I. Introduction 

II. Theoretical Argument of Convergence 
1. Theoretical Development of Convergence 
2. Previous Case of Convergence: Ireland, Greece, Spain and Portugal 

III. An Assessment of Convergence Patterns in the EU-27 
1. Measures of Convergence 
2. Cross-country and within-country convergence in the EU 

IV. Empirical Test on the European Regions 
1. Model Specification 
2. Data 
3. Results 

V. Conclusion 

References 

Appendix 
 

This paper examines income convergence across Europe during the period 1995~2007 where the last enlargement of the EU and the process of economic integration was in active progress. It is generally accepted that the enlargement of the EU has been followed by the convergence of late comers toward the European average. The author focuses on only the cross-county convergence, but also within-country convergence. He concluded that the remarkable cross-country convergence has tended toward within-country divergence, particularly for Central and Eastern European Countries during the enlargement period. Economic weights of the respective regions in national economies seem to be critical in explaining within-country divergence. High income regions, mostly capital cities, in CEECs are characterized particularly by higher growth rates. It is highly probable that the economic integration has favored those well-off regions at the expense of regions remote from their capitals.
This tentative conclusion provides important policy implications not only for European integration, but also for economic integration in other regions, where countries have been seeking diverse regional trade agreements (RTA). Economic integration is largely recognized as a policy option to boost economic growth through trade and investment channels, but economic benefits are likely to be concentrated in certain favored regions, mostly capital regions or industrial areas which have already been enjoying high income levels. Thus, it will be increasingly necessary to develop a mechanism to channel economic benefits to backward regions for within-country convergence.

 

I. Introduction 

II. Model 
1. Setup 
2. Stage 2 
3. Stage 1 

III. Equilibrium Analysis 
1. Position-dependent Best Responses 
2. Equilibrium Carbon Taxes 
3. Impacts of BCA 

IV. Discussion: Strategic Relationships between Home and Foreign Carbon Taxes 

V. Concluding Remarks 

References 

Appendix 
 

This article further develops a framework of Brander and Spencer (1984) by adding Border Carbon Adjustments (BCA) to compensate for cost differences caused by emissions reduction among countries. On a level playing field, BCA is one-directional in that only a country with a more stringent carbon tax can impose BCA on its imports. In a two-stage game with a reciprocal market model, governments move first by choosing domestic carbon tax rate on their own firms. The level of BCA is determined by both home and foreign carbon taxes. Firms take taxes and BCA as a given and compete by choosing either output levels or prices. The right to impose BCA makes two countries unequal in that a country with the right can extend the influence range of its domestic carbon tax on imports while the other cannot. Besides equalizing carbon costs across countries, BCA changes the incentive structure regarding governments’ domestic climate policy choices, as governments try to maximize their countries’ welfare. Our findings are robust whether the competition is Cournot or Bertrand because the effect by BCA dominates the mode of competition.

I. Introduction 

II. Empirical Methodology 
1. Empirical Specifications 
2. Data Description 

III. Empirical Results 
1. Main Results 
2. Robustness Checks 
3. Simulation 

IV. Conclusions 

References 

Appendix 

Recently, increasing numbers of financial MNEs are adopting English as their in-company official language. This paper attempts to investigate to what extent English proficiency, as the language of global business, can boost international trade in services. To achieve this purpose, this paper estimates the determinants of services trade including language variables with the aggregated and disaggregated data for nine different subsectors of OECD countries. The empirical model is based on a theory-based gravity model derived from Anderson and von Wincoop (2003, 2004). The findings show that English proficiency has a significant influence on services trade, while other languages such as French and German have only weak and mixed effects. In particular, communication, financial, commercial, insurance, and business services are revealed to be the most impacted by the level of English proficiency. The results imply that governments can use their English policies to promote international trade in services.

I. Introduction 

II. Asian Bond Markets Initiative 
1. Birth of the ABMI 
2. Development of the ABMI 
3. Credit Guarantee Investment Facility 

III. Model 
1. Households 
2. Production 
3. International Trade 

IV. Quantitative Experiments 
1. Scenarios of Credit Guarantee Schemes 
2. Measuring the Size of Shocks 
3. Simulation Results 

V. Concluding Remarks

References 

Appendix: Trade Matrix
 

This paper reviews current development of the Asian Bond Markets Initiative (ABMI) and addresses the macroeconomic effects of credit guarantee schemes through the Credit Guarantee Investment Facility (CGIF) along with the ABMI. The findings from international macroeconomic simulations include that (i) even though East Asian financial cooperation upgrades some countries’ credit fundamentals, it helps increase both the corresponding countries’ real GDP and East Asia’s regional real GDP, and (ii) this effect becomes greater as credit rating upgrade happens to more ASEAN+3 member countries in East Asia. These results strongly recommend that ASEAN+3 efforts along with the ABMI should move toward building local currency bond markets on the existing achievements. For the ABMI to be more effective, moreover, the importance of regional prudential supervision and regional market infrastructure is given with greater emphasis.  

I. Introduction  

II. Ethiopia Rural Household Survey and Poverty Profile  
1. Data: Ethiopia Rural Household Survey  
2. Poverty in Rural Ethiopia  

Ⅲ. Determinants of Poverty in Rural Ethiopia  

IV. Pro-poor Growth Analysis and Counterfactual Decomposition  
1. Pro-poor Growth and Growth Incidence Curve  
2. Counterfactual Decomposition of Growth Incidence Curve 

V. Concluding Remarks  

References  

Appendix  

 

Previous literature, ignoring regional heterogeneity, has mainly ex-plored the interrelationship among growth, inequality, and poverty. In exploring the incidence of poverty and growth, we classify rural Ethiopia into three regions based on the difference of production technologies and climates. We find evidence that regional heterogeneity exists across the three regions. To find the sources of heterogeneity, we estimate a pseudo-fixed effect probit model controlling for household fixed effects within a random effect probit model across regions. We find that poverty is determined by different sources across the three regions, each with different farming systems. Moreover, poor households can escape poverty only when their expected level of well-being has been improved by increases in asset holdings and/or returns to assets. Hence, we propose, using counterfactual decomposition, that pro-poor growth can be decomposed into two components: changes in the amount of attributes such as observable household assets or capital, and changes in ‘aggregate marginal product’ of the attributes. We find that the impacts of the changes in the aggregate marginal product on pro-poor growth are significant in the hoe area, but the changes in attributes do not significantly affect growth in this region. The aspects of growth are determined heterogeneously across regions: in the highland area, both components work together; in the hoe area, growth is mainly determined by changes in the aggregate marginal product; and in the enset area, it is changes in attributes that mainly determine the positive growth. We find evidence that pro-poor growth in a relative sense appear in the hoe area, where the impact of changes in the aggregate marginal product on growth is heterogeneous along the income distribution; the larger impact appears in the lower tails, while smaller impact can been seen in the upper tails. However, we find no evidence of pro-poor growth in the highland and the enset areas, where the impacts of the aggregate marginal product on growth are anti-poor and insignificant, respectively. Therefore, since the impact of changes in productivity on growth differs across regions, technology disseminated to increase household productivity should be tested whether it could generate pro-poor growth in the recipient’s environment. For example, in providing agricultural technologies through the Korea Project on International Agriculture (KOPIA) or new knowledge via the Knowledge Sharing Program (KSP), we have to deliberate carefully on whether the knowledge and technology do indeed have pro-poor aspects.   

This policy paper aims to analyze the competitiveness of Japanese manufacturing sector since the 1990s, focusing on the crisis of Japanese electronic sector, which is often called as the Galápagos Syndrome. Based on the analysis, we derive various implications for the Korean manufacturers and the government from the Japanese experiences.
Chapter two reviews the factors that affected the competitiveness of Japanese manufacturing sector, for example, the rising of Asian emerging markets, the appreciation of Yen since Plaza accord of 1985, and the digitalization and standardization of manufacturing technology.
Chapter three analyzes the competitiveness of Japanese manufacturing sector since the 1990s using indexes such as Total Factor Productivity (TFP), Intra-Industry Trade Index (IIT), and Value Added Rate. According to the TFP measurement, It is clear that  the productivity of Japanese manufacturing sector has fallen apparently from 1995. And, according to IIT measurement, the export competitiveness has  weakened in electronics, general machinery, metal and textile industry. In particular, the Japanese manufacturing sector has lost its competitiveness by the ratio of value-added to sales amount which has fallen even during the depreciation of Yen in the 2000s.
Chapter four examines the crisis of Japanese manufacturing sector from the perspective of business management (in Japanese, Monozukuri). We are emphasizing that modularization of manufacturing architecture has deprived Japanese electronic manufacturing firms of comparative advantages based on integral manufacturing technology. Moreover, the earthquake in the northeastern Japan in March 2011 has revealed the fragility of Japanese manufacturer’s supply chain, which used to be considered as one of the major strong points.
Chapter five discusses the strategies and the polices of the  Japanese government to strengthen the manufacturing sector. We are focusing on how the Japanese government supported the R&D sector with R&D Partnership and fostered the cooperation between the government, the industry and the academia. The Japanese government has tried to increase R&D expenditure, stabilize employment, and assist growth of ecological enterprises and small businesses. However, the Japanese government's polices have been ineffective in that its R&D expenditure has not contributed much to the profit growth of the enterprises, nor has the R&D Partnership induced active participation from many firms, not to speak of the unachieved innovation outcomes from the cooperation between the government, the industry, and the academia.
Chapter six discusses the lessons and the policy implications we could obtain from the Japanese experiences to strengthen the Korean manufacturing sector, so that the Korean manufacturing firms would not repeat the Japanese electronic manufacturer’s experiences. The Korean government should support the growth of the higher value-added industry such as parts and materials manufacturing sectors. Moreover, it is necessary for the Korean manufacturing firms to be more active in business cooperation with their Japanese counterparts, especially when expanding to the new emerging Asian markets. Finally, the Korean government should further actively engage in the R&D investment of the small businesses in basic science technology. In this respect, the Japanese R&D partnership and cooperation between the government, the industry, and the academia could be a good example for the Korean government.

The Generalized System of Preferences (GSP) was established to promote the exports of developing countries to developed countries in order to support their economic growth and development. The European Community (EC) was the first to implement their GSP program in 1971, and Japan and the U.S. introduced their GSP programs in 1971 and 1976, respectively.
The GSP focused exclusively on creating incentives for access to larger markets of developed countries. In fact, Korea was one of the beneficiaries of the GSP. In the 1980s, Korea had graduated from the trade preference programs due to its remarkable progress in terms of economic development and improvements in trade competitiveness. Considering Korea’s achievements, including Korea becoming the chair and host of the G-20 summit, and also became the first country in the world that emerged from the status of aid beneficiary to become a donor, it is the right time for Korea to consider the introduction of a GSP scheme.
The purpose of this study is to discuss the strategic approaches for the introduction of the GSP scheme into Korea. In doing so, existing GSP programs of major developed countries and Korea’s relations with developing countries are explored. Also, the economic effects of the introduction of the GSP on Korea and other developing countries are analyzed.
Firstly, Chapter II reviews and compares the GSP programs of the major industrialized countries such as the U.S., Canada, EU, and Japan. Notice that the GSP program should be unconditional and create no discrimination between developing countries. However, it turns out that existing GSP programs become more complex in terms of country- eligibility and product-eligibility requirements, graduation rules, rules of origin, and so on. That means the effects of GSP are actually debatable. Nonetheless, it appears that the GSP scheme influences the export performance of developing countries in a significant and positive way, facilitating development and poverty reduction. In this sense, there is an increasing need to maintain and extend preferential market access through the GSP to developing countries.
Recently, the EU published a proposal to revise the current GSP scheme. The draft proposal aims to raise the effectiveness of the GSP by focusing GSP preferences on countries most in need. The major changes would involve reducing GSP beneficiary countries and refining graduation rules, GSP+ related procedures and criteria, and making rules of origin less complex.
Lessons can be drawn for Korea from these changes and also experiences of other countries, that it is more important to establish and operate the GSP scheme in a way that helps developing countries develop their economies than just to grant the tariff preferences under GSP. In other words, it is crucial to operate the GSP preferences in accordance with the original intent and purpose of the GSP. However, the lack of reciprocity in the GSP program could harm domestic producers who compete with imports that receive preferential treatment under the GSP. Thus, it is necessary to have a safeguard mechanism to protect the interests of domestic producers and workers as well as a review mechanism to operate the GSP treatments properly.
Chapter III covers Korea’s relations with developing countries, which was explored by analyzing Korea’s tariff phase-out programs under its preferential trade agreements and its importing structure vis-a-vis developing countries. Korea’s preferential agreements with developing countries include FTAs with ASEAN countries and Chile, the Asia Pacific Trade Agreement(APTA), and the Global System of Trade Preferences (GSTP). Most importantly, the new round of APTA and GSTP agreements have not yet been initiated. But increases in their existing level of concession under APTA and GSTP will limit the scope of GSP treatments in Korea. In particular, the issues related to ‘redundancy in preferences’ and ‘preference erosion’ should be carefully considered when introducing the GSP scheme into Korea.
Chapter IV then examines the economic effects of the GSP on Korea and beneficiary countries. Clearly, the GSP program will affect trade flows and production patterns in both Korea and developing countries. However, it is not clear whether Korea and beneficiary countries would benefit from the introduction of GSP into Korea because GSP tariff cuts could result in not only efficiency gains but also welfare losses. In this regard, we use a CGE model to see how real GDP and welfare will be affected by tariff preferences under the GSP. The results show that economic benefits are expected in both Korea and developing countries, but the scale of the economic impact depends on the range of beneficiary countries which receive benefits from the GSP and the degree of openness in sensitive sectors. This suggests that Korea needs to consider the introduction of GSP in the strategic context.
Chapter V concludes by discussing the policy directions for the key components of the GSP program such as the determination of country-eligibility and product-eligibility requirements, graduation rules, rules of origin and so on. This study proposes a gradual implementation of the GSP program as an effective and feasible approach for introducing GSP schemes into Korea. In the mid to long term perspective, Korea needs to make sure that its GSP scheme to cover the wide range of beneficiary countries and extend preferential market access to sensitive products.

 

China's financial market has grown fast since the beginning of the 2000s although it is obviously less developed compared with its real sector yet. As measured in the ratio of total financial asset to GDP as of 2009, China is about 70% as developed as the U.S. in financial deepness. While the indirect financing via banks still accounts for three fourths of total financing in China, the direct financing through capital market is in the early phase of development. The non-performing loan problem and the financial weakness of commercial banks, which were mentioned as major lingering concerns in China's finance, have been improved due to the financial support from its government in the early 2000s. Despite this quantitative growth and better statistics, there are still many obstacles to further financial development in China. They include strong government intervention in finance such as state ownership of banks and interest rate control, low financial competitiveness and underdevelopment of capital market and investment banking industry. Therefore, it is hard to predict that China's financial institutions would be competitive enough to lead the global financial market in the foreseeable future. The recent global financial crisis and thereafter China's massive stimulus measures created additional risks in its financial sector.
This low competitiveness of banks and extensive financial interventions by government work as impediments to greater flexibility of exchange rate and more liberalized capital flows in China. It is theoretically proper to sequence policies in the order of domestic financial reform including interest rate liberalization, greater flexibility of exchange rate, capital account liberalization, and currency internationalization. Currently China's policies, however, are under way in a mixed order. After the global financial crisis renminbi internationalization policy started to be driven with priority. Although renminbi internationalization is the ultimate goal of China, it would face difficulties in making further progress without prior measures for financial openness, which in turn calls for exchange rate flexibility.
This logic leads to the prediction that China will increase its exchange rate flexibility sooner or later. Such a decision possibly would be prompted by the recognition that the flexibility is a crucial precondition for the ultimate goal, namely internationalized renminbi. Greater flexibility of exchange rate would be also beneficial to China because it needs to deal with both appreciation pressure from outside and inflation pressure from inside. Moreover, China is likely to make progress in capital account liberalization, albeit slow and limited. In particular, it may loosen regulations on portfolio investment including larger investment ceilings, while maintaining strict restrictions on short-term capital flows and financial derivatives. However, it would take long time to achieve full-fledged convertibility of renminbi because China has a long way to go to fulfill its preconditions such as domestic financial reform. In conclusion China is very likely to push forward internal financial reform, greater exchange rate flexibility, capital account liberalization, and currency internationalization in a gradual manner simultaneously rather than in a relevant order.

As Korea-India economic cooperation has been gaining momentum in recent years with increasing institutionalization of relevant mechanisms, there is a growing need to further promote the entry of Korean companies into the Indian market and enhance the synergy in economic cooperation between Korea and India. Yet, vast differences in the investment environment and disparities across states present both opportunities and risks, which in turn calls for a strategic approach based on a proper understanding of the growth patterns of different states. It is in this context that the current study seeks to project long-term growth rates and patterns of Indian states, and examine policy implications accordingly.
The present study employs the growth accounting model as a tool to estimate the growth patterns and long-term growth rates at the state level. To begin with, the study categorizes Indian states into fast-growing, average, slow-growing states. The fastest growing states include Gujarat and Maharashtra; average states are Kerala and Karnataka; and Bihar and Assam are among the slow-growing states. A cross-examination of the past state-level growth patterns based on the factors of production and the total factor productivity revealed that states in which the contribution of total factor productivity has increased substantially saw an equally substantial rise in the GDP growth rate. On the other hand, in other states where the contribution of total factor productivity has declined, the GDP growth rate has fallen short of the national average, which indicates that Indian states' growth rate is determined by factors other than the increase in capital and labor. In addition, states are classified based on long-term growth rate projections into fast-growing/high-income, fast-growing/low-income, slow- growing/high-income, and slow-growing/low-income states: Fast- growing/ high- income states are Gujarat and Maharashtra; fast-growing/low-income states include Orissa; and slow-growing/ low-income states include Bihar and Madhya Pradesh.
While effecting changes in the factors of production and the total factor productivity had little impact on the economic conditions, provided the investment rate is changed, it increased the disparities in the GDP growth rate and GDP per capita. On the other hand, in accordance with the neoclassical economic growth theory that the growth rate in the total factor productivity increases rapidly in a backward state, changing the total factor productivity yielded significant changes in the growth rate, income levels, and growth patterns of states. Maharashtra, Tamil Nadu, Kerala, and Gujarat; which were initially classified as fast-growing/ high-income states, were regrouped as slow-growing/ high-income states; slow-growing/low-income states such as Karnataka, Madhya Pradesh, Andhra Pradesh, Uttar Pradesh, Bihar, Rajasthan, and Assam moved to the fast-growing/ high-income group.
A comparison of the nominal GDP of fifteen states of India with that of other countries, provided that the growth rate in total factor productivity will continue in the future, indicated that the nominal GDP of Maharashtra, Gujarat, and Tamil Nadu will surpass that of Poland, Turkey, and Thailand by 2026. Notably, the nominal GDP of Maharashtra is projected to exceed that of Korea by then. In addition, the projections of the nominal GDP per capita revealed that the figures for Maharashtra and Gujarat will be similar to that of Mexico, while Tamil Nadu, Kerala, and Haryana will be on par with the Republic of South Africa by 2026.
Based on the analysis of the growth patterns of Indian states, the following policy implications can be provided. First, forward-looking and more focused strategies need to be formulated with a particular focus on the states of Maharashtra and Gujarat which are to develop into leading economic hubs in India. At the same time, an approach geared toward domestic demand rather than manufacturing bases for exports is needed, taking into account unique attributes and medium/long-term development plans of Indian states. Second, a close watch should be kept over such states following closely behind the fast-growing/high-income group as Punjab, Orissa, Karnataka, and Madhya Pradesh; and accordingly, appropriate strategies targeting those states should be prepared. On the other hand, as for slow-growing/low-income states such as Bihar which carry high-growth opportunities as well as risks, close monitoring should be undertaken on their policy and business environments. For these states, an incremental strategy should be adopted for the medium/long-term, while targeting niche areas in the states in the near term.
As Indian states’ economic growth accelerates and income levels rise at a pace much faster than developed countries and other emerging economies, the industries and consumption demand will likely keep up a similar pace of change. In particular, infrastructure projects are likely to expand substantially, and as such, there is a need to capitalize on the immense demand for infrastructure development. Furthermore, it must be also noted that the consumption pattern will change fast with rising income levels in Indian states. Therefore, efforts are needed to respond flexibly to the changing trends and patterns of economic growth in Indian states, while paying particular attention to the metropolitan cities of India.
 

 

Subsidies are financial contributions by the government or public bodies which confer benefits to their recipients. China has provided various grants, preferential loans, tax incentives and other forms of subsidies to promote the production and export performance of its industries. With its accession to the World Trade Organization (WTO) in 2001, China has fallen under the regulatory framework of the multilateral trading system. As a result, China’s industrial policy is subject to both WTO’s general subsidy disciplines, and specific commitments and tailor-made provisions laid down in the accession package. The latter include a partial recognition of the developing country status, special provisions on Chinese state-owned enterprises, transparency obligations, the use of out-of-country benchmark prices in countervailing investigations against Chinese products and others.
Composed of six chapters, this study examines the state of play on China’s subsidization practice and counteractions taken by its major trading partners, as well as to explore possible implications for Korea. In particular, Chapter II considers the application of WTO rules to China’s subsidies. Chapter III shows major trends in the use of subsidies by industrial sectors on the basis of China’s declared policies, WTO notifications and relevant laws and regulations. Chapter IV examines how Chinese subsides have been addressed in the WTO’s political and judicial “control” mechanisms, such as the Transitional Review Mechanism, the Trade Policy Review Mechanism and dispute settlement procedures. Chapter V discusses the practice of individual countries - basically the United States and Canada - of countervailing Chinese subsidies. Finally, Chapter VI considers what lessons and implications Korea can draw from other countries’ anti-subsidy measures against China.
Over the past ten years, China has been criticized in WTO political forums for the lack of transparency in its subsidization practice. In the judicial track, Chinese subsidies have been complained of in 9 out of 23 dispute cases initiated against China as of November 2011. Most of them centered on prohibited subsidies and ended with mutually agreed solutions. The countervail mechanism vis-a-vis China has been used mainly by developed countries such as the United States, Canada, Australia, and the European Union of whom Canada was the very first user.
Unlike these and some other countries, Korea has so far maintained a passive stance toward Chinese subsidies. It has usually kept silent in WTO forums, never resorted to the WTO dispute settlement or countervailing mechanism against China. However, given the increasing role of China as a trading partner, Korea should first of all strengthen its monitoring capacity with respect to both China’s subsidization policy and other countries’ anti-subsidy measures. Countervailing investigations and WTO dispute cases are initiated by the government normally upon the requests of domestic industries. In choosing between these two tracks, the government should weigh all the pros and cons in terms of the time consumption, costs, the actual effect of remedies etc. and then decide which track to resort to. On the other hand, the case study on anti-subsidy measures demonstrates that it is important for the Korean government and companies to minimize the possibility of being targeted by such measures and, in any event, to be well prepared for such challenges.