THE DEMAND FOR CULTURAL SERVICES IN KOREA USING THE QUAIDS MODEL

(ProQuest: . denotes formulae omitted.)1. INTRODUCTIONNowadays, many scholars assert that cultural industries play an increasingly important role in development and evolution of an economy. In Korea, cultural industries are recently receiving the attention as a new economic growth engine. Due to current enthusiasm for Korean television, K-pop such as Gangnam Style, so called 'Hanryu', i.e., Korean wave throughout the world, Korean cultural industries sales have increased. The exports amount in cultural industries increased by $312 million from 2012 to 2013, which is a growth rate of 6.8%, and the annual average export growth rate was 17.2% from 2009 to 2013.Figure 1. presents the average budget share of each expenditure for Korean households from 2005 to 2013. As shown in Figure 1, the expenditure shares of education, transportation, restaurants, and hotels tend to reduce or be stagnant, while the expenditure shares of health, communication, entertainment and culture tend to rise. The budget share of households for entertainment and culture has been consistently increasing from 4.7% to 5.9% and the annual average budget growth rate was 3.6% from 2005 to 2013.Although the global market size of cultural industries in Korea is the world's 8th largest with $48billion, the absolute size is far behind other developed countries (Korea Creative Content Agency 2014). Domestically, the small market size of Korean cultural industries may be the biggest obstacle to continuing market expansion, because most of the sales in cultural industries rely heavily on the domestic market. Nevertheless, along with a recent rise in exports and household expenditures in the arts and culture sector, the Korean government has crafted supporting policies on cultural industries. According to Ringstad and L0yland (2011), policy enforcement without the exact information about cultural supply and demand can lack efficiency and validity and thus do not appraise them accurately. Many overseas researchers have been focused on the demand-side studies. In Korea, even demand-side studies have not been conducted. Thus the purpose of this paper is to investigate the demand for cultural services domestically, based on Korean household survey data.Previous demand-side research for cultural industries have focused on the determinants of individual demand in specific industries; e.g. cinema, literature, media, performing arts, etc. Most of the related studies were focused on the socio-demographic characteristics and cultural capital accumulation as the determinant factors of product demand in a specific cultural industry (Ateca-Amestoy 2008; Borgonovi 2004; Montgomery and Robinson 2006; Muniz et al. 2014; Pawlowski and Breuer 2012; Seaman 2006). These studies did not consider relationships between consumption expenditure items, since they used a single equation model. Hence, these studies are somewhat inadequate to create a complete demand system in the cultural industries. In order to overcome these shortcomings, we use a QUAIDS (Quadratic Almost Ideal Demand System) model which is a simultaneous demand system used in the previous studies (Lee and Lee 2012; Lee and Choi 2011; Prieto-Rodriguez 2005). However, these studies do not account for the socio-demographic factors which can have a significant impact on the household demand for cultural services. If the chosen model does not include socio-demographic characteristics in the simultaneous demand system, omitted variable bias problems can occur (Cameron and Trivedi 2005; Ringstad and L0yland 2009, 2011). Accordingly, socio-demographic features of households are included in the QUAIDS model.We used three categories of cultural services used in our analysis: SR (Sports and Recreation), CEP (Cinema, Exhibition and Performing arts), and BC (Broadcasting and Contents). With the rapid growth of new media in Korea, the proportion of broadcasting and online/mobile content has increased considerably. …