The Effects of Inter-company Transactions of Large Corporations on National Economy

The Effects of Inter-company Transactions of Large Corporations on National Economy.pdf

The purpose of this study is to rearrange the regulations on inter-company transactions of large corporations by systematically analyzing the effects of inter-company transactions of large corporations on Korea’s national economy.

The results of the quantitative analysis using the data collected in Korea are as follows. First, the result of the static analysis shows that if contracting opportunities are offered to independent firms in the mature market through open market transactions, the production (GDP) and the capital will increase by 184.5 trillion and 146.0 trillion, respectively, and the employment will increase by 1,514,127 persons. The reason for this effect is that independent firms with high productivity can’t enter the market when blocked by the affiliates of large corporations due to the inter-company transactions occurring within large corporations, but if contracting opportunities are provided to independent firms through open market transactions, both affiliates of large corporations and independent firms with high productivity may appear on the market. Second, the result of the dynamic analysis shows that if the inter-company transactions of the large corporations persist despite the transition from immature to mature market, the gross production would increase but total labor demand would decrease, causing the “jobless growth”.

Therefore, this study suggests the following as a policy alternative. The general rule is that transactions between the affiliates of large corporations are open bidding but only when high transaction cost is expected due to the undeveloped market, a negotiated contract can be completed only after preparing and submitting a letter of explanation to the related government agencies.