Capital in South Korea: 1966-2013

We estimate the Piketty ratios in South Korea during the period of 1966-2013 using a consistent set of data on stocks of wealth. To the extent that South Korea’s capitalism in the modern sense took off only in the early 1960s, we are indeed covering the almost entire history of modern capitalism in South Korea. We find the following. First, although there were two big humps, one in the early 1970s and another in the early 1990s, the capital-income ratio ( β) has been continuously increasing from 1966 to 2013. 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-income ratios in South Korea; the government in South Korea played an important role in capital accumulation. Another reason is that land prices in South Korea have been high relative to national income levels. Second, the capital income share (α ) has also been increasing over the last half century, and it moves largely in tandem with many inequality indices, such as the Gini coefficient, the top decile income share, and the Theil index on industrial wage inequality. This implies that worsening or improvement of income inequality in South Korea has been closely correlated with rising or declining share of capital income relative to labor income. Third, the rate of return on capital ( r ) has been lower than the income growth rate until the late-1990s; the former is bigger than the latter only after the late-1990s. This phenomenon, due to unusually fast economic growth in South Korea, is sharply in contrast with those observed in other OECD countries, where the rate of return on capital has been much bigger than the income growth rate for a long period of time. Although g has been bigger than r in South Korea for a long period of time (30 years), however, the movement of appears to be highly and positively correlated with the movement of r/ g as Piketty predicts; these two variables move largely in tandem. Fourth, the annual private wealth growth rate in real terms during the entire period is 8.5%, which decomposes into 3.5% of the savings-induced wealth growth rate and 4.8% of the capital gains-induced wealth growth rate. Thus more than 50% of the wealth growth is due to capital gains in South Korea. In particular, the period of 1966-1979 exhibits the most significant capital gains-induced wealth growth; about 70% of the wealth growth is due to capital gains.