IDEAS home Printed from https://ideas.repec.org/a/tpr/asiaec/v5y2006i3p1-18.html
   My bibliography  Save this article

Investment Bust in Post-Crisis Korea: Fact or Fiction?

Author

Listed:
  • Kyung-Mook Lim

    (Department of Macroeconomic and Financial Policies, Korea Development Institute (KDI), P.O. Box 113, Cheongnyang, Seoul 130-012, Korea)

  • Wonhyuk Lim

    (Brookings Institution, 1775 Massachusetts Avenue, NW Washington, DC 20036 USA and Korea Development Institute)

Abstract

In post-crisis Korea, facility (equipment) investment shows the worrisome trends of a slowdown in investment growth and a decline in investment propensity. We marshal micro and macro data to examine four major explanations for these important developments. Our analysis: (a) finds that cyclical factors such as depressed private consumption in 2003 and 2004 did lead to lower investments in automobiles, hence dragging down total investment growth in these years; (b) rejects the claim that investment was lowered by an "anti-chaebol environment" created by the Roh Moo-hyun government (facility investment by large firms actually increased by a great deal in 2003 and 2004, whereas aggregate investment in the national account showed anemic growth); (c) supports the "moral hazard" hypothesis, which states that chaebol investment in the pre-crisis period was abnormally high because of implicit state guarantees (the chaebol dummy in our investment equations was no longer statistically significant in the post-crisis period, in the aftermath of large-scale bankruptcies); and (d) supports the "hollowing-out" hypothesis, which holds that outward foreign direct investment has reduced domestic facility investment because the price competitiveness of final assembly and other labor-intensive sectors in Korea has been eroded by the rise of late-developing countries such as China and Vietnam. (c) 2007 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.

Suggested Citation

  • Kyung-Mook Lim & Wonhyuk Lim, 2006. "Investment Bust in Post-Crisis Korea: Fact or Fiction?," Asian Economic Papers, MIT Press, vol. 5(3), pages 1-18, Fall.
  • Handle: RePEc:tpr:asiaec:v:5:y:2006:i:3:p:1-18
    as

    Download full text from publisher

    File URL: http://www.mitpressjournals.org/doi/pdfplus/10.1162/asep.2006.5.3.1
    File Function: link to full text
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. International Monetary Fund, 2008. "Republic of Korea; Selected Issues," IMF Staff Country Reports 08/296, International Monetary Fund.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tpr:asiaec:v:5:y:2006:i:3:p:1-18. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kristin Waites). General contact details of provider: http://mitpress.mit.edu/journals/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.