employ unit root tests, cointegration, and error-correction models on annual time series for the period 1972--2019. The rapid development of Korea over this period provides clear evidence of the possibility of structural breaks. We find that residential electricity demand and its determinants are trend-stationary processes with a slope change, which implies that there is no need to invoke cointegration methods under the unit root assumption. We expect that the essential modeling strategy presented in this article will be widely applicable.
Recently, the Korean government is promoting the joint recruitment of public institutions, in which public institutions performing a similar task set a common date of written tests for entry-level employment. In this study, we analyze the effects of this policy on job seekers and institutions. Using a game-theoretic model with two institutions and a continuum of job seekers, we obtain the following results. First, when job seekers’ preferences for the two institutions are identical and one institution is much preferred to the other one, the less preferred institution and job seekers suffer from joint recruitment because job opportunities at the less preferred institution are not fully utilized under joint recruitment. On the other hand, when each institution is preferred by a half of job seekers, joint recruitment improves the overall utility of job seekers by increasing the likelihood that job seekers enter their preferred institutions. If joint recruitment lowers the overall difficulty of getting a job, it benefits job seekers with low ability more than those with high ability. Based on these results, we evaluate the policy of joint recruitment and discuss policy alternatives.
The aim of this paper is to discuss implications of important macroeconomic changes observed since 2000 on the further development of DSGE models. The starting point is to ask if the most recent DSGE model is flexible enough to allow for the possibility of the persistent drop in the growth rate of potential GDP observed in the Korean economy. The other topics include the relation between economic crisis and inequalities, the implications of observed jobless recoveries on the specification of labor market in DSGE models, macroeconomic impacts of household debt and government debt.
This paper sets up a small open new Keynesian economy model with constrained households and incomplete markets to address the driving forces of business cycles in Korea. It shows that there exists a substantial fraction of constrained households who cannot have access to financial market. Furthermore, the estimated model reveals that a TANK model is better than a RANK model in explaining business cycles in Korea. The effect of domestic productivity shock on Korean economy has dominated in the variations of output, while the contribution of the foreign productivity shock to the variations of output and inflation has increased after the Asian financial crisis. The monetary policy shock has dominated the variation of inflation at short and medium horizons.
Redundant assets give rise to peculiar portfolios, called `link portfolios,' under portfolio constraints. Link portfolios are jointly spanned by constrained null-income portfolios and form a linear subspace. The paper provides a general methodology for showing the existence of equilibrium under portfolio constraints by building two theoretical pillars to deal with link portfolios. The two pillars consist of the fundamental theorem of portfolio decomposition and the allocational equivalence between the original economy and the artificial economy built from projecting away link portfolios from the portfolio constraints. Investigating the existence of equilibrium in constrained financial markets boils down to finding a sufficient condition for the fundamental theorem of portfolio constraints to hold. The sufficient condition of the paper is general enough to encompass other sufficient conditions of the literature.
A key input manufacturer with a patent can raise its rivals’ costs in upstream market either by raising the possibility of patent infringement litigation in case a license is not given or by raising the royalty in case a license is given to its rivals. We study under which scenarios the patent holder has more incentive to raise its rivals’ costs. There is related literature investigating the patent holder’s incentive to license its technology to its rivals such as Farrell and Gallini (1988), Rockett (1990), and Conner (1995) or investigating the vertically integrated input monopolists’ (or the patent holder’s) incentive to supply its input to its rivals such as Padilla and Wong-Ervin (2016) and Moresi and Schwartz (2017). This paper differs from those in that the patent holder allows its rivals to use its patent even without a license but keeps the option of patent litigation. That is, the patent holder has an option to grant a license to its rivals in the input market, called the component licensing, or to allow free access to its rivals and to give a license to the device manufacturers, called the end-product licensing. We show that in the component licensing model the patent holder has more incentive to raise its rivals’ costs.
This work empirically investigates how commercial banks' aggregate credit supply is associated with business cycle over different regimes of the Korean economy. Linear empirical models employed in most of previous studies are subject to a potential missapecification problem because it is well known that both real GDP and credit supply reveal different dynamic properties over different regimes. This work finds that credit supply has asymmetric effect on business cycle for expansion and contraction phases when the Smooth Transition Autoregressive Vector Error Correction Model (or STAR-VECM) is employed. Our empirical findings are as follows. Firstly, we find that credit supply has procyclical effect on real GDP in all phases. Secondly, the procyclical effects are significantly intensified especially in contractionary phases which indicates asymmetry of its effect. In sum, this result supports 'Credit Acceleration Hypothesis' of Bernanke et al. (1999). Lastly, we further find that real GDP has asymmetric effects on banks' credit supply with countercyclical effect on expansionary regimes.
There is a recurrent assertion that the elderly want more public resources to be spent on social protection and health, the young want more on education, and such preferences are reflected in the actual government spending policy. This study aims to empirically confirm whether the assertion is valid in OECD countries. For that goal, we propose an estimation method to exploit the comparison of the actual share of government expenditure and its theoretical share by using aggregate data. The empirical finding is consistent with the recurrent assertion in the sense that the fraction of the young has a significantly negative effect of the spending share of social protection and health but a positive effect on the spending share for education even though we can not find a significant effect of the elderly. In particular, ageing leads to a smaller fraction of the young and a larger fraction of the elderly. Hence, the empirical finding predicts that the ageing trend is likely to bring more public resources to the social protection and health areas, and less public resources to education.
Using the yield data for Korean government bonds, I examine several discrete-time affine term structure models with unspanned macro factors, such as output and inflation, and compares term premia implied from alternative models with different combinations of output and inflation variables. Empirical analysis shows that, except for 1-year maturity ones, there is little difference among the medium- to long-term term premia across alternative models. The model-implied term premium estimates do not show a significant pro- or counter-cyclicality in relation to output variables, but show a highly positive correlation with inflation variables. In addition, I test the traditional expectation hypothesis by fitting Campbell-Shiller long-rate regressions to the Korean bond data, the expectation hypothesis is strongly rejected as in the case of the US, due to time-varying term premia, and an additional Monte Carlo simulation study indicates that the term structure models considered in this paper show a success in matching the regression coefficients estimated from the sample.
Transition probability density function (TPDF) or log-TPDF of a diffusion is quite useful in many ways. For example, it can be employed not only to estimate a diffusion by the maximum likelihood estimation but also to simulate data from a diffusion or to price an asset when the underlying process follows a diffusion. However, unfortunately, the true TPDF of a diffusion is unknown with a few exceptions in general. Starting from Ait-Sahalia (2002)'s pioneering work on approximate but explicit TPDF of a univariate time-homogeneous diffusion to Choi (2019a)'s recent work on closed-form approximate TPDF of a multivariate time-inhomogeneous jump diffusion, several researchers have subsequently established the way to approximate the TPDFs or log-TPDFs of more general diffusion models. This article explains how people have resolved problems to generalize the method from Ait-Sahalia(2002)'s paper to Choi(2013, 2015)'s multivariate time-inhomogeneous diffusions. Due to space constraints, explanations of detailed theories or assumptions for their proof are reduced to the minimum and we show important results, with tacit facts not described in the original papers. In addition, we also introduce papers derived from and related to those key studies.
We provide several tests to determine whether a game is a potential game or whether it is a zero-sum equivalent game---a game which is strategically equivalent to a zero-sum game in the same way that a potential game is strategically equivalent to a common interest game. We present a unified framework applicable for both potential and zero-sum equivalent games by deriving a simple but useful characterization of these games. This allows us to re-derive known criteria for potential games, as well as obtain several new criteria. In particular, we prove (1) new integral tests for potential games and for zero-sum equivalent games, (2) a new derivative test for zero-sum equivalent games, and (3) a new representation characterization for zero-sum equivalent games.
