Does it matter for the economy to have a conservative or liberal government in Korea? Political parties and business cycle in South Korea, 1998–2019

ABSTRACT Political ideologies have gained significance in Korean politics in recent decades. We investigate whether there have been any major differences between the conservative and liberal governments in terms of economic policy and its outcome in Korea for the period 1998–2019. We take an event-study type of approach to establish some patterns, if any, and then conduct a more formal econometric analysis based on the political economy literature. Contrary to conventional wisdom, we confirm the existence of political business cycles (i.e. economic effects of the political ideology of the government) and present new evidence on the important dynamics and distinct channels through which partisan difference in economic policy positions operates. Furthermore, the pattern of the political cycles and their operational channels are different from the well-documented case of the U.S. and some industrialized democracies. Our analysis suggests that contrasting economic outcomes arising from political ideologies and their associated policy direction between conservative and liberal governments will likely be more pronounced, going forward.