The Impact of Financial Crises and IT Revolution on Income - PowerPoint PPT Presentation

The Impact of Financial Crises and IT Revolution on Income Distribution in Korea: Evidence from Social Accounting Matrices WIOD Conference (2012) Groningen April 24-26, 2012 Hak K. Pyo , Keun Hee Rhee and Gong Lee

Contents 1. INTRODUCTION 2. THE MULTIPLIER EFFECT AND RELATIVE INCOME DISTRIBUTION 3. MULTIPLIER EFFECTS AND INCOME REDISTRIBUTION EFFECTS IN KOREA (2000 and 2009) 3-1. Financial Crises and IT Revolution: An Overview 3-2. Macro-SAM in 2000 and 2009 with Micro-SAM 3-3. Multiplier Effects 3-4. Redistribution Effects (1) The Redistribution Effects of Production Activity on Its Own Accounts (2) Redistribution Effects of Production Activity on Household Income (3) Redistribution Effects of Household Income on Production Sectors (4) Redistribution Effects of Household income on its Own Accounts 4. CONCLUSION

1. Introduction • Social Accounting Matrix (SAM) : analyze the composition of national income and product and the process of income distribution. Pyatt and Round (1979), Thorbecke and Jung (1996), Roland-Holst and Sancho (1992), Llop and Manresa (2004) and Saari, Dietzenbacher and Los (2010) • It is important for policy making to modify the distribution of income among economic agents. • The purpose of this paper : analyze the impacts of IT revolution and two financial crises on the determination of national income and changes in the level of income of endogenous sectors by constructing micro cell of household sector in Korea following Noh and Nam (2006) and Pyo, Kim and Lee (2012)

1. Introduction • In recent years, Korea had experienced two financial crises in 1997-1998 and 2007-2008 respectively and the IT revolution during the interval between the two financial crises. • During the period of 1998-2007, the export performance led by IT-intensive products has helped the economy to make a sustainable growth • Analyze the impact of large scale depreciations immediately after two financial crises and export drive of IT-intensive products during the two post-crisis periods by multiplier and redistribution analysis based on SAM

2. The Multiplier Effect and Relative Income Distribution Following Llop and Manreasa (2004) and Saari, Dietzenbacher and Los (2010) • Structure of SAM where A ij are partitioned sub-matrices that contain the expenditure share coefficients calculated by dividing the transactions in the SAM by the corresponding sum column. • multiplier matrix M = (I – A mm ) -1 is a multiplier matrix and x = A mz Y z is a vector of exogenous variables

2. The Multiplier Effect and Relative Income Distribution • Redistribution Matrix From Equation (2), a matrix related to relative income can be derived where R is defined as the m by m redistribution matrix. It shows the change in the relative income of the endogenous sectors caused by unitary modifications in the exogenous injections of income received.

Table1. Simplified Schematic Social Accounting Matrix Expenditures Endogenous Exogenos accounts Totals accounts Factors Sectors Production a Sum of other acco (Households an ctivities unts d companies) 1 2 3 4 5 Receipts Endogenous sectors Factors 1 0 0 T 13 x 1 y -1 Sectors (households an 2 T 21 T 22 0 x 2 y- 2 d companies) Production activities 3 0 T 32 T 33 x 3 y 3 Exogenous sectors l ′ 1 l ′ 2 l ′ 3 Sum of other accounts 4 t y x y ′ 1 y ′ 2 y ′ 3 y ′ x Totals 5

3. Multiplier Effects and Income Redistribution Effects in Korea (2000 and 2009) (1) Financial Crises and IT Revolution decomposing production industries into 4 sectors as shown in Table 2: (1) Higher IT-intensive Manufacturing (2) Lower IT-intensive Manufacturing with Agriculture and Mining (3) Higher IT-intensive Services and (4) Lower IT-intensive Services following Ha and Pyo (2004) and Pyo and Ha (2007)

Table2. Industrial Classification by IT-Intensity Main Main intensity Sub Category intensity Sub Category Category Category 1 agriculture and fishing 22 construction 2 mining 26 transportation, storage low IT- intensity 3 food 29 real estate 4 textile, apparels, leather 32 gonerment 5 wood 23 electicity, gas, water service 6 paper allied 24 trade sector low IT- 10 rubber and plastic 25 hotels and restaurants intensity high IT- 11 stone, clay, glass 27 communication intensity 13 fabricated metal 28 finance, insurance 14 machinery 30 business services manufacturing 16 electrical machinery 31 social and personal services sector 19 instrument Source: 21 furniture and misc. manufacturing Ha and Pyo (2004) and Pyo and Ha (2007) 7 printing and publishing 8 coal and petroleum product 9 chemicals 12 primary metal high IT- intensity 15 computer and peripherals 17 electric components 18 sound, video, communication equipment 20 transportation equipment

3. Multiplier Effects and Income Redistribution Effects in Korea (2000 and 2009) 3-1. Financial Crises and IT Revolution Figure 1. GDP, Investment and Export Growth Rate: Korea 1995-2011 Source: The Bank of Korea

3. Multiplier Effects and Income Redistribution Effects in Korea (2000 and 2009) 3-1. Financial Crises and IT Revolution Figure 2. Exchange Rate and Stock Price Index: Korea 1995-2011 Source: The Bank of Korea

3. Multiplier Effects and Income Redistribution Effects in Korea (2000 and 2009) 3-1. Financial Crises and IT Revolution Table 3. Average Growth Rate for different periods average growth rate 2000-2007 2008-2001 2000~2011 Gross Domestic Product 5.21 3.13 4.52 Agriculture, Forestry and Fishing 1.38 0.60 1.12 Mining, Quarrying and Manufacturing 8.10 5.73 7.31 Manufacturing 8.18 5.83 7.39 Services 4.53 2.63 3.89 Final Consumption Expenditure 4.71 2.38 3.93 Private 4.76 2.00 3.84 Government 4.53 3.73 4.26 Gross Fixed Capital Formation 4.46 0.45 3.13 Construction 2.95 -2.03 1.29 Facilities Investment 7.13 4.65 6.30 Intangible Fixed Assets 7.95 3.40 6.43 Exports of Goods and Services 11.60 7.40 10.20 Imports of Goods and Services 10.69 5.05 8.81

3. Multiplier Effects and Income Redistribution Effects in Korea (2000 and 2009) 3-1. Financial Crises and IT Revolution Table 3. Average Growth Rate for different periods (continued) average growth rate 2000-2007 2008-2011 2000-2011 Gross Domestic Product 5.21 3.13 4.52 (1)manufacturing high IT-intensity industries 7.76 3.60 5.20 (2)Primary and manufacturing 5.11 2.67 3.86 low IT-intensity industries (3)service high IT-intensity industries 6.62 4.13 5.98 (4)service low IT-intensity industries 6.36 3.87 5.60 Exports of Goods and Services 11.60 7.40 10.20 (1)manufacturing high IT-intensity industries 11.94 7.58 10.45 (2)Primary and manufacturing 5.11 3.08 4.25 low IT-intensity Industries (3)service high IT-intensity industries 0.46 1.39 1.92 (4)service low IT-intensity industries 5.12 2.80 3.86 Source: The Bank of Korea

3. Multiplier Effects and Income Redistribution Effects in Korea (2000 and 2009) 3-2. Macro-SAM in 2000 and 2009 with Micro-SAM • Constructing Macro-SAM of Korea for year 2000 and 2009 by combining Input-Output Tables and National Accounts by the Bank of Korea in respective years. • In order to construct a supplementary Micro- SAM, we have used Korea Labor & Income Panel Study (KLIPS) Database (1998-2008) to decompose household sector into 10-Decile units.

3. Multiplier Effects and Income Redistribution Effects in Korea (2000 and 2009) 3-2. Macro-SAM in 2000 and 2009 with Micro-SAM Table 4. Macro Social Accounting Matrix (South Korea, Year 2000, 1 billion won) Income/ Production Production Corporate Combined Rest of Commodities Labor Capital Household enterprise Government World Error term Total Expenditure Activities enterprise Production Activities 1,155,961 236,966 1,392,928 Production Commodities 793,283 352,371 61,653 188,443 1,395,750 Labor 267,134 696 267,830 Capital 194,087 6,954 201,041 Household 267,190 82,918 25,914 10,929 7,242 34,682 428,875 Corporate 108,609 7,788 59 0 116,456 Government 51,319 19,447 25,442 19,470 53 16,258 131,989 Combined enterprise 87,105 37,441 14,772 58,774 681 5,346 204,119 Rest of World 220,342 640 9,514 5,834 244 574 15,676 252,823 Error term 56,056 231 56,287 Total 1,392,928 1,395,750 267,830 201,041 428,875 116,456 131,989 204,119 252,823 56,287 Source: The Bank of Korea

3. Multiplier Effects and Income Redistribution Effects in Korea (2000 and 2009) 3-2. Macro-SAM in 2000 and 2009 with Micro-SAM Table 5. Macro Social Accounting Matrix (South Korea, Year 2009, 1 billion won) Income/ Production Production Corporate Combined Rest of Commodities Labor Capital Household enterprise Government World Error term Total Expenditure Activities enterprise Production Activities 2,240,903 534,074 2,774,977 Production Commodities 1,727,071 575,970 170,325 279,285 2,752,651 Labor 493,686 872 494,558 Capital 310,604 20,129 330,733 Household 493,035 108,529 42,761 40,567 15,899 -8,776 692,015 Corporate 207,473 14,696 19 222,187 Government 101,522 17,131 59,479 35,824 195 47,143 261,295 Combined enterprise 142,094 27,771 104,550 48,447 -449 -87,144 235,269 Rest of World 494,617 1,523 14,731 14,098 684 1,938 -44,016 483,577 Error term 38,368 -87,144 -48,776 Total 2,774,977 2,752,651 494,558 330,733 692,015 222,187 261,295 235,269 483,577 -48,776 Source: The Bank of Korea