Seminar on "Valuation of Military Spending with the Existence of Rising Threat from North Korea: Evidence from an Intertemporal Demand Model of Japan and South Korea"
27 August 2026
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Invitation to Seminar on "Valuation of Military Spending with the Existence of Rising Threat from North Korea: Evidence from an Intertemporal Demand Model of Japan and South Korea"
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16 September 2026 / 1:30 – 3:00 P.M.
Venue: Room 305, Faculty of Economics, Thammasat University (Tha Prachan Campus)
or Facebook live: EconTU Official
Register via https://bit.ly/EC16926 or QR Code
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Presenter: Assoc.Prof.Dr.Gary Wong - Department of Economics, University of Macau
Moderator: Dr.Chanon Techasunthornwat - Faculty of Economics, Thammasat University
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Note: The seminar will be conducted in English
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Abstract: North Korea’s security threat to Northeast Asia, manifested in its hastening nuclear weapons development and missile provocations, has prompted South Korea and Japan to significantly raise their levels of defense spending. This study presents a novel model for measuring the shadow price of national defense and welfare consequences of security threat within an intertemporal optimization framework. By specifying a conditional indirect utility function that incorporates levels of defense spending and security threat, we derive direct demand functions for private goods and estimate them jointly with the Euler equation that accounts for intertemporal consumption dynamics. This approach allows us to identify a life-cycle consistent measure of compensating variation (CV) that is more theoretically sound than those derived from conventional static models. Using the pooling time series data from South Korea and Japan for the years 1985-2023, we demonstrate that the welfare effects (as measured by the CV estimates) of national defense and security threat are systematically overestimated when the dynamic nature of consumption decisions is overlooked. Although the parameters of security threat from North Korea are jointly significant, their magnitudes are very small, indicating that Korean and Japanese households have developed a "desensitized" attitude, viewing the threat as a "far-off" rather than imminent crisis. We further find that Japanese households are willing to pay more for raising national defense relative to Korean households. This may reflect disparities in economic capacities and degree of political consensus across countries. Remarkably, since 1980s, national defense in South Korea was over-provided relative to the desired level, which is not in accordance with the preferences of the public.