JOB REALLOCATION,FINANCIAL CRISES,AND POLICY REFORMS: EVIDENCE FROM KOREA

This article investigates the dynamic process of job reallocation across Korean firms from 1985 to 2013 focusing on how the 1997 Korean financial crisis and the subsequent reforms altered job flows. I find evidence that while job reallocation was moderate and acyclical before the crisis, after the crisis it substantially intensified and exhibited procyclicality. Particularly, the reshuffling of employment across firms from different industries and of different sizes significantly occurred during the crisis period. Examining job reallocation from a geographical perspective, I find that the driving forces of regional job reallocation rates depend on the local heterogeneity of industries and geography. (JEL J63, E32, R10)     

A comparative analysis of inter-industry wage differentials: before and after the Korean financial crisis

Korean economy has changed rapidly since the 1997 Korean financial crisis. This article investigates whether the inter-industry wage differentials in the Korean manufacturing industry are consistent over time and how the inter-industry wage structure has changed after the financial crisis. We used the 1995 and 1999 survey report on the wage structure–Korea. Our empirical results provide evidences for a wider inter-industry wage differentials and changes of the wage structure. After the crisis, company size, region (live in capital), sex, tenure, education are more critical to determine wages. According to factor analysis, the job quality factor is most closely related to wages before the crisis, while the industry attributes factor does in 1999.     

Lessons from the 1997 and the 2008 Crises in Korea

The Korean economy was hit harder than anticipated by the global financial crisis. In the first phase, large capital outflows led to a severe liquidity strain in the foreign exchange market, resulting in a rapid depreciation of the exchange rate. Then, in the second phase, the contraction of global demand led to a collapse of exports and a sharp decline in economic activity, raising concerns about a full‐fledged financial crisis in Korea. This paper describes how the global financial crisis spilled over into the Korean economy and how the Korean government responded to the financial turmoil. It also provides the background and rationale for the Korean government's decisions to adopt specific policy measures. Based on Korean experiences during the 1997 and the 2008 crises, this paper documents the lessons learned from the past two crises and identifies several important policy issues.     

Owner-managers and firm performance during the asian and global financial crises: evidence from Korea

We examine the performance of the Korean owner-managers during the 1997?1998 Asian financial crisis and the 2008?2009 global financial crisis to establish whether they overcome the unexpected exterior shocks better than employed managers. We find that the owner-managers record a significantly greater performance during the crises, and especially during the latter period. Moreover, our results suggest that such a tendency comes from the owner-managers’ superior investment decisions. Our paper thus highlights the role of owner-managers by studying their performance during the Korean economic crisis periods. (JEL G01, G32, G34)     

A neoclassical analysis of the Korean crisis

In late 1997, Korea experienced a huge and unusual economic crisis. The three main features of this crisis are the sudden recession, the rapid recovery and a consumption drop as large as the output drop. A large body of literature qualitatively explains the Korean crisis in terms of financial and monetary variables such as exchange rates and interest rates. This paper complements these studies by quantitatively analyzing fluctuations in real macroeconomic variables such as real GDP and consumption. A stochastic small open economy neoclassical model can quantitatively account for the Korean crisis taking TFP and real interest rates as exogenous.     

Crisis and Recovery: What We Have Learned from the South Korean Experience?*

This paper analyzes the process of recovery from the 1997 financial crisis in South Korea, and draws some lessons from it. The fast restoration of financial stability due to early closure of non‐viable financial institutions and quick resolution of non‐performing loans was critical for the speedy recovery of the South Korean economy. The swift adjustment in fiscal and monetary policies in addition to the large depreciation of real exchange rates also supported the fast recovery. Corporate and government bond markets played an important role in the financial restructuring and macroeconomic adjustment process. Structural reforms helped to alleviate the weaknesses in the corporate sector, particularly in chaebol groups. However, the fast recovery also generated unwelcome side‐effects. Because of aggressive fiscal expansion through government‐guaranteed bonds and public credit guarantee programs, sovereign liabilities increased greatly and transparency of the official fiscal stance deteriorated. Thanks to structural reform, corporate and financial sectors began to recognize the importance of micro risk management, but increased risk aversion contributed to the slowdown of corporate investment and, therefore, reduced long‐run growth perspective in South Korea. How to revive long‐term growth rates remains an important question in South Korea despite fast recovery from the crisis.     

“两次金融危机”产生的原因与影响及对中国经济发展的启迪

分析1997年"亚洲金融危机"和2007年"世界金融危机"产生的原因及其异同点与"两次金融危机"对世界及其中国经济发展的影响.在此基础上,探讨"两次金融危机"对中国经济发展的启迪,为中国在今后经济发展中防范和应对金融危机提供科学依据.     

The Korean financial crisis and the soft budget constraint

A panel of Korean firms is used to test for the soft budget constraint (SBC) in bank lending before and after the 1997–1998 financial crisis. SBC is present if a firm can borrow from its bank despite being in financial distress, which we define by a low Altman's z-score. We find that prior to 1997 financially distressed firms were able to borrow while after the crisis their ability to borrow declined substantially. We also demonstrate that SBC was a significant factor in the firms’ propensity to default during the crisis.     

The United States Boom, 'Clintonomics' and the New Economy Doctrine: A Neo-Gramscian Contribution

The financial crisis that struck South Korea with such ferocity in mid 1997 appeared to take many by surprise. Throughout the 1990s and up until the onset of the crisis, foreign lenders demonstrated their confidence in the Korean economy by literally pouring capital into the country, swelling foreign debt to unprecedented levels. Such confidence was bolstered by the affirmations of international credit rating agencies that attached positive ratings to the Korean economy right up until mid 1997. No one, it seemed, at home or abroad, believed that the Korean star that had risen so quickly and shone so brilliantly could fall as far and as fast as it did. However, barely had the dust settled behind the ‘electronic herd's’ mass exodus when tales of the ‘inherent instabilities’ of the Korean economy began to emerge. The Korean government bore the brunt of heaviest international criticism, its ‘interventionist’ financial policies widely blamed for distorting the market mechanism, leading to the misallocation of economic resources and ultimately precipitating the crisis. Such interpretations of Korea's crisis have, however, since been called into question on numerous grounds.     

CREDIT CRUNCH AND HOUSEHOLD WELFARE,THE CASE OF THE KOREAN FINANCIAL CRISIS*

We examine how the credit crunch in Korea in the late 1990s affected household behaviour and welfare. Using 1996–1998 household panel data, we estimate a consumption Euler equation, augmented by endogenous credit constraints. Korean households coped with the negative shocks of the 1997 credit crunch by reducing consumption of luxury items while maintaining food, education and health related expenditures. Our results show that, in 1997–1998, during the crisis, the probability of facing credit constraints and the resulting expected welfare loss from the binding constraints increased significantly, suggesting the gravity of the credit crunch at the household level.     

混业经营与金融体系稳定性:基于银行危机的全球实证分析

银行混业经营不仅关系到自身效率的提高,更关系到银行体系乃至整个金融体系的稳定性。对全球范围内61个国家的跨国数据进行的实证分析表明,一个国家对银行混业经营的限制越少,该国的金融体系越趋于稳定,发生银行危机的概率也越小。不仅如此,在宏观经济越不稳定的国家,其一般性银行危机演变为系统性银行危机的概率也越大。     

THE POST‐ASIAN CRISIS DROP IN INVESTMENT: THE CASES OF INDONESIA,KOREA, MALAYSIA,AND THAILAND

This study analyzes drops in East Asian investment and their determinants after the 1997–1998 Asian financial crisis. We first employ a random level‐shift autoregressive model to quantify the shift in investment ratios of four Asian economies hit by the 1997–1998 Asian financial crisis: Indonesia, Korea, Malaysia, and Thailand. We trace the major historical shifts in the levels of investment ratios and we find that the cumulated downward shifts in investment ratios during 1997–1998 for Indonesia, Korea, Malaysia, and Thailand are 6, 5, 14, and 14 percentage points, respectively. The investment ratios of most countries experienced several rebounds between 1999 and 2001, but the rebounds were too small to bring investment ratios back to their pre‐1990 levels. Having identified the episodes of investment shifts, the Bayesian Model Averaging (BMA) and several robust tests are employed to investigate the determinants of those level shifts in investment ratios. We find that real per capita gross domestic product growth and banking crises are the two most important factors contributing to shifts in the investment levels of these four crisis‐hit Asian economies. The results are useful in understanding the causes and remedies of global imbalances. (JEL C11, E22, F32, O53)     

ASIAN FINANCIAL CRISIS AND KOREAN TRADE DYNAMICS

Since the Asian financial crisis in 1997, Korean international trade has gone up substantially in both volume and trade balances. The improvement is largely due to an expansion of international markets through various bilateral trade agreements and the structural changes in Korean exchange rates. This article investigates the exchange rate–trade balance dynamics, popularly known as the J‐Curve phenomenon. Employing the bounds‐testing approach to cointegration and error‐correction modeling on Korean bilateral trade for the pre‐ and post‐Asian crisis periods, the study finds that support for the strict version of the J‐Curves has been fading after the crisis. While the weaker version of J‐Curve is generally supported in both pre‐ and post‐crisis sample periods, we also notice patterns such as M, N, or W‐Curves. There exists a long‐run relationship among the Korean exchange rates, domestic income, foreign income, and Korean trading balances. (JEL F14, F32)     

Interest rate and exchange rate exposures of banking institutions in pre-crisis Korea

This study empirically investigates interest rate and exchange rate exposures of banking institutions in pre-crisis Korea. Using the sensitivity of stock returns as a measure of the exposure, it is shown that Korean commercial banks and merchant banking corporations had been significantly exposed to both interest rate and exchange rate risks, and that the subsequent profitability of commercial banks was significantly associated with the degree of pre-crisis exposure. The evidence suggests that, along with the negative exposure of banking institutions, the sharp depreciation of the Korean won and high interest rates at the end of 1997 further deteriorated the banking sector's capital adequacy worsening the financial crisis. The Korean case highlights the importance of upgrading financial supervision and risk management practices as a precondition for successful financial liberalization.     

LATE CAREER JOB LOSS AND THE DECISION TO RETIRE

This article provides an empirical analysis of the effect of involuntary job loss on the lifetime income and labor supply of older workers. I develop and estimate a dynamic programming model of retirement with savings, costly job search, and exogenous layoffs. The average cost of job loss is equivalent to one year of predisplacement earnings, 70% due to the wage reduction and 30% to the search frictions. Displaced workers on average retire 14 months earlier. Workers who approached retirement during the Great Recession will work approximately five months longer in response to the contemporaneous financial and labor market shocks.     

Capital structure in South Korea: a quantile regression approach

Knowledge of how South Korean firms choose their capital structures has particular value due to the country's specific corporate structure and the role of leverage in the evolution of its financial crisis of 1997 and recovery. Using a large panel for the years 1992–2001, we investigate the evolution and determinants of Korean firms' capital structure and focus on differences between firms in different quantiles of the debt–capital distribution. Conditional quantile regressions show that while variables associated with standard models of asymmetric information costs are significant throughout the distribution, there are considerable differences, including differences in sign, in their impact on firms with different degrees of leverage. Those observed nonlinearities in the determinants of capital structure are consistent with a model of capital structure that includes both costs resulting from asymmetric information and an upper bound on the debt–capital ratio.     

Agglomeration economies and location choice of Korean manufacturers within the United States

Employing the micro data for 1997–2004, we investigate the location decision of Korean-affiliated manufacturing investments in the United States. The conditional logit estimates confirm that although industry-specific Korean agglomeration and domestic agglomeration play an important role, the Foreign Direct Investment (FDI) location is more sensitively affected by the interstate difference in endowment conditions than by the same nationality agglomeration. Both business service and intermediate good agglomeration are main determinants of FDI location. Furthermore, estimation results show substantial change in the location pattern after recovery from the Asian financial crisis. We find quite different patterns of location decision across industry groups; dispersion forces work greater than the agglomeration force in the consumer goods industry, forward linkages with US upstream firms can be seen in the assembly and processing industry, and typical follow-the-leader pattern mixed with market potential effect by Korean immigrants is seen in the basic material manufacturing industry.     

THE IMPACT OF INTERNATIONAL OUTSOURCING ON LABOUR MARKET DYNAMICS IN GERMANY

Using an administrative data set containing daily information on individual workers' employment histories, we investigate how workers' labour market transitions are affected by international outsourcing. In order to do so, we estimate hazard rate models for match separations, as well as for worker flows from employment to another job, to unemployment, and to nonparticipation. Outsourcing has a positive but small impact on overall job stability in the manufacturing sector, and considerably increases job stability in the service sector. However, the effect of outsourcing varies strongly across skill levels and age groups, with negative effects for some workers. This is especially the case in the manufacturing sector, where the hazard of transiting to nonemployment rises with international outsourcing for medium‐skilled and older workers.     

金融危机背景下的金融稳定：挑战与对策

国际金融危机的不断发展,使国际金融和经济环境不断恶化,给我国的金融稳定带来了严峻挑战。我们必须充分认识我国金融稳定所面临的种种挑战,积极采取相关措施,有效维持金融稳定,保证金融功能的良好运转,尽快消除金融危机的不利影响,推动我国经济增长的快速恢复。     

论金融危机中财政救助的成本与收益

作为应对国际金融危机的主要力量,财政救助是促进全球经济企稳回升的关键,但与此同时也会带来财政赤字加重、道德风险上升等潜在成本。本文认为,政府在关注财政救助收益的同时,更要关注其风险及成本,以实现财政救助效用的最大化。