Did public transfers crowd out private transfers in Korea during the financial crisis?

Sung Jin Kang, Yasuyuki Sawada

Research output: Contribution to journalArticlepeer-review

7 Citations (Scopus)


How effective are public transfers in protecting households facing financial crisis-induced negative shocks? Existing studies have not yet carefully considered the inter-relationship between public transfers and the existing private transfer network. In the context of the financial crisis in Korea, this paper investigates the possible crowding-out effect of public transfers on private transfers by explicitly considering the endogenous responses of private transfers against public transfers. By using two Korean household-level panel data sets for the periods of 1995-1998 and 1998-2003, we found a post-crisis, but not pre-crisis crowding-out effect of public transfers; more importantly, a crowding-in effect is observed during the crisis. The results suggest that private transfer networks were strengthened under the initial phase of the financial crisis, which possibly complemented public transfers due to the lack of effective formal safety nets, while public transfers became effective after the crisis, thereby replacing private transfers. Our results suggest that particularly at the initial stage of the crisis, the government could have played an important role in assisting households to weather the negative impacts of the crisis.

Original languageEnglish
Pages (from-to)276-294
Number of pages19
JournalJournal of Development Studies
Issue number2
Publication statusPublished - 2009

Bibliographical note

Funding Information:
We would like to thank Emmanuel Jimenez for his encouragement and acknowledge the helpful comments we received from Soonil Bark, Jin Kwon Hyun, John Strauss, two anonymous referees and participants at the Korea and the World Economy Conference, Seoul, Korea, 2002. Sung Jin Kang was supported by the Korea Research Foundation Grant funded by the Korean Government (MOEHRD) (KRF-2007-411-J03301).

ASJC Scopus subject areas

  • Development


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