The emergence of a new phenomenon widely referred to as the sharing economy has experienced rapid growth over the past few years along with the digital evolution, allowing people to share and optimize underused personal assets on a much larger scale. The fast-paced growth of the sharing economy has taken root worldwide in both the developed and developing countries. In recent years, the sharing economy has disrupted traditional markets and generated difficult legal questions and political debates in various parts of the world. The growth of the sharing economy has led to growing pains for the platforms, participants, and regulators. The problems include legal disputes, taxation, and trust mechanisms. Despite these disputes, however, the three countries have legalized or attempted to authorize the sharing economy in different tactics while trying not to disrupt innovation associated with the sharing economy.
  The objective of this paper is to identify better policy options in the sharing economy for Korea by examining different countries’ policy implications. To achieve this purpose, the structure of this paper is divided into five chapters. The first chapter of the paper develops a conceptual framework that supports to define and explain the sharing economy. The next three chapters touch upon different conflicts and policy implications of the sharing economy across the United States, Europe, and China. Finally, the paper concludes with a discussion of policy implications of the sharing economy for Korea.
  The cases of the US, Europe, and China are three examples of various levels of the sharing economy. The following are the speculated policy characteristics of the sharing economy across three different countries proposed based on the scope of this study. The sharing economy in the United States can be said to be found on the principal driven by the market-based approach. On the contrary, most European countries are subject to more restrictive rules to ensure adequate legal and social protection for all including traditional players. In the case of China, the regulation of the sharing economy is more strongly orientated towards measures for social challenges and economic benefits. The ambiguity or lack of regulations for accommodation sharing are prevalent across all three countries. Large cities in both the US and Europe have begun implementing regulations on accommodation sharing or have launched investigations with the aim of bringing the sharing economy into compliance with existing laws. On the other hand, China is in the early stage of regulation development.
  The regulation of ridesharing varies widely across three countries comparable to short-term rentals. The United States focuses on creating a fair competitive environment by allowing platforms to enter but at the same time supporting the taxi industries instead of banning ridesharing platforms. Some countries in Europe are outlawing ridesharing platforms to protect the traditional market or making platforms to comply with the similar standards as the traditional market. China has legitimized ‘online car reservation service’ as a part of taxi services, and has improved related regulations such as pre-permission for the platform and driver, and requirements for strengthening responsibility.
  A careful and detailed analysis of country-level experiences lead to the following policy implications. First, the introduction of regulation needs to be done as carefully as possible, and more flexible regulatory frameworks are needed to respond to changing market conditions. Second, it is necessary to promptly establish the legal basis for accommodation sharing by strengthening the role of the platform to deal with conflicts such as taxation and disputes generated by the sharing economy. Lastly, in the case of ridesharing, it is advisable for regulatory authorities in Korea to first deregulate much of the current restriction and lower barriers to entry rather than raising them. In the long run, however, it is recommended for the market to ensure a quality environment for all participants to compete fairly. 

Executive Summary

1. Introduction

2 Data and Statistical Description
2.1. Data
2.2. Statistical Description

3. Estimation
3.1. Constructing a Matched Dataset
3.2. Estimation

4. Results
4.1. Sales-Per-Worker and Ecommerce Activity
4.2. Wage and Ecommerce Activity

5. Conclusion

References

Appendix 

Official estimates peg global business-to-business ecommerce at 15 trillion dollars and global business-to-consumer ecommerce at 1.2 trillion dollars in 2013 (UNCTAD 2015). When we turn to official estimates for Korea, it is easy to find that Korea’s business-to-consumer ecommerce market is grow-ing at more than twenty percent per year and has emerged as the third larg-est global ecommerce market in Asia. It is not very much surprising to know the numbers for Korea since Korea is one of the world’s most ad-vanced countries in terms of information and communication technology. However, it is somewhat surprising that we know little about how ecom-merce firms or establishments are distributed in the economy of Korea. In addition, we know little about how ecommerce establishments perform relative to their counterparts of a similar age and size in the same industry.
The paper aims to characterize and test performance differences between ecommerce and non-ecommerce firms or establishments. Although the number of ecommerce establishments makes up a small fraction of the economy, ecommerce establishments have a heavier weight in sales, em-ployment, and wage. Due to endogeneity of ecommerce variable, the paper reconstructs the 2010 Korea Census dataset by using Propensity Matching Score and shows that in manufacture ecommerce establishments have, on average, larger sales-per-worker and pay higher wage whereas in services ecommerce ones have higher sales-per-worker but pay no larger wage than their counterparts of a similar age and size in the same industry. It also adds quantile estimates showing that sales-per-worker differences between ecommerce and non-ecommerce establishments in manufacture are positive and statistically significant only at lower quantiles of the distribution. In ser-vices, sales-per-worker differences between them are positive and signifi-cant at most of distribution but turns to be negative, though not significant, at above upper quantile of the distribution.

Keywords: Ecommerce, Firm Performance, Sales-per-worker, Wage
JEL Classification Numbers: F1 

Executive Summary

Ⅰ. Introduction

Ⅱ. Literature Reviews on SME Technologies

Ⅲ. SME Technological Progress in Chinese Taipei
3.1 Current Status of SMEs
3.2 Government Policies on SMEs
3.3 Promotion of SME Technologie
3.4 Technology Cooperation with Developed Countries

Ⅳ. Implications to Selected APEC Member Economies
4.1 Implications to Viet Nam
1) Current Status of SMEs
2) Government Policies on SMEs
3) Promotion of SME Technologies
4) Technology Cooperation with Developed Countries

4.2 Implications to Malaysia
1) Current Status of SMEs
2) Government Policies on SMEs
3) Promotion of SME Technologies
4) Technology Cooperation with Developed Countries

4.3 Implications to Indonesia
1) Current Status of SMEs
2) Government Policies on SMEs
3) Promotion of SME Technologies
4) Technology Cooperation with Developed Countries

4.4 Implications to the Philippines
1) Current Status of SMEs
2) Government Policies on SMEs
3) Promotion of SME Technologies
4) Technology Cooperation with Developed Countries

Ⅴ. The Role of APEC on SME Technological Progress and Cooperation
5.1 Needs for the Role of APEC
5.2 APEC Activities for Government Policies on SMEs
5.3 APEC Activities on Technology Promotion Policies
5.4 APEC Activities on SME Technology Cooperation

Ⅵ. Concluding Remarks

References 

  Chinese Taipei became one of the most successful economies in Asia after the WWII, and the country was one of the four Asian tigers together with the Republic of Korea, Chinese Hong Kong and Singapore. Their economic achievement was mainly originated from the development of SMEs which government policies were effectively implemented and brought strong im-pacts on technological progress. SMEs were able to obtain technologies through research and development, and technology transfer from developed countries with various cooperation programs. However, APEC economies notably Viet Nam, Malaysia, Indonesia and the Philippines have achieved economic development and SME technological promotion, but they are not comparable with Chinese Taipei. This paper analyses Chinese Taipei govern-ment policies on SMEs, technological progress, and technology cooperation with developed countries. These areas are compared with other four APEC economies. It brings some suggestions how APEC can enhance SME tech-nology cooperation with other countries.

Keywords: SME, technological progress, technology cooperation, Chinese Taipei,
the Philippines, Malaysia, Indonesia, Viet Nam, APEC
JEL Classification: L60, F21, O33 

Executive Summary

Ⅰ. Introduction

Ⅱ. Measurement of Market Integration

Ⅲ. A Theory of PPP

Ⅳ. Empirical Methods

Ⅴ. Summary Statistics of Consumer Prices and Exchange Rates for APEC Member Economies
 
Ⅵ. Empirical Methods
   1. Panel Unit Root Test Results
   2. Robustness

Ⅶ. Concluding Remarks

References 

This paper examines persistent behavior of deviations from purchasing power parity (PPP) constructed using consumer price indices and nominal exchange rates for APEC member economies over the period of 1981-2015. In particular, we ask if these deviations tend to converge to their long run equilibrium value. For this, we consider three different sample periods of 1981-2015, 1997-2015, and 1981-1996. We find that the panel unit root test rejects the unit root hypothesis that a deviation from PPP does not converge to its long run value for the period of 1997-2015 but does not reject it for the other two periods. We then investigate how quickly this deviation converges to its long run value and find that a half-life of a deviation from PPP is 5.7 quarters, which is much quicker than the estimates of 3 to 5 years reported by previous studies. This result is consistent with the argument that globalization and advancement in transportation and information technology significantly contribute to lowering trade barriers among APEC member economies.

Keywords: PPP, half-life, panel unit root tests, deviations from PPP, trade barriers
JEL Classification: F31, F41 

  The year 2015 marked the 20th anniversary of the establishment of the World Trade Organization (WTO). Over the past 20 years, notwithstanding certain difficulties in concluding the Doha Development Agenda (DDA) negotiations, the WTO to a certain degree has achieved one of its original missions: promoting trade liberalization through bilateral free trade agreements (FTAs) and regional or plurilateral FTAs. Since the global financial crisis in 2008, however, the growing criticism of globalization based on neo-liberalism has created the need for a new trade paradigm. In particular, Brexit and the election of Donald Trump as the 45th US President in 2016 have fueled the uncertainty hanging over the global economy and rising protectionism, which could eventually provoke trade war. Upon his inauguration, President Trump withdrew from the Trans-Pacific Partnership (TPP) and the United States introduced a new set of trade policy measures that could adversely affect world trade volume and the existing global trade system.
  Recent changes in the international trade environment have presented new challenges for policymakers, particularly for those in Korea, which is highly interconnected with the world economy through an extensive network of global value chains (GVCs). Korea has regarded itself as the most benefited member of the WTO multilateral trading system (MTS). By adopting a simultaneous and multiple FTA negotiations strategy, Korea has increased its economic expansion and grown into a global FTA hub. However, it is time for Korea to consider revising its current trade policy centered on the expansion of bilateral FTAs, which may cause a spaghetti-bowl effect where a host of bilateral FTAs increase trade costs due to the complexity and diversity of rules of origin (ROO). As such, plurilateral FTAs have emerged as a viable alternative to the multilateral trading system or bilateral FTAs.
  This study investigates the effect of rules of origin on trade costs. In particular, we examine different types of cumulative rules of origin adopted by various FTAs across the world ‒ how they are arranged and how they work. Existing literature on the effect of ROO on trade costs provides mixed results. Theoretically, allowing cumulation in FTAs should bring trade costs down. Nevertheless, some practical issues in complying with the rules of origin and certification and verification requirements may prevent companies from taking advantage of cumulative rules of origin. Research methods employed by this study include both the conventional way of indirect estimation in calculating trade costs through the trade creation effect, and direct estimation of trade costs which employs the methodology recently made available by Novy (2013). Then we use these estimated trade costs in the computable general equilibrium (CGE) model of the Global Trade Analysis Project (GTAP) to analyze the economic effects of ROO on trade costs. We apply the analysis to mega-FTAs in the Asia Pacific region such as the Regional Comprehensive Economic Partnership (RCEP) and TPP-11 (TPP without the United States), as well as a potential FTA between Korea and Mercosur. Our results show that all three different types of cumulation (bilateral, diagonal, and full) reduce trade costs with the magnitude greatest for full cumulation.
  Our empirical and policy simulation results suggest that policymakers should make efforts to simplify and harmonize various ROOs and pursue single ROO with full cumulation in FTA negotiations. In addition to simplification and harmonization of ROOs, institutional support and assistance in the areas of ROO and cumulation are essential for small and medium enterprises (SMEs) to reduce trade costs and fully entertain the benefits of FTAs. Finally it would be desirable for Korea to participate in negotiations of plurilateral FTAs rather than bilateral FTAs. 

  The exchange rate is one of the most influential factors in the economy in Korea as Korea highly depend on the external sector. In an economy that is highly dependent on the foreign countries, changes in exchange rates affect imports and exports and cause changes in growth and income. Also, it affects the price level, the competitiveness of enterprises, and the level of employment.
  In this study, we investigated the effects of exchange rate not only on macroeconomic analysis but also extended to a micro analysis by using the firm-level data. It may contribute to more accurate and efficient policy responses by combining macroeconomic policy with microeconomic analysis.
  In Chapter 2, we analysis the effect of exchange rates on macroeconomic aggregate data as in many previous studies. We also analyze the impact of exchange rates on the supply side whereas most previous researches mainly focus on the demand side. Moreover, unlike the method of analyzing the effect of specific variables, comprehensive analysis has performed considering the total effects of the related variables. The main findings from Chapter 2 are as follows: First, the appreciation of the Korean Won may have a negative impact on economic growth, consumption, investment, and exports. Second, the level of the exchange rate and the volatility of the exchange rate have substantially increased in the 2000s, and the volatility of macroeconomic variables also has increased. Third, the impact of exchange rates on the macroeconomic variables would remain shortly and become insignificant in the long-run.
  The main policy implications of these findings are as follows: First, the exchange rate changes can cause economic growth and exports to decline. Especially, positive and negative effects are different for each industry, making it difficult to use the exchange rate as a policy tool. Therefore, policy-maker should be concerned as it is not easy to achieve the policy goal and may cause conflict between economic entities if she wants to achieve the specific policy goal by influencing the exchange rate. Second, the effect of the exchange rate change on macroeconomic variables remains only in the short-run. Thus, the effectiveness of exchange rate policy as a policy tool is low. It is because the effect of changes in the real sector may be neutralized by changes in the capital market due to the financial liberalization progress. Third, considering the volatility of the foreign exchange market, changes in the level, and the different effects of each industry, the exchange rate policy should be aimed at maintaining the stability of the exchange rate rather than level. Since the policy on the level of the exchange rate is less effective and can lead an international conflict, the policy that reduces the volatility can lower the transaction cost of the economic agents and obtain the more certain policy effect. Fourth, since the exchange rate policy itself appears to have limited influence, it is desirable to enhance the efficiency of the exchange rate policy by using the so called policy mix method in which the policy is implemented in parallel with other related policies. Fifth, It is necessary to promote foreign investment and policies to boost domestic demand aggressively as the devaluation of the exchange rate may improve the current account, but have negative impacts on other macroeconomic variables such as employment and growth.
  In Chapter 3, we conduct a micro analysis by using the firm-level data. The main findings are as follows: The decline in the real effective exchange rate cause that firms that are highly dependent on exports increase their price competitiveness and increase their productivity. On the other hand, firms with low exports and high reliance on intermediate imports have little impacts on their productivity. These results are consistent with the economic theory, and this fact is confirmed in the micro data of Korean companies. In particular, most of the firms in the service sector have a low proportion or exports, so the decline in real exchange rate has a relatively large negative impact on their productivity as compared to firms in the manufacturing sector.
  In Chapter 4, we analyze the exchange exposure of the listed firms. The main findings are as follows: increase in the exchange rate has negative effects on a relatively significant portion of the firm in the short-run. It may be attributed to the fact that the Korean Won depreciation may drop the firm’s value. Also, the withdrawal of funds from foreign investors who concerned about the stock price fall in dollar terms may affect the situation. However, the share of firms, whose value is positively influenced by the increase in the exchange, is relatively increased in the medium- and long-run. In particular, we find that firms with substantial external assets, firms with few external debt, firms with high capital adequacy ratio, firms with high cash holding ratio, and companies with high profitability are positively influenced by the increase in the exchange rate.
  Chapter 5 summarizes the implications and derives policy implications as follows.
  First, the increase in the exchange rate is not necessarily positive impacts on macroeconomic variables. This fact is derived not only macroeconomic analysis using aggregate data but also in the micro-level analysis using individual firm data. In other words, unlike the conventional wisdom, depreciation of the Korean Won may have a negative impact on the Korean economy for a specified period of time. This implies that the devaluation of the exchange rate does not necessarily contribute to the expansion of exports or the economic growth.
  Second, although the effects of exchange rate fluctuations are short-term, the volatility of exchange rates has increased. Policies that aimed at lowering exchange rate volatility and strengthening stability are more likely to contribute to the economy rather than targeting the level of the exchange rate. This implies that not only is the effect of external factors on the Korean economy expanded, but also the real and financial sectors have influences mutually. Thus, those policies are desirable as the effect of the exchange can surge in the specific period.
  Third, the effects of exchange rate fluctuations vary across industries and firms. Thus a customized exchange rate policy is required. Since firms have different characteristics from those whose exposure to the exchange rate is either positive or negative, it is analyzed that the increase of exchange rate does not necessarily provide favorable conditions for all firms. The sign of effects depends on the share of exports or intermediate imports. Achieving industry-level targets only by the exchange rate policies is difficult. Thus, it is necessary to develop policies that are related to fiscal policy or employment policy to control the negative influences.
  This study examines the impact of changes in the exchange rate at the time when the overall economic conditions such as the industrial structure, demographic changes, and the capital market condition in Korea are changing. In particular, we use firm-level data to complement the previous studies mainly focus on the aggregate level. We can partly expect the macroeconomic effects by summing up the effect of micro-level analysis. However, the linkage between macroeconomic effects and microeconomic analysis is still weak and limited. In the future, more efficient research methods can be expected.
  What we emphasize in this study is that devaluation of it currency is not necessarily beneficial to the economy. Most of the debates on exchange rates are the adequacy level of the exchange rate. It is based on the assumption that depreciation of the exchange rate is beneficial to economic growth and the economy. However, this study shows that this assumption is not valid. This may vary depending on the level of exchange rate or the rate of exchange rate change. However, these issues are beyond the scope of the study. Therefore, it is necessary to further investigate the effect of exchange rate depreciation in depth by analyzing the issues related to exchange rate fluctuation in the future studies. 

  As the world is entering the new age of Industrial Revolution, advanced economies such as the United States, Germany and Japan are striving to lead the trend and are preparing to cope with new system of advanced technologies. Three countries have different strengths to achieve to promote new revolution, but they share common perspectives that the Fourth Industrial Revolution (4th IR) is the basis of the ‘Manufacturing Innovation’ or ‘Digital Manufacturing’. This study focuses on the 4th IR related policies of the three countries to make an implication for Korea to draw out its own policy for digital innovation/digital manufacturing. Even though differences exist in economic/social structure, industrial bases and technologies, it is important to analyze the 4th IR policies in three advanced countries as all their governments are striving to prepare strategies that promote economic growth in the future. Furthermore, the work focuses on the cooperating organizations of the academia, businesses and government such as Plattform Industrie 4.0.
  The second chapter “The Concept of Digital Economy and the Fourth Industrial Revolution” defines terminologies relevant to the 4th IR as the description of the 4th IR concept differs globally as there is no clear definition to it. IT revolution in the mid-90s followed by mobile platform technology led to a new ecosystem of “Digital Economy” or “Internet Economy”. Such evolvement developed the Internet of Things (IoT) technology, which is a critical component of the 4th IR, which connects mobility, home and factory to the Internet. Moreover, the national strategies of the 4th IR linked to the manufacturing, such as Germany’s Industrie 4.0 and the U.S. Industrial Internet of Things (IIoT), are outlined with organizations and consortiums that are established as means of achieving 4th IR.
  The third chapter “The Fourth Industrial Revolution in the U.S.” emphasizes that the American government and businesses identify their own roles in achieving 4th IR in market based manner. The U.S. government did not set up the long-term strategy or roadmap for the 4th IR, but it is preparing the systems for the issues that emerge from the technological revolution such as data security, autonomous driving vehicle and so forth. On the other hand, it is the American companies that create new business models in new technology fields such as big data analysis, cloud computing, augmented reality (AR) that can be adapted to manufacturing industry. In addition, multinational companies in the United States are gathering to form consortia in their interested areas to make their own system for 4th IR related activities and to cooperate at international level. Such liberal market economic movement in the United States is possible under the entrepreneurship that is rather unique in the world, which endlessly creates new companies that implement new ideas in the market. Various entrepreneurial activities from “Startup America Partnership” provides network to entrepreneurs with mentors and investors from corporate, venture capitals that lead to efficient manner to promote innovation.
  The fourth chapter “Germany’s Fourth Industrial Revolution” describes the background how Germany came with the idea of “Industrie 4.0” and policies that are in action. “Plattform Industrie 4.0 (Platform)”is the German organization that promotes Industrie 4.0 with various stakeholders in German society including governments, industrial associations, companies, academic institutions and others. This Platform acts as a mainstream organization for decision making in implementation of Industrie 4.0 policies which are supported by the working groups in various subjects such as standardization, research and innovation, data security, legal framework and labor. Furthermore, the Platform has mutual communication channel that efficiently delivers the messages and suggestions from the society level to governments and vice versa. Industrial associations takes important part as they gather and organize the suggestions from their members to convey to the government and as they act as a mediator that disseminate government policies to its stakeholders. In fact, Germany’s government and private players have analyzed their strengths to achieve the 4th IR prior to setting up Industrie 4.0 agenda as they also seek for cooperation domestically and internationally to promote their program. For example, German companies are cooperating to develop standardization model called “Reference Architecture Model Industrie 4.0 (RAMI4.0)” and are continuing to seek for opportunities to work with other countries, including government and corporate, to set it as one of international standard for digital manufacturing system. Moreover, Germany is considering small and medium enterprises (SMEs) as a final piece to achieve Industrie 4.0 that its government and business societies are concentrating on its inclusive development.
  The fifth chapter “Japan’s Fourth Industrial Revolution” reviews the Japan’s manufacturing industrial policies that are linked to the 4th IR. Through government’s growth strategies 2017, Japanese administration selected Smart Health, Smart Mobility, Smart Supply-Chain, Smart City and Infrastructure and Fintech as five main areas to promote its future economic growth. Out of five areas, this study concentrates on Japan’s policies on Smart Manufacturing.
  Japan has brought some specific strategies to support its Smart Manufacturing industry from the cooperation among academia- businesses-government such as RRI, ITAC, and IVI. Its strategies include Smart Factory pilot project, test-beds, SME support, international standardization. However, Japan needs to overcome its closed technology-innovation system. Network between large companies and middle-sized companies is strong, but the cooperation between corporate and academia/public research institutions is rather weak, which can be shown through the fact that most core technology related patents are owned by American companies. Also, Japan’s inflexible labor market is another factor that hinders its 4th IR. The 4th IR technologies such as AI is expected to substitute human labor in the future, but many experts brings up the point that the such technologies will have limited impact in Japanese market due to its inflexibility of labor market. Therefore, Japanese government needs to encourage more flexibility in its labor system for its economy to integrate IT, robot and AI technologies fully to its market.
  This paper draws out four policy implications from the analysis made in the above sections. First, Korea needs a 4th IR promoting organization that is led under the cooperation among academia-businesses- government. The necessity of national controlling system or platform in the context of the 4th IR or new industry creation is discussed in Korea, but actual system has yet to be implemented. U.S., Germany and Japan cases show that the 4th IR is not led by the governmental support, such as financing and tax credits, to certain industries or corporate, but rather the government and businesses must set up a system together that they can cooperate to develop and share technology, which is mostly known as “Open Innovation” system. Moreover, such system should be supported by the government in setting up relevant regulatory framework and in making changes of the traditional system to adjust to the new environment under the 4th IR. Secondly, regulatory reform and system alignment should be come ahead of the 4th IR. For now, enacting a bill called “Regulatory Free Zone Special Law” seems to be the regulatory movement that can be take in action imminently in Korea. The bill is related to autonomous driving vehicles and drones where twelve states and Washington D.C. in the U.S. allowed test-driving of autonomous vehicles legally since June 2011 and Japan is on the legal process of permitting various sets of autonomous vehicles and drones test-driving in their National Strategic Special Zones. The same bill in Korea will also efficiently lead to the Big Data commercialization as no action was taken after the introduction of “Guidelines for De-identification of Personal Data”. Also, it is important to take a note of Japan’s movement as its government is focusing to support promoting the Big Data market as a part of developing Smart Manufacturing. Thirdly, support to the SMEs must be followed as a part of preparing the 4th IR era. The Ministry of Trade, Industry and Energy of Korea is promoting the installation and expansion of Smart Factories as a part of “Innovation in Manufacturing 3.0 Strategy”, but Korean government needs to clear out the way for its original SME support policies simultaneously. Korea has its SME policies such as IT solution support, automation of factories along with many others, but its linkage to the 4th IR related businesses seems to be rather ambiguous at this point. German government is striving to focus all its relevant SME policies to Industrie 4.0, which can be represented through its “Mittelstand 4.0” policy. Fourthly, the key point of the 4th IR is international cooperation. Korean government has its cooperation network with the U.S. and Japan in cyber security and SME support, but its limitation is noticeable when it is compared to the cooperation system among the advanced economies. Regarding the 4th IR, it is worth to note that Germany and Japan agreed to work together on nine areas which include cyber security, international standardization, regulatory reform, SME support, R&D, academia-businesses-government organization, human capital development in digitization, automotives, ICT in March 2017. Lastly, Korean government should put effort in supporting Korean ventures in advanced market such as Silicon Valley by connecting them to the local network in venture capital or accelerators. 

  The economic environment of MERCOSUR has been rapidly changing after the emergence of market-friendly governments in Argentina and Brazil and the possibility of starting negotiations for a Korea-MERCOSUR trade agreement is growing. This study is designed to respond to such circumstances and to provide a new breakthrough in the development of previously stagnant bilateral economic relations. The study focuses especially on cooperation among firms, which has recently attracted attention as one of the new cooperation measures between Korea and MERCOSUR.
  In line with these research objectives, the study consists of six chapters. Chapter 2 depicts MERCOSUR’s recent economic environment developments in depth. In addition, we review the results of MERCOSUR’s productive integration policy while considering the rapidly reorganizing international division of labor structure. Finally, we analyze the major changes in the MERCOSUR trade policy and present its future prospects after the emergence of a new government in favor of FTA policies in Argentina and Brazil.
  Chapter 3 explores and analyzes cases of cooperation between firms through which we draw implications for Korean firms wishing to cooperate with MERCOSUR firms. In particular, based on the inter-firm bridge model, the study divides the various types of cooperation into the categories of manufacturing/production, logistics/infrastructure, distribution/marketing, financial cooperation and R&D/technical cooperation.
  Chapter 4 uses quantitative analysis techniques to identify promising areas of cooperation between Korea and MERCOSUR. The study uses revealed comparative advantage (RCA) to identify potential areas of cooperation within the export sector between Korea and MERCOSUR, and the input-output tables provided by the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) for the investment sector. In addition, the study proposes future cooperation areas based on MERCOSUR member countries’ level of participation in the global value chain and the level of product integration among the member countries.
  Chapter 5 suggests ways to invigorate cooperation among firms of Korea and MERCOSUR, compared to the current state of cooperation. First, based on the results of surveys conducted by industry associations in four countries, we analyze the cooperation demand, preferred cooperation method and proposals for the government. Then we summarize the results of the above research to elucidate ways to stimulate cooperation at the firm level, and suggest ways to support such cooperation at the government level.
  Finally, Chapter 6 summarizes the results of the study and suggests a comprehensive plan for strengthening cooperation between Korea and MERCOSUR. First, both governments and firms must swiftly recognize the rapid changes within the economic environment of MERCOSUR and prepare countermeasures. MERCOSUR’s two major countries, Argentina and Brazil, are facing major changes in the external trade environment such as the end of the primary product boom caused by slowing economic growth in China and the rise of protectionism within developed countries following Brexit and the Trump administration taking office, and are actively pursuing open policies to secure new growth engines. In particular, the upcoming EU-MERCOSUR FTA is expected to have a significant impact not only on the advancement of MERCOSUR’s foreign trade norms but also on the entry of firms to those markets from non-FTA nations. In the MERCOSUR market, the entry of Korean companies, which compete with their EU counterparts, may also be affected in the export sector, in particular due to tariff cuts. The Korean government and its firms should precisely identify and respond to MERCOSUR’s internal and external changes in the business environment, and prepare joint strategies to cope with such changes.
  Second, Korea should actively utilize the MERCOSUR Trade Agreement (TA) as a turning point in the development of the economic relationship between Korea and MERCOSUR. As the recession of the MERCOSUR member countries has worn on, interest in the MERCOSUR market by the Korean companies and the government has been in marked decline: the suspension of Korean Air’s Sao Paulo operations in September 2016 is one such symbolic event. The TA between the two, however, will be a boon to invigorate the importance of the MERCOSUR market in Korea and to revitalize stagnant cooperation. As we lack cooperation channels with MERCOSUR, we need to use the TA as a platform for expanding cooperation. For this purpose, it is necessary to stipulate a separate chapter of business cooperation within the FTA agreement and to use it as an institutional channel for future cooperation between companies from the two regions.
  Third, the two regions should build various forms of sustainable platforms for business cooperation. In previous surveys and interviews with companies from both sides, we have identified a high degree of interest in building business cooperation channels. However, most of the cooperation channels between the two regions are only temporary or one-time events. In order to meet the cooperation demands of both regions, it will be necessary to establish lasting, diverse channels of cooperation. A Korean Desk, for example, should be established within the investment promotion agencies of MERCOSUR countries to identify and help establish business partners among enterprises. A MERCOSUR Technology Innovation Center or MERCOSUR Export Incubator could also serves as helpful channels to support Korean SMEs with the technological capabilities necessary to enter the MERCOSUR market. In addition, it is necessary to establish a B2B cooperation platform with regional development banks, including the Inter-American Development Bank (IDB) and Development Bank of Latin America (CAF), which have large financial mobilization powers and business networks in Latin America.
  Fourth, a comprehensive cooperation strategy at the regional integration level is needed. Cooperation with MERCOSUR remains at the level of individual member countries rather than MERCOSUR as a whole. It will be necessary to pursue an integrated cooperation strategy in parallel with bilateral cooperation as a means to complement the gap between bilateral cooperation through multilateral cooperation at an integrated level. Deployment of integrated local currency payment systems between Korea and MERCOSUR, participation in the MERCOSUR production integration program, establishment of an export incubator targeting the MERCOSUR market and operation of a Korea-MERCOSUR business council are among the potential co-op initiatives that can be implemented across MERCOSUR.
  Finally, Korean firms need to establish a strategy to accurately understand and utilize the strategic value of business aspects present within MERCOSUR member countries and companies. In particular, in order to establish an entry strategy aimed at the MERCOSUR integrated market, it will be necessary to accurately grasp the characteristics of the market of individual member countries. For instance, though their value as end-consumer markets lags behind Brazil and Argentina, Paraguay and Uruguay’s potential as a production and logistics base for entry into the Brazilian and Argentine markets is relatively high. One example is THN, an automobile parts company aimed at the Brazilian market that has built production bases in Paraguay due to its simplified labor management and low wages. In addition to the diversification of target countries, a change in the paradigm of entry mode is required; we need to move beyond simple exports or investment measures to more sophisticated, collaborative relationships such as strategic alliances, joint ventures, and technical cooperation with local companies. Hana Micron’s technological cooperation and Dongkuk Steel-POSCO-Vale’s joint venture (CSP) are examples of new possibilities for cooperation between the two regions. 

  The global trade slowdown since 2012 is reputed to be very astonishing in that it was unpredictable in terms of the magnitude. This trade slowdown was cyclical in that it mainly resulted from the global economic recessions especially in China and Europe. Also, this phenomena can be explained by structural reasons such as the fall in the income elasticity of trade, that is, the rise in income does not contribute to the trade expansion as it used to. This study aims to investigate the structural change in global trade mainly using the world input-output database and to decompose the change in value added exports into three relevant factors.
  This study reveals that the composition of global commodity demand has changed in recent years and the share of intermediate goods to the total import has declined as the low economic growth rate, low price level, high interest rate, and high unemployment rate have dominated the global economy since 2012. Chinese re-balancing turns out to have reduced the demand for import from the world as China, the global factory, transitioned from an export-oriented development strategy to policy focusing on domestic demand. The global value chain turns out to have diminished since the global financial crisis, thereby contributing to the global trade slowdown. The non-tariff barriers such as anti-dumping duties, TBT, and SPS, among others, have been more prevalent in recent years while the average tariff rates in most of the countries have been falling since the mid-1990s.
  On the other hand, this paper estimated value added exports (VAX) by using the World Input-Output Database released in 2016, in order to analyze causes of the recent global trade slowdown. We also decomposed the change in value added exports into the three factors of value-added coefficients, change in input structure, and change in final demands. According to the results, the change in value added exports in Korea are largely explained by the change in input structure, and change in value-added coefficients. Since 2012, the increase in final demands has played a major role in the recovery of value added exports at world level, while in Korea, increase in input structure explains more of rise in value added exports. That is to say, the change in value added export is cyclical at the world level, while structural in the case of Korea.
  The findings of this study indicate that it is crucial for Korea to reinforce the core competence of domestic industries in line with the following. First, Korean industries need to diversify their export products and gear up for standardization of parts and materials, thereby pursuing preemptive industrial restructuring. Second, Korean industries need to strengthen the knowledge intensity of high-skilled labor and make the best of global value chains. Third, the Korean government needs to support processes to improve transaction practices and incentive systems for large companies and small- and medium-sized companies, thereby establishing a fair market mechanism. Finally, the Korean government will need to contribute to multilateral as well as regional trade liberalization. 

  2017 marks the 5th year of Kim Jong Un’s reign, and evaluating the economic performance during this period is meaningful in that by doing so we can measure the future direction of the North Korean economy. However, despite the great efforts made to survey the North Korean economy, there is still only a superficial understanding regarding its economic size, industrial policies, industrial situation, and factories.
  The purpose of this study is to provide a new type of perspective through analyzing new kinds of data to help evaluate the North Korean economy. To this end, we provide a comparison between the industrial policies of the Kim Il Sung and Kim Jong Il regimes and the industrial policies emphasized since Kim Jong Un came to power. We then analyze the North Korean import and export data by industry, technology level, and utility purposes. Finally, this research considers the changes in North Korea’s industrial policy and import and export statistics to assess the economic situation of North Korea and the outcomes of its industrial policy after Kim Jong Un’s incumbency, and predicts the effect of sanctions on North Korea’s economy.
  Specifically, Chapter 2 provides an analysis of the transition process of North Korea’s industrial policies and those that have been emphasized after Kim Jong Un came into power. Section 1 analyzes the implications of North Korea’s foreign relations development strategy in light of its industrial policy. We show how the establishment and emphasis of the three major policy lines for North Korean industrial policies (i.e., the policy of autonomous national economic construction, the policy of parallel development of economy and nuclear weapons (byungjin policy), and the policy of prioritizing heavy industry development while simultaneously developing agricultural and light industries) evolved based on changes in its external circumstances (e.g., the inter-Korean armistice, Sino-Soviet dispute, competition with South Korea, collapse of the socialist economy). Section 2 summarizes the industrial policies of the Kim Jong Un regime, and then identifies the commonalities and differences vis–à–vis the previous Kim Il Sung and Kim Jong Il regimes. Based on a content analysis of the New Year’s address and Rodong Sinmun, North Korea’s state media, as well as interviews with North Korean defectors and people who have visited North Korea, we explain the pragmatic nature of emphasizing short-term achievements and avoiding large-scale heavy industries investment, focusing on the parallel pursuit of economic construction and nuclear armed forces construction, which are the characteristics of the Kim Jong Un regime.
  Chapter 3 jointly analyzes the changes in industrial policy and import composition. Section 1 summarizes the industrial policies proposed in Chapter 2 and summarizes the various issues and solutions that can be raised when linking each industrial policy with changes in import composition. In addition to industrial policies, we also considered the proliferation of the market and foreign currency usage in North Korea, economic growth and increase of income, preference for science and technology (resource consumption and production cost reduction), and inflation. In Section 2, we analyze the changes in import composition with three methodologies. First, we analyze the characteristics of the change in imports from before Kim Jong Un’s leadership to the early years of his leadership. There are three time points in this respect: 2005 (during Kim Jong-il’s rule), 2010 (end of the Kim Jong-il regime), and 2015 (the beginning of Kim Jong Un’s rule). Group 1 consists of items whose imports decreased in both 2010 and 2015, Group 2 consists of items whose imports increased in both 2010 and 2015, Group 3 consists of items that increased in 2010 but decreased in 2015, and Group 4 consists of items that decreased in 2010 but increased in 2015. Industrial categories (grouped in 2 digit HS code levels) consist of twelve types - agriculture, fisheries, chemicals, electronics, wood, machinery, minerals, plastics and rubber, metals, clothing, transport equipment and others. Second, North Korean imports are analyzed in terms of changes in the share of intermediate goods, capital goods, and consumer goods. Through this, we confirm whether North Korea has succeeded in implementing the policies of localization and normalization of industry, which it has emphasized. Third, we analyze the technology level of imported goods in North Korea. The level of technology was analyzed from the three aspects of “change of technology level by industry,” “change of technology level by purpose of use,” and “change of technology level by both industry and purpose.” In short, North Korea shows the characteristics of industrial and technological development at a level similar to South Korea in the 1970s and 1980s. Through analyzing the level of technology in North Korean import goods, we discover how North Korea is utilizing advanced overseas technology.
  Chapter 4 analyzes changes in the composition of exports. In addition, we summarize the changes in industrial and trade policies prompted by changes in external conditions of countries similar to those of North Korea. Based on the above discussion, we also show how sanctions against North Korea would impact its economy. Chapter 4 differs from Chapter 3 in that exports are affected by factors compared to imports. While imports are affected by changes in domestic industrial policies, socioeconomic economic activities and consumption trends, exports are mainly influenced by external factors such as strengthened international sanctions against North Korea and the slowing growth of the Chinese economy. Section 1 summarizes the industrial policies linked to exports. In Section 2, we analyze the changes in the composition of each group by industrial sector, the change of percentages by usage purpose, and the change of technology level among industries in accordance with the three methodologies of Section 2, Chapter 3. In Section 3, we select a transitional country with similar economic and industrial policies to North Korea, and then investigate the industrial policy that the state has pursued to respond to changes in its trade environment (reduction in economic income of major trading partners, economic crisis, etc.), after which we analyze the consequent ripple effect. Finally, Section 4 analyzes the effects of international sanctions on the North Korean economy.
  In Chapter 5, we analyze the linkages between foreign trade and industrial policies, and propose policies to normalize inter-Korean economic cooperation. Section 1 assesses and forecasts the present and future of the North Korean economy. At present, the North Korean economy seems to be gradually recovering from poverty and chronic economic downturn, albeit very slowly. As long as the strengthening of sanctions against North Korea continues, it is unlikely that its economy will continue on the path of normalization and improvement. Section 2 assesses the outcome of Kim Jong Un’s industrial policy. We find that the industrial policy newly emphasized by the Kim Jong Un regime is projected to some degree on the changes in import statistics. However, due to limitation of data, we could not clearly distinguish Kim Jong Un ’s byungjin policy from Kim Il Sung’ s and Kim Jong Il ’s policies. Section 3 predicts the impact that sanctions against North Korea will have on its economy. In the mid- and long-term, sanctions against North Korea will inevitably have a negative impact on its economy. However, the short-term impact is likely to depend on how North Korea responds. Section 4 suggests proposals for inter-Korean economic cooperation based on the above discussion.