Capital in South Korea: 1966-2014

Abstract

Using a recently released consistent set of data on stocks of wealth, we estimate wealth and its associated variables in South Korea during the period of 1966-2014. We find the following. First, with some fluctuations, the capital-income ratio has been steadily rising from 1966 to 2014. The level of the capital-income ratio in South Korea is also high relative to other OECD countries. A part of the reasons for it is a high level of government wealth in South Korea; the government in South Korea played an important role in capital accumulation. Another reason is that housing and land prices in South Korea have been high relative to national income levels; the capital-income ratio is likely to fall if housing and land prices fall in the future. Second, the capital income share has also been increasing over the last half century, and it moves largely in the same direction as the top decile income share. Third, the rate of return on capital (r) has been lower than the income growth rate (g) until the late-1990s, but inequality is reversed after the late-1990s. That g having been bigger than r in South Korea for a long period of time (30 years) is sharply in contrast with the tendencies observed in other OECD countries, and is due to unusually fast economic growth in South Korea. Fourth, it appears that the capital gains-induced wealth growth is more important than savings-induced wealth growth in South Korea. In particular, the period of 1966-1979 exhibits the most significant capital gains-induced wealth growth; about 79% of the wealth growth is due to capital gains in that period.