A Comparative Estimation of Financial Frictions in Japan and Korea

We apply the Business Cycle Accounting method a la Chari, Kehoe, and McGrattan (2007) to the Japanese and the Korean economy and quantitatively analyze the effects of financial frictions during the recent recessions. First, we compute exogenous distor- tions in the financial, government purchases, labor, and production markets. The preliminary results show that the sudden drop in production efficiency (TFP) was the main reason of the Korean recession while the increase in labor market distortions was the main reason of the Japanese slump. Next, we orthogonalize the innovations to the distortions and quantify the maximum spill-over effects of financial frictions on output fluctuations in both countries following Christiano and Davis (2006). Our results imply that financial frictions may have been important in explaining the recessions in both countries through their effects on TFP and labor market distortions

A Test of Separability and Random Effects in Production Function with Decomposed IT Capital

Separability Test, IT-using Effect, Panel Regression

Interdependency in East Asia and the Post-Crisis Macroeconomic Adjustment in Korea

The purpose of this paper is to reexamine the financial crisis in Korea and its post-crisis macroeconomic adjustment reviewing changing structure of interdependency in East Asia and to make a critical assessment on its post-crisis reform programs. The painful experience of Korea's post-crisis macroeconomic adjustment and structural reforms seem to have received both positive and mixed evaluations. The overall macro economic environment in the post-crisis period has been stabilized. The Korean economy seems to have recovered some of its growth potentials and competitiveness. The movement in the overall productivity indicators such as labor productivity and total factor productivity seem to validate this judgment even though there was a structural break in 1997-8. However, it has long way to go because both financial sector reforms and corporate restructuring are far from being completed

Estimates of Total Factor Productivity, the Contribution of ICT, and Resource Reallocation Effects in Japan and Korea

The purpose of our study is to identify the sources of economic growth based on a KLEMS model for Japan and Korea. We also identify the growth contribution of ICT assets and resource reallocation effects in the two economies. Both Japan and Korea enjoyed high TFP growth in ICT-producing sectors but suffered low TFP growth in ICT-using sectors. For Japan, we find that the main factor underlying the Lost Decade is the slow-down in TFP growth. We also found that Korea's TFP growth was slow until the Asian financial crisis of 1997-1999 but then accelerated after the crisis. It seems that before the crisis, Korea was following a catch-up process with developed economies that was predominantly input-led and manufacturing-based, as documented by Timmer (1999) and Pyo (2001). However, through the drastic economic reform undertaken during the crisis, Korea seems to have shifted to a new phase of economic growth since the end of the 1990s. TFP growth rates, especially those in manufacturing sectors, have substantially increased in post-crisis Korea. Both in Japan and Korea, productivity in service sectors is much lower than in manufacturing. The reason probably is excessive regulation and a lack of competition in service sectors. And these factors seem to have impeded introduction of ICT in service industries. As for ICT capital accumulation, the ICT investment/GDP ratio of Korea is higher than that of Japan. Especially, the speed of ICT accumulation in the ICT sector in Korea is much faster than that in Japan. Both in Japan and Korea, the largest component in ICT investment is computing equipment. In the case of resource reallocation across sectors, the reallocation effect of capital input was negligible or negative for most periods both in Korea and Japan. After the financial crisis of 1997-99, the resource allocation effect of capital in Korea remained negative, although the size of the negative effect declined. On the other hand, the reallocation effect of labor input was positive for most periods both in Korea and Japan.

Productivity Growth and Patterns of Efficiency Changes in Korean Economy : Stochastic Frontier Approach with Industry-Panel Data

This paper applies the group-specific stochastic frontier production model to the Korean 32-industry level panel data set for the period of 1984-1997. The methodology allows for not only estimating temporal variation in total factor productivity, but also identifying the contribution of technical efficiency separately from technical progress. The empirical results of this study show that productivity growth of Korean economy was driven mainly by technical efficiency improvement in the 1980s, but by technical progress in the 1990s. At the industry level, the petroleum products industry was the most efficient in the 1980s, but its efficiency rank fell to 5 in 1997. On the other hand, the communication industry improved its technical efficiency dramatically; its technical efficiency growth rate was ranked at 14 in 1985, but at 1 since 1993