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Did Public Transfers Crowd Out Private Transfers in Korea During the Financial Crisis?

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  • Sung Jin Kang
  • Yasuyuki Sawada

Abstract

How effective are public transfers in protecting households facing financial crisis-induced negative shocks? Existing studies have not yet carefully considered the inter-relationship between public transfers and the existing private transfer network. In the context of the financial crisis in Korea, this paper investigates the possible crowding-out effect of public transfers on private transfers by explicitly considering the endogenous responses of private transfers against public transfers. By using two Korean household-level panel data sets for the periods of 1995-1998 and 1998-2003, we found a post-crisis, but not pre-crisis crowding-out effect of public transfers; more importantly, a crowding-in effect is observed during the crisis. The results suggest that private transfer networks were strengthened under the initial phase of the financial crisis, which possibly complemented public transfers due to the lack of effective formal safety nets, while public transfers became effective after the crisis, thereby replacing private transfers. Our results suggest that particularly at the initial stage of the crisis, the government could have played an important role in assisting households to weather the negative impacts of the crisis.

Suggested Citation

  • Sung Jin Kang & Yasuyuki Sawada, 2009. "Did Public Transfers Crowd Out Private Transfers in Korea During the Financial Crisis?," Journal of Development Studies, Taylor & Francis Journals, vol. 45(2), pages 276-294.
    • Handle: RePEc:taf:jdevst:v:45:y:2009:i:2:p:276-294
    DOI: 10.1080/00220380802265017
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    References listed on IDEAS

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    Cited by:

    1. Fujie, Takeshi & Senda, Tetsuji, 2019. "Effects of Aggregate Shocks on the Productivity of Farm Households in Prewar Japan," Japanese Journal of Agricultural Economics (formerly Japanese Journal of Rural Economics), Agricultural Economics Society of Japan (AESJ), vol. 21.
    2. Bonggeun Kim & John Gibson & Chul Chung, 2017. "Using Panel Data to Estimate Income Under-Reporting by the Self-Employed," Manchester School, University of Manchester, vol. 85(1), pages 41-64, January.
    3. Sawada, Yasuyuki & Takasaki, Yoshito, 2017. "Natural Disaster, Poverty, and Development: An Introduction," World Development, Elsevier, vol. 94(C), pages 2-15.
    4. Goh, Chor-ching & Kang, Sung Jin & Sawada, Y asuyuki, 2005. "How did Korean households cope with negative shocks from the financial crisis?," Journal of Asian Economics, Elsevier, vol. 16(2), pages 239-254, April.
    5. Kananurak, Papar & Sirisankanan, Aeggarchat, 2016. "Do Public Transfers Crowd-out Private Transfers? Evidence from the Thai Socio-Economic Panel Survey," Asian Journal of Applied Economics, Kasetsart University, Center for Applied Economics Research, vol. 23(2), December.
    6. La, Hai Anh & Xu, Ying, 2017. "Remittances, social security, and the crowding-out effect: Evidence from Vietnam," Journal of Asian Economics, Elsevier, vol. 49(C), pages 42-59.
    7. Yasuyuki Sawada, 2017. "Disasters, Household Decisions, and Insurance Mechanisms: A Review of Evidence and a Case Study from a Developing Country in Asia," Asian Economic Policy Review, Japan Center for Economic Research, vol. 12(1), pages 18-40, January.
    8. TAMURA Sakuya & SAWADA Yasuyuki, 2009. "Consumption Insurance against Unforeseen Epidemics:The Case of Avian Influenza in Vietnam," Discussion papers 09023, Research Institute of Economy, Trade and Industry (RIETI).

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