An Empirical Analysis of the Determinants of Private Investment in South Korea: using Nonlinear Model Analysis

Abstract

This paper investigates the determinants pattern of the private investment as an attempt to discover why the level of private investment is relatively high in South East Asia using South Korea as a case study. The study exploits nonlinear autoregressive distributed lag model as method of analyses. The empirical result indicates that the positive shock of inflation is becoming more influential on private investment promotion than the negative shock in the long-run. Furthermore, this study has confirmed the crowding-in relationship between the public spending and the private investment in south Korea. Since the crucial role of credit for the private sector, the credit provided for the private sector shows a negative linkage with private investment in the long-run, while the short-run analysis indicates a positive effect on the private investment. The implications from this study are the government should pay attention to the public expenditure issue, and ensure that spending is more productive in form of investment.