How did Korean households cope with negative shocks from the financial crisis?

Chor Ching Goh, Sung Jin Kang, Yasuyuki Sawada

Research output: Contribution to journalArticle

12 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)239-254
Number of pages16
JournalJournal of Asian Economics
Volume16
Issue number2
DOIs
Publication statusPublished - 2005 Apr 1

Keywords

  • Asia
  • Currency crisis in Korea
  • Korea
  • Risk-coping strategies
  • Vulnerability

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'How did Korean households cope with negative shocks from the financial crisis?'. Together they form a unique fingerprint.

  • Cite this