Decrease in the Growth of Domestic Demand in Korea

This paper investigates a link between the significant decline in the growth of domestic demand and the dampened ripple effects from the export sector in Korea since the East Asian financial crisis. The dampened ripple effects are closely linked to the changed investment behaviors of the Korean large-sized exporting firms since the crisis: they do not invest in their export earnings any more to create new industries; they tend to use more foreign value added contents for their exports and to increase outward direct investment by actively participating in global value chains. The paper also examines a link between the growth of domestic demand and the growth of household disposable income and presents reasons for the decline in the growth of household disposable income since the East Asian financial crisis.