High economic performance in East Asia has motivated arguments on the sources of economic growth, including the role of the government to encourage more investment than would have been allocated by market forces. The purpose of this paper is to quantitatively investigate whether or not macroeconomic investment behavior of a growing economy can be explained by market forces. Focusing on Korea during the period 1960-90, a stochastic growth model with production is estimated with a numerical solution to approximate the optimal investment behavior during the course of economic development. The estimation result suggests that market forces do not explain the rise in investment rates in the 1960s and 1970s, while investment behavior in the 1980s coincides with optimizing investment behavior.
ASJC Scopus subject areas
- Economics and Econometrics