Empirical analysis of selected topics in the Korean construction and land markets

This study is comprised by three chapters on the Korean construction markets and the Korean land markets. The first chapter analyzes the factors relating to the competitive power of, and industrial policy impacts on the Korean construction industry. It is shown that labor cost, the activity level of construction, and the demand for construction in the international market are the main variables that determine the competitive strength of Korean contractors overseas. Simulation studies are performed to analyze the impacts of polices designed to affect the interest rate, wages, the exchange rate, and an increase in investments, and the effect of changes in world construction demand. The second chapter studies the relationship between economic growth and international construction trade. It is found that the relative equilibrium quantity of construction capital to non-construction capital decreases in the early phase of economic development, increases in the middle phases, and again decreases in the high developmental stages. On the supply side, the cost of construction decreases as technology progresses, resulting in a shift towards a supply curve at a relatively lower cost. These two results are combined together to decrease the gap between domestic demand and domestic supply of construction. Imports of construction to fill the gap increase in early development, and decrease in middle development, and eventually disappear as the economy develops enough supply to satisfy domestic demand and become an exporter. The third chapter identifies the underlying causes of residential land price increases in Korea, and derives policy implications from those findings in demand and supply relationships with land values. Empirical results find that the major determinants of land prices are the inflation rate, the interest rate, taxation, and increase in the land stock. It is confirmed that the supply of land impacts negatively upon the level of and rate of change of land prices. A combination of stabilization policy, increasing the effective rate of property tax, and expansion of land supply is proposed to deter the increasing land cost in Korea.