Research
Research
Transition to a Green Economy: Policy Competition and Cooperation [paper]
Abstract: This paper analyzes the welfare effects of industrial policies that subsidize the production of green capital goods by incorporating industry lifecycle theory and environmental externalities into an open-economy macroeconomic model. The model predicts that, even with the free-riding incentive, a production subsidy to the green capital goods sector is desirable for the home country but may have a beggar-thy-neighbor effect on the foreign country by affecting knowledge diffusion or learning-by-doing within the sector. Thus, in a Nash equilibrium, both nations competitively raise production subsidies, improving welfare in both countries. A cooperative equilibrium still yields a Pareto improvement, given the incomplete resolution of the free-riding problem in the Nash equilibrium. In a quantitative analysis, I estimate the innovation timing elasticity, showing that the pace of innovation increases with the number of firms operating in an industry. The estimate is sufficiently high to shift the optimal national policy from free-riding to subsidization.
Industrial Policy in the context of Industry Lifecycle: Catch-Up versus Frontier Technology Races [paper]
Abstract: The welfare effects of industrial policy can vary depending on the stage of the targeted industry's lifecycle, with international spillovers of policy effects playing a crucial role. In this study, I develop an open economy macroeconomic model incorporating industry lifecycle theory to investigate how the timing of industrial policy affects innovation and welfare in both the home and foreign countries in the presence of such spillovers. The model provides distinct welfare implications in two scenarios: catch-up where a country uses industrial policy to reach parity with the level of technology in the rest of the world, versus frontier technology races where it employs subsidies to foster new innovations before other countries. For the home country, a production subsidy accelerates innovation in the targeted industry and thus can enhance welfare in both scenarios. For the foreign country, while a home production subsidy unambiguously increases welfare in the catch-up scenario, it may lead to a beggar-thy-neighbor effect in the frontier technology race scenario by delaying foreign innovation, prompting the foreign country to implement countervailing policies.
The Market Potential and Optimality of Industrial Policy: Revisiting Korean Industrial Policy in the 1970s
(with Seok (Sean) Kim) [paper]
Abstract: We assess optimal industrial policy factoring in external economies of scale under changing global market conditions. Since policy effects naturally materialize with a time lag, policy assessment should compare the short-run distortion of the intervention to its long-run gain. In this context, we expand the small open economy model of Bartelme et al. (2021) into a two-period dynamic setting to figure out how important the dynamics of global market conditions are in determining optimal policy. Optimal industrial policy in our model depends not only on the scale elasticity, but also on a multiplier which is larger when more resources are re-allocated to the industry in the long-run based on export market penetration. This optimal policy implies that an industry with a growing future market should receive stronger support than earlier papers suggest. We quantitatively evaluate the industrial policy of South Korea in the 1970s. With the estimate of the scale elasticity of 29 manufacturing industries, our quantitative analysis presents two main results. First, even though the scale elasticity of targeted industries is virtually the same as that of non-targeted industries, the industrial policy increased the welfare of South Korea. Second, the suggested optimal subsidy rate for the targeted industries is even higher than the actual historical rate.
Network indicators for monitoring intraday liquidity in BOK-Wire+ (with Kimmo Soramäki and Jaeho Yoon)
Journal of Financial Market Infrastructures 2014, 2(3), pp. 37-66 [paper]
Assessment of China’s capital flows, and its implications (both in English and Korean, with Hyung Suk Oh)
Monetary Policy Report, November 2015, pp. 11-14