Increase in Telecommunications Expenditure and the Migration of Consumption Online: The Case of South Korea

Abstract

Using longitudinal time-series data, this article analyzes the causes of the recent sharp increase in household expenditure on telecommunications in South Korea with an almost ideal demand system (AIDS) model. The analysis shows that the Korean household demand for telecommunications has become highly price elastic following structural changes associated with the rapid diffusion of mobile phones and the Internet during 1998-2008. Following these structural changes, telecommunications services have become complements for transportation, books and printed matter, and culture and recreation services, but substitutes for culture and recreation durable goods. Consequently, one important reason for the increase in the expenditure on telecommunications in Korea is the migration of many services from offline to online by means of telecommunications.