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Policy Implications of Investment Rate Distributions in the Korean Manufacturing Sector

Author

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  • Jinhee Woo

    (Korea Institute of Public Finance)

Abstract

A cross-sectional distribution of the investment rates of manufacturing establishments in Korea, based on the Mining and Manufacturing Surveys of 2011 through 2014, reveals a fatright tail and an asymmetry between positive and negative investment rates, reflecting the fixed cost of capital adjustment and the partial irreversibility of investment. This find in greveals that the aggregate responsiveness to the investment support policy will be greater during a boom than during a recession. A heterogeneous plant model designed to explain the cross-sectional distribution of investment rates observed in the data demonstrates that the response of aggregated investment to investment subsidy is 21.8% higher during a boom than during a recession. Our study also suggests that concentrating subsidies in establishments with small employment size will increase the investment inducement effect of the policy rather than provide equal subsidies for establishments of all sizes.

Suggested Citation

  • Jinhee Woo, 2020. "Policy Implications of Investment Rate Distributions in the Korean Manufacturing Sector," Korean Economic Review, Korean Economic Association, vol. 36, pages 445-480.
    • Handle: RePEc:kea:keappr:ker-20200701-36-2-06
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    References listed on IDEAS

    as
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    Cited by:

    1. DongIk Kang & Jinhee Woo, 2022. "How Effective are Automatic Stabilizers in Reducing Aggregate Volatility in Korea?," Korean Economic Review, Korean Economic Association, vol. 38, pages 5-42.

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    More about this item

    Keywords

    Investment; Fixed Cost; Partial Irreversibility;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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