Conglomerate Regulation and Aggregate Concentration in Korea: An Empirical Analysis

This paper has two purposes; first, to map aggregate concentration in the Korean economy, while being sensitive to the chaebol structure of this economy, and, second, to assess government efforts in recent years to reduce the scale and scope of this aggregate concentration. Concerning the former, to study aggregate concentration in Korea – as it has been studied elsewhere in the world – presents special problems because Korea's development strategy led to the growth of massive conglomerates known as chaebol. While chaebol are business groups composed of many independent firms, they operate in fact just like a single firm. Consequently, to measure aggregate concentration in Korea, it is necessary to develop a measure that operates at the level of the group rather than the individual firm. After employing such a measure, we turn to an assessment of the Korean government's efforts to reduce the economic power held by the chaebol by implementing regulations that would decrease aggregate concentration. We provide a discussion of the history of such regulations and then map levels of aggregate concentration and chaebol growth rates prior to and after the implementation of these regulations. Our findings show that government regulatory efforts had no impact on aggregate concentration because the regulations it introduced and then strengthened focused on certain financial activities of the chaebol. These activities, however, were not important explanatory factors that could explain the growth of chaebol and, thus, aggregate concentration.