TY - JOUR
T1 - How did Korean households cope with negative shocks from the financial crisis?
AU - Goh, Chor Ching
AU - Kang, Sung Jin
AU - Sawada, Yasuyuki
N1 - Funding Information:
We would like to thank Tamar Manuelyan Atinc, Shubham Chaudhuri, Hyehoon Lee, Myoungjae Lee, Bong Min Yang, an anonymous referee and participants at the Vulnerability and Poverty Workshop, the Third Asian Development Forum, Bangkok, June 12–14, 2001 for valuable comments. The work of Sung Jin Kang was supported by a Korea University grant.
PY - 2005/4
Y1 - 2005/4
N2 - This paper employs a panel of household data from Korea to examine how households coped with the shortfall in consumption during 1994-1998, which encompasses the financial crisis of 1997. We adopt the econometric framework from Glewwe and Hall [Glewwe, P., & Hall, G. (1998). Are some groups more vulnerable to macroeconomic shocks than others? Hypothesis tests based on panel data from Peru.f Journal of Development Economics, 56, 181-206] and estimate a household consumption growth equation. We find that larger households tend to be protected to a greater extent from shortfall in consumption, and that the vulnerability of female-headed households is not greater than that of male-headed households. Among the coping strategies, private transfers act both as an ex-ante risk-managing device and an ex-post coping mechanism. Urban households and those headed by the self-employed experienced a larger shortfall in consumption during the crisis. While credit was used to smooth consumption of children's education, medical and childcare services during the pre-crisis years, it was not utilized as a coping strategy during the 1997 crisis, possibly due to the credit crunch caused by stringent monetary policies. Instead, households cut back consumption of luxurious and durable goods to preserve food consumption and spending on children's education. We do not find evidence of households liquidating their assets to cushion the shortfall in consumption, during the 1997 crisis. It is possible that they did not liquidate their assets because land and stock prices declined significantly.
AB - This paper employs a panel of household data from Korea to examine how households coped with the shortfall in consumption during 1994-1998, which encompasses the financial crisis of 1997. We adopt the econometric framework from Glewwe and Hall [Glewwe, P., & Hall, G. (1998). Are some groups more vulnerable to macroeconomic shocks than others? Hypothesis tests based on panel data from Peru.f Journal of Development Economics, 56, 181-206] and estimate a household consumption growth equation. We find that larger households tend to be protected to a greater extent from shortfall in consumption, and that the vulnerability of female-headed households is not greater than that of male-headed households. Among the coping strategies, private transfers act both as an ex-ante risk-managing device and an ex-post coping mechanism. Urban households and those headed by the self-employed experienced a larger shortfall in consumption during the crisis. While credit was used to smooth consumption of children's education, medical and childcare services during the pre-crisis years, it was not utilized as a coping strategy during the 1997 crisis, possibly due to the credit crunch caused by stringent monetary policies. Instead, households cut back consumption of luxurious and durable goods to preserve food consumption and spending on children's education. We do not find evidence of households liquidating their assets to cushion the shortfall in consumption, during the 1997 crisis. It is possible that they did not liquidate their assets because land and stock prices declined significantly.
KW - Asia
KW - Currency crisis in Korea
KW - Korea
KW - Risk-coping strategies
KW - Vulnerability
UR - http://www.scopus.com/inward/record.url?scp=18444382059&partnerID=8YFLogxK
U2 - 10.1016/j.asieco.2005.01.006
DO - 10.1016/j.asieco.2005.01.006
M3 - Article
AN - SCOPUS:18444382059
VL - 16
SP - 239
EP - 254
JO - Journal of Asian Economics
JF - Journal of Asian Economics
SN - 1049-0078
IS - 2
ER -