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Sources of Economic Growth in South Korea: An Application of the ARDL Analysis in the Presence of Structural Breaks - 1980-2005

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    Abstract

    The primary objective of this paper is to examine the major determinants of GDP growth in South Korea emphasizing the importance of investment, trade and human capital, using quarterly time series data covering the period 1980Q1 to 2005Q3. The time series properties of the data are, first, analyzed using the Zivot-Andrews (1992) model. The empirical results derived indicate that there is insufficient evidence against the null hypothesis of unit roots for all of the variables under investigation. Second, the Gregory-Hansen (1996) cointegration technique, allowing for the presence of potential structural breaks in the data, is applied, and is found to reject the null hypothesis of no cointegration relationship in favour of the existence of at least one cointegration relation in the presence of single structural breaks in the system. By applying these methodologies we find that most of the endogenously determined structural breaks coincide with the gradual effects of the Asian crisis on the Korean economy. Taking into account the resulting endogenously determined structural breaks the error correction version of the ARDL procedure is then employed, to specify the short- and long-term determinants of economic growth in the presence of structural breaks. Based on the preliminary empirical findings obtained we conclude that, in the long-term, policies aimed at promoting various types of physical and human capital, and trade openness, have improved Korea’s economic growth. More specifically, the empirical results show that while the effects of physical and human capital as well as exports are highly significant, as expected, total imports were found to be non significant, and this could be due to compositional changes away from the importation of capital goods to consumer goods as Korean standards of living have improved. It was also found that the speed of adjustment in the estimated models is relatively high and had the expected significant and negative sign.

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    File URL: http://www.uow.edu.au/content/groups/public/@web/@commerce/@econ/documents/doc/uow012230.pdf
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    Bibliographic Info

    Paper provided by School of Economics, University of Wollongong, NSW, Australia in its series Economics Working Papers with number wp06-17.

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    Length: 20 pages
    Date of creation: 2006
    Date of revision:
    Handle: RePEc:uow:depec1:wp06-17

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    Postal: School of Economics, University of Wollongong, Northfields Avenue, Wollongong NSW 2522 Australia
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    Keywords: Korean economy; growth; structural break; and ARDL analysis;

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    1. Corsetti, Giancarlo & Pesenti, Paolo & Roubini, Nouriel, 1999. "What caused the Asian currency and financial crisis?," Japan and the World Economy, Elsevier, vol. 11(3), pages 305-373, October.
    2. Pahlavani, M., 2005. "Cointegration and Structural Change in the Exports-Gdp Nexus: The Case of Iran, 1960-2003," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 2(4), pages 37-56.
    3. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
    4. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
    5. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    6. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
    7. Steven Radelet & Jeffrey Sachs, 1998. "The Onset of the East Asian Financial Crisis," NBER Working Papers 6680, National Bureau of Economic Research, Inc.
    8. Pahlavani, M., 2005. "Sources Of Economic Growth In Iran: A Cointegration Analysis In The Presence Of Structural Breaks, 1960-2003," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 5(4).
    9. Naoto Kunitomo, 1996. "Tests Of Unit Roots And Cointegration Hypotheses In Econometric Models," The Japanese Economic Review, Japanese Economic Association, vol. 47(1), pages 79-109, 03.
    10. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    11. Chan Huh & Sun Bae Kim, 1994. "Financial regulation and banking sector performance: a comparison of bad loan problems in Japan and Korea," Economic Review, Federal Reserve Bank of San Francisco, pages 18-29.
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    Cited by:
    1. Svitlana Maksymenko & Mahbub Rabbani, 2011. "Economic Reforms, Human Capital, And Economic Growth In India And South Korea: A Cointegration Analysis," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 36(2), pages 39-59, June.

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