This article investigates structural transformation of domestic consumption in Korea.

Korean economy exhibits a typical pattern of structural transformation commonly observed in advanced economies; In a long term perspective, the share of service consumption expenditure increases while the share of agricultural consumption expenditure shrinks over time.

However, a unique feature of structural transformation is also observed. After the global financial crisis, the share of service consumption expenditure stagnates, at most.

This article analyzes these features of structural transformation in Korea through the lens of the utility maximization framework. In particular, this article aims to explain the structural transformation in Korea with income and price effects.

The estimation result suggests that the key source of structural transformation in Korea is a income growth. At the same time, the price effect, summarized by the rapid increase in relative price of service to other consumption goods, also plays non-negligible role in a long run perspective.

Limiting the scope of the analysis to the post global financial crisis period, the estimation result suggests that the weakening relative price of the service to manufacturing goods played a central role in explaining the stagnation of the share of service expenditure. The relative price of the service to manufacturing goods seems to have decreased as a result of the great trade collapse and the weakening of global value chain after the global financial crisis.

If the relative price of service to other consumption goods and the income have evolved following the pre-global financial crisis trend, the share of the service expenditure would have been 3.2~3.6 percentage points higher as of 2018.

Preface
Executive Summary

Chapter 1 Introduction

Chapter 2 Literature Review

Chapter 3 Current Status of Service Consumption
　Section 1 Overview of Service Consumption in Korea
　Section 2 Examining the Change in Service Consumption Share through International Comparison
　Section 3 Additional Analysis on the Decline in Service Consumption

Chapter 4 Analysis of Factors Contributing to the Decline in Service Consumption
　Section 1 Model Estimation
　Section 2 Estimation Results
　Section 3 Counterfactual Analysis

Chapter 5 Conclusion and Policy Implications

References
Appendix
ABSTRACT