The proportion of small sized firms in Korea is relatively high compared to those of comparable countries such as Taiwan, as well as large economy such as the United States and Japan. However, small firms’ share of value added in Korea is lower than these countries. This means that despite the relatively low productivity of small businesses, it continues to operate. This seems to be related that Korea`s SME policy is highly supportive among OECD member nations.

This study examined the inefficiency of resource misallocation resulting from size-dependent policies. Establishing a general equilibrium model of two sectors that allow the career choice(the span-of-control), we investigate the changes in key aggregate variables if size-dependent policy is implemented in capital use. As a result, the capital, labor, productivity and output were declining in the economy of size-dependent policy. For example, output decreased by 4.2%~ 6.5% if capital tax increases more by 10% only for large firms. The firm size distribution is skewed to the left, so that the average number of employees decrease by 1.35~1.98. This negative effect is amplified in the case that the value added share of distorted sector is larger in the economy.

Preface
Executive Summary

Chapter 1 Introduction

Chapter 2 Changes in the Distribution of Firm Sizes in Korea
　Section 1 Recent Trends in Business Establishment Distribution
　Section 2 Changes in the Distribution of Business Establishments by Size
　Section 3 Comparison of Firm Size Distribution Between Korea and Other Countries

Chapter 3 Korea’s Size-Dependent Policy
　Section 1 Direct Support Policies for SMEs
　Section 2 International Comparisons

Chapter 4 Analytical Model for Size-Dependent Policies
　Section 1 Literature Review
　Section 2 Analytical Model
　Section 3 Calibration
　Section 4 Simulation Results and Interpretation

Chapter 5 Conclusion

References
Tables
Appendix
ABSTRACT