The purpose of this study is to build a partial equilibrium model of food & beverage manufacturing industry in Korea. The model consists of three sectors: macro-economy sector, food & beverage manufacturing sector, and food & beverage aggregation sector.
The macro-economy sector consists of exogenous variables (population, economic growth rate, GDP deflator, disposable income, interest rate, crude oil price, exchange rate) and structural equations of PPI, CPI, and wage. The food & beverage manufacturing sector covers 43 items. Structural equations of each item are production equation, stock equation, import demand equation, intermediate demand equation, final demand equation, export demand equation, and identity of supply and demand equilibrium. The food & beverage aggregation sector consists of calculating identities of total production, intermediate inputs, value added, and trade balance of the food & beverage sector. The model consists of 334 equations, 348 identities, 682 endogenous variables, and 144 exogenous variables.
The 43 items cover 66 percent of total food & beverage production and 87 percent of value added. The time span of the database is from the first quarter of 1995 to the fourth quarter of 2008. Statistical data sources are from the Bank of Korea, Statistics Korea, Korea Customs Service, Korea Food & Drug Administration, etc.
Ex-post simulation results for model fitness for the first quarter of 2000 to the last quarter of 2008 are as follows. Average RMSPE (Root Mean Square Percent Errors) for the macro-economy sector is less than 0.3 percent, and Theil's Inequality Coefficient for the sector is 0.002, whose fitness may be evaluated as quite good. The RMSPEs for the food & beverage manufacturing sector other than import and export equations are less than 5 percent, and Theil's Inequality Coefficients are less than 0.1, whose fitness may be evaluated as good. However, as the import and export data for some items fluctuate irregularly over time, the fitness for import and export equations are poor.
The gross product of the food & beverage manufacturing sector is forecasted to grow up to 101 trillion won in 2015 from 77 trillion won in 2007 with the annual growth rate of 3.5 percent in nominal term, a little less than the growth rate of 3.6 percent in the past of 2000～2007. The value added of the sector is forecasted to grow up to 29 trillion won in 2015 from 22 trillion won in 2007 with the annual growth rate of 3.7 percent in nominal term, less than the growth rate of 4.5 percent in the past of 2000～2007. Policy simulation against external shocks including tariff cut and exchange rate change is left for future study as the export and import equations are to be developed further.