Inflows of foreign capital have been played a vital role for the phenomenal growth of Korean economy during the past two decades. However, there are growing concerns on her ability to repay the burden, while the Korean economy still requires continuous inflows of foreign capitals for its sustained growth.
The primary purpose of the thesis is to determine the optimal amounts of foreign capital inflows into the Korean economy.
The Dynamic Leontief model is used with the objective function which maximizes the discounted consumption during the planning horizon of 10 years and capital stock at the terminal year net of foreign debt, all of which were weighted accordingly.
The optimal investments and financing policies of Korean economy were analyzed with respect to the various settings of objective function. The conclusions are as follows ;
First, the Korean economy has sufficient repayment ability of foreign debts in spite of the unfavorable international capital market such as of 15% to self-supporting economy.
Second, the Korean economy would be much influenced by the overseas demand. Thus the export sector is expected to play a vital role in the Korean economy as usual for the continued growth.
In this study, we used the simplest form of the Dynamic Leontief equation, i. e.,
X(t) = AX(t) + B [X(t+1) - X(t)] + F(t)
but in real world investment process is far more complicated. Although the simple form equation is used widely for its conveniency in mathematical manipulation, we suggest more general form of equation,
$X(t)=AX(t)+B_1[X(t+1)-X(t)]+B_2[X(t+2)-X(t)]+\dots+ B_n[X(t+n)-X(t)]+F(t)$
which is more close to real world investment process.