Research

Transition to a Green Economy: Policy Competition and Cooperation (Job Market Paper) [paper]

Abstract: What does a country gain or lose by free-riding off the climate benefits by other countries' carbon abatement efforts versus taking action to hasten a conversion to green energy sources at home? By incorporating industry lifecycle theory and the negative externalities from greenhouse gas emissions into an open-economy macroeconomic model, I analyze the welfare effects of industrial policies that subsidize production of capital goods (like solar panels or wind turbines) used to produce green energy. The model predicts that a production subsidy for the green capital goods industry is desirable for the home country, as it accelerates innovation in the industry and consequently green energy adoption. This acceleration at home delays innovation abroad, generating a beggar-thy-neighbor effect, despite the environmental benefits from home innovation. Thus, in a Nash equilibrium, both nations competitively raise production subsidies, improving welfare in both countries by reducing distortions created by the subsidy and greenhouse gas emissions. A cooperative equilibrium still yields a Pareto improvement, given the incomplete resolution of the free-riding problem in the Nash equilibrium. To quantitatively analyze the welfare and environmental effects of policies implemented by the US and the EU, I estimate the innovation timing elasticity, showing for the first time 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 subsidizing green capital goods production in the quantitative analysis.

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.

Automation, Human Task Innovation, and Labor Share: Unveiling the Role of the Elasticity of Substitution (with Deokjae Jeong) [paper]

Abstract: This paper investigates the elements contributing to the decline in labor share, with a particular focus on the roles of 'automation' and 'innovation in human tasks.' We construct a general equilibrium model that separately incorporates both robot and non-robot capital to derive an econometric specification. Based on the regression results, we estimate the elasticity of substitution between labor and non-robot capital to be less than one, while the elasticity of substitution between tasks is greater than, but close to, one. Together with these estimates, our regression results yield three major findings. First, we identify two distinct channels through which robots impact labor share: automation and the decrease in the price of robots. Both channels are found to negatively affect labor share. Our general equilibrium model predicts that the impact of declining robot prices will intensify as robots become more prevalent. Second, we are the first to empirically evaluate the impact of human task innovation on labor share by constructing a novel index for new human tasks. Our accounting analysis suggests that the positive influence of human task innovation outweighs the adverse effects of automation. Lastly, by utilizing estimates of the elasticity of substitution between labor and non-robot capital, as well as between tasks, we elucidate the mechanisms through which factor prices impact the labor share. Specifically, we find that both the negative effect of automation and the positive effect of human task innovation are amplified through the aggregated task price channel.

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.

Innovation and Spillover along Product Lifecycle: Firm Level Evidence

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