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The Effects of Government Spending in Korea: a FAVAR Approach (in Korean)

Author

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  • Wongi Kim

    (Department of Economics, Chonnam National University)

Abstract

In this study, I analyzed the effects of government spending on macro variables and on each industry by using a factor augmented vector autoregressive model (FAVAR) and 167 macro-variables in Korea since 2000. The results reveal that the effects of two types of government spending ― government consumption and government investment ― greatly differ, therefore it is better to consider the two types of spending separately for a more precise analysis. The stimulus effects of government consumption are clear, but those of government investment are not. In addition, the crowding-out effects of government spending take place through the current account deficit channel rather than the traditional crowding-out channel, reducing private consumption and investment. Both types of government spending show a positive effect on the construction industry. Also, an increase in government consumption stimulates output in various manufacturing and service sectors.

Suggested Citation

  • Wongi Kim, 2019. "The Effects of Government Spending in Korea: a FAVAR Approach (in Korean)," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 25(3), pages 100-137, September.
    • Handle: RePEc:bok:journl:v:25:y:2019:i:3:p:100-137
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    Citations

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    Cited by:

    1. Byung Ho Lee & Kwangyong Park, 2023. "External Information and Fiscal Multipliers," Korean Economic Review, Korean Economic Association, vol. 39, pages 347-379.

    More about this item

    Keywords

    Government Spending; Government Consumption; Government Investment; Factor Augmented Vector Autoregressive Model; Industry Effects;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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