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Factor Price Distortions, Resorce Allocation, and Growth: A Computable General Equilibrium Analysis

Author

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  • Jene K. Kwon

    (Northern Illinois University)

  • Hoon Paik

    (Northern Illinois University)

Abstract

The present paper estimates the welfare cost of both labor and capital market distortions in South Korea using a computable general equilibrium model and expands on earlier studies by distinguishing autonomous differentials from distortions in accounting for differences in sectoral wages and returns to capital. Our results show that removing labor market distortions would increase output by less than 1% of the base year GDP. Even when capital market distortions are also removed, the GDP increases only by 3.2%. The study also examines a dynamic consequence of capital market distortions which suggests that distortions may lead to more rapid capital formation and higher concentration of capital stock. Given the industrial policy configuration in Korea, we find that financial incentives had more distorting effects than fiscal incentives.

Suggested Citation

  • Jene K. Kwon & Hoon Paik, 1992. "Factor Price Distortions, Resorce Allocation, and Growth: A Computable General Equilibrium Analysis," Korean Economic Review, Korean Economic Association, vol. 8, pages 191-213.
    • Handle: RePEc:kea:keappr:ker-199206-8-1-13
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    Cited by:

    1. Juan Tang & Fangming Qin, 2022. "Analyzing the impact of local government competition on green total factor productivity from the factor market distortion perspective: based on the three stage DEA model," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(12), pages 14298-14326, December.
    2. Pengfei Zhou & Mengyu Han & Yang Shen, 2023. "Impact of Intelligent Manufacturing on Total-Factor Energy Efficiency: Mechanism and Improvement Path," Sustainability, MDPI, vol. 15(5), pages 1-22, February.

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