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Consumption, financial wealth and labor income in Korea

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  • Lee, Jiho

Abstract

By examining the relationship between consumption, financial wealth and labor income in Korea, this paper presents three key findings. First, we find evidence that Korean households hold a larger proportion of their wealth in human capital instead of financial wealth, compared to households in other countries. Potentially, this finding appears consistent with Koreans’ enthusiasm for human development through education despite low government funding. Another important finding is that only financial wealth fluctuations contain a large portion of temporary components. Hence, financial wealth is mainly responsible for adjustments to restore the long-run relationship between consumption, financial wealth and labor income during the examined period. Third, and perhaps most interestingly, this paper finds that before the 1997 Asian financial crisis, households in Korea had difficulty smoothing their consumption over time. This finding may be at least partly attributable to households’ limited access to bank loans and their low level of financial wealth accumulation prior to the crisis. In contrast, we find little evidence that households’ consumption behavior has changed during the recent global financial crisis.

Suggested Citation

  • Lee, Jiho, 2013. "Consumption, financial wealth and labor income in Korea," Japan and the World Economy, Elsevier, vol. 25, pages 59-67.
    • Handle: RePEc:eee:japwor:v:25-26:y:2013:i::p:59-67
    DOI: 10.1016/j.japwor.2013.01.005
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    Keywords

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    JEL classification:

    • 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
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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