This report investigates the state and development of medical tourism in Southeast Asia by focusing on Singapore, Thailand and Malaysia. It considers ‘push factors’ and ‘pull factors’ in the development of their medical tourism industries.
‘Push factors’ in the global medial tourism industry are (1) a sharp increase in the ‘un-insured’ or ‘under-insured’ in advanced countries especially in the USA due to rise in medical costs, (2) a need to restrain the continued rise in insurance premiums by insurance companies in advanced countries, (3) an increase in waiting time for medical services in advanced countries, especially in Western Europe, (4) the overall increase in demand for medical services due to the rapid progress of aging society, (5) an increase in diverse demand for medical services in emerging markets including Asia due to their economic development and the growth of wealth people who look for better medical services abroad, (6) an overall increase in tourism demand, and so on.
‘Pull factors’ of those ‘push factors’ are (1) the overall improvement of medical technologies and services in emerging markets, (2) their low cost services, (3) increasing confidence and recognition in quality of their services, (4) increasing convenience and accessibility to medical tourists, (5) increasing possibility of combining medical services with foreign travel and so on.
Singapore, Thailand and Malaysia are developing their medical tourism sector by providing competitive pull factors as below. Above all, they are rapidly catching up with advanced countries in terms of medical technologies and services. Singapore has already reached the most advanced state of medical technologies based on its unique private-public partnership. Thailand, though its overall level of medical technologies may not be up to those of advanced countries, some private hospitals like Bumrungrad are leading medical tourism in the region by equipping themselves with technologies and facilities comparable to advanced countries. Malaysia has also raised the level of its medical technologies and services rapidly. While they are converging to advanced countries in medical technologies, these countries provide those services at significantly lower prices, i. e., about 60% to over 90% lower than those in the USA.
The three countries are also making various efforts to raise visibility of and international confidence in quality of their medical services by getting certifications from JCI, ISO and so on. They offer various convenient services to medical tourists, too. Singapore Medicine, ThailandMed, Malaysia Healthcare Travel Council (MHTC) are organizations dedicated to one-stop services for medical tourists. They even provide prospective medical tourists with services to calculate estimated costs directly in their websites. Comprehensive concierge services, seamless connection to related tour programs and so on also provide an exquisite ‘total experience’.
The three Southeast Asian countries adopt different policies and systems on medical tourism reflecting their differences in developmental levels, historical heritages and so on. However, they are common in following aspects. First, public hospitals are backbones on their local medical service systems. On this basis, private hospitals are creating and/or absorbing new demand from medical tourism. Second, private hospitals are corporatized. Bumrungrad, Parkway Holdings, Pantai and so on are listed in the stock market and expanding international networks through mergers and acquisitions (M&As). Third, foreign doctor licenses are recognized and those leading private hospitals employ many of those internalized medical staff.
Korea seems to be close to advanced countries in medical technologies and service standards. It also maintains price competitiveness. According to the Korea International Medical Association (KIMA), the overall price in Korea is 20~30% of the cost in the USA. However, Korea seems to have more room to improve in international confidence and convenience. For instance, there is no credible way for prospective medical tourists to estimate medical costs objectively, unlike Singapore’s ‘hospital bill size’ or Bumrungrad’s ‘REALCOST’.
It looks better for the future development of Korea’s medical tourism to provide medical tourists as well as foreigners residing in Korea with comprehensive price information. It will be also desirable to allow foreign licenses through a quota system to accommodate the need for international manpower in the medical tourism industry. The overall policy towards medical tourism should be focused on developing the sector as a next export industry competing in the world market.

 This study reviews policy responses of four countries-United Kingdom, France, Netherlands and Japan-to low birth and population aging, focusing on the interaction between social welfare and economic growth policy. Particular attention is given to whether there exists an explicit growth strategy in these countries in an era with an aging population.
The case study on the United Kingdom shows that the British government has not taken specific measure in terms of family policy to increase the birth rate, but the government has pushed for family-friendly policies based on tax reduction and promotion of work participation by women. As for labor policy, the British government traditionally put priority on flexible labor markets rather than job security, which has been reflected in labor policy for old workers. The government tends toward 'market mechanism' in labor policy and the pension system. In this regard, the British model is clearly differentiated from the ‘Continental model’ in Europe.
The French case is unique in that France has enjoyed the highest fertility rate among OECD countries. In France, there has been a deep-rooted tradition that children are ‘public goods’, and that the government has responsibility for their care and education. It is this tradition, reminiscent of ‘The Republic’, which contributed to the high fertility rate in France. As for labor policy, it would be difficult to consider the French case as successful, because employment rate among the older population in France is very low, compared to other European countries. This is partly due to the French model of employment based on corporatism and its culture of early retirement. Recently, the French government has pushed for increasing employment rate among the older population through compulsory measures, such as extension of legal retirement age for state pensions and enforcement of job seeking efforts for older jobless people, in combination with certain incentives such as rights to pension benefit for holding an additional job.
The case of Netherlands is characterized by its ‘flexicurity approach’ on labor policy for women. The Dutch government has emphasized flexible labor markets but has developed various measures for job security as well, based on the equal treatment between male and female workers and between full-time and temporary workers. The government makes efforts to secure fiscal consolidation through stricter policy on unemployment benefits and by raising the age for state pensions.
The study on Japan provides us with various insights on aging population policy, because Japan was the first country to begin experiencing serious problems associated with population aging. This had led to worries in government and society in general concerning the loss of economic growth potential. The consecutive governments have enacted policy initiatives to tackle low birth rates, but they were not successful. In the course of implementing these policies, Japan’s public finance has deteriorated and this necessitated the current welfare reforms to secure fiscal consolidation. However, major reforms, such as pension reforms, have been delayed due to political conflict; uncertainty in state pension reform caused downturns in domestic demands in fear of loss of disposable income for the future.
These case studies provide us with some important policy implications. First, it is important to develop well-designed combination of policies in different areas. Until now, Korea's policy response to low birth and population aging have tended to consider low birth, population aging and growth momentum separately. The focus was on securing growth momentum in an ageing society. But case studies show that it is necessary to interweave policies of different areas so that they can contribute collectively to sustainable economic growth.
Second, labor policy should focus on increasing total amount of employment, rather than replacing employment between different categories of workers. The previous French government encouraged older workers to retire early to reduce the unemployment rate of the younger segment of the population. This initiative turned out to be a failure, resulting instead in a very low rate of labor participation by older people without achieving the initial goal.
Third, it is important to provide some incentives to firms to cooperate with the government's policy initiatives on aging. Without voluntary (though incentives) or compulsory (through legal obligation) participation of the private sector, it can hardly be expected that labor policy for the older population would bring about tangible outcomes.
Against these case studies, some policy initiative should be considered as follows. First, it is recommended that the Korean government develop Sejong City as a model of compromise between work and family life. Given that construction for Sejong City is ongoing and important sections of various Ministries and public institutions will move in, the government initiating various policy experiments would not be unreasonable. Second, it is urgent to develop concrete measures for evaluating the performance of government policies on low birth and population aging. Considering that the government plans to invest more in these policies will entail budget constraints, it will be more important to evaluate adequately performance of such public spending.

While the international community tried to resolve North Korea’s nuclear crisis, it has remained an ongoing challenge. North Korea’s nuclear crisis is a significant and impending task for the international community, in terms of enhancing security on not only the Korean peninsula but also in Northeast Asia while simultaneously achieving consistent economic development in that region. The crisis has become even more serious once the North withdrew from the Six Party Talks in 2009 and the North attacked the South, violating the Armistice Agreement for the Korean Peninsula. This book introduces three cases of disarmament: South Africa, Libya and Ukraine. Based upon the case studies, the book states how the three cases can be applied to the case of North Korea.
This book is summarized as follows. In the first chapter, the authors provide an overview of this study; including the study’s background, purpose, range, and types of methodologies adopted. In the second chapter, the authors analyze reasons why and how South Africa, Libya and Ukraine developed nuclear weapons. In the third chapter, reasons for the three countries deciding to give up nuclear weapons and how they gave them up are analyzed. In the fourth chapter, types of efforts made by the international community in order to resolve the nuclear problem involving the above three countries are introduced and the effectiveness of those international efforts are assessed. In the fifth chapter, correlation between the withdrawal of economic sanctions levied upon the three countries and their economic prosperity are analyzed. In the sixth chapter, authors summarize lessons from the three case studies and their implications for North Korea.
In conclusion, economic assistance could be a significant factor in the development of meaningful relations between the international community and North Korea, but it does not constitute the key factor in resolving its nuclear crises. One of the outstanding reasons why the North tried to develop and retain nuclear weapons stem from their intention to use those weapons as a means for survival, and to maintain the Kim Jung-Il regime in particular. Unless North Korea’s fundamental concern remains unresolved, the crises will continue. This means that the strategy to provide the North with ‘carrots’will not likely induce North Korea's disarmament. Therefore, the international community should engage in special efforts to resolve the crises in a more practical manner, such as by helping North Korea create a more friendly international environment and assimilate itself to the international community, but economic sanctions upon North Korea should be maintained in the meanwhile to remind everyone of the danger that nuclear weapons poses, maintain the will for enforcement of those sanctions among the international community, and to prepare responses for the various scenarios in which the North gives up nuclear weapons.

 This report analyzes Chinese policy measures to cope with the global economic crisis and the economic relationship between China and the US. It focuses mainly on China’s policy responses to the global economic crisis and their effects, followed by the impact on Sino-American economic relationship of policy changes made by China in the direction of economic development for the long term. Especially, it attempts to analyze policies related to trade, Renminbi exchange rate and the foreign reserve operations for a more precise understanding of present Sino-American relations.
After the explosion of the American financial crisis that engulfed the rest of the globe in mid-September of 2008, the Chinese government opted for a more aggressive economic stimulus policy, setting a goal of 8% economic growth by providing a boost for the domestic market. A 4-trillion yuan (US$586 billion) stimulus package over 2 years was announced on November 9, 2008, subsequently revised and confirmed with detailed expenditures for specific sectors.
In addition, the government continued active efforts to boost domestic consumption by lowering tax rates, expanding the home appliance trade-in policy, developing the 10 Major Industry Plan, invigorating the real-estate market, and taking measures for stabilizing exports etc. These policy measures resulted in the rapid recovery of the economy in terms of GDP growth, industrial production, consumption, investment, exports, employment, etc.
The government investment to overcome the crisis, however, was biased toward the infrastructure investment; including SOC investment, reconstruction of areas hit by the earthquake and housing construction etc. Consequently, growth driven by large-scale public investment intensified the imbalance between investment and consumption, and actually created new problems in the form of redundant facilities and overinvestment in state owned enterprises. Furthermore, bank loans surged as expansionary fiscal policy was implemented simultaneously with a loose monetary policy, and overcapacity became a problem in some industries. Also, the reform of state- owned enterprises fell behind and the real wages of the workers increased.
After the crisis, the trade dispute between China and the US became more intense. The bilateral trade volume was only US$2.4 billion at the time when Sino-American diplomatic ties were established in 1979, but rose sharply to US$409.2 billion in 2008 after China became a member of the WTO. The two countries have remained most important trading partners for each other even after the global recession and the US is the largest export destination and third largest source of imports for China. China has achieved the biggest trade surplus vis-à-vis the US since 2001, and the increasing volume of the bilateral trade between the two countries deepened the trade imbalance in favor of China.
In other words, American deficit in trade with China has widened since the global economic crisis, reaching its highest level in 2008. Under the circumstances, demands for a strong trade policy against China became much more vocal, which led to trade remedies against China and increasing pressure for Renminbi appreciation. But in responding to such pressures actively and aggressively, China has aggravated the bilateral trade disputes between it and the US.
Meanwhile, the dialogue channel between high-level officials of the two countries has changed after the global economic crisis. The two countries started the U.S.-China Strategic and Economic Dialogue (S&ED) in 2009 to discuss global issues in anti-terrorism, science & technology, education & culture, and environment & energy (including climate change) as well as economic and trade issues. Though S&ED has not presented obvious solutions to sensitive issues, it is still significant as a comprehensive mechanism to coordinate the various issues intertwined with national interests of the two countries and for maintaining stable bilateral relations. Also, S&ED ingrained the rising status of China in the international society, highlighting the fact that a new phase of Sino-American relations have just begun, where the two countries are now ‘equal’ partners leading the global political economic order in the 21st century.
The Chinese exchange regime has been the crux of the bilateral trade dispute even before the global economic crisis, and especially after Chinese government fixed its exchange rate against US dollar after the crisis.
Some American scholars or policy makers argue that the low exchange rate of Renminbi maintained artificially amounts to de facto subsidies for Chinese export companies that cause harm to China’s trade partners. They claim that the Chinese government's manipulation of the Renminbi exchange rate should be met with the trade sanctions. This prompted a change in China from the fixed exchange rate into the managed floating system in June 2010, but it is argued that the real currency appreciation of the Renminbi has been modest, at best.
Meanwhile, in September 2010, the US Congress passed the “Currency Reform for Fair Trade Act” aimed at China; that enables retaliation with tariff on goods imported from countries suspected of manipulating the exchange rate. Also, the second quantitative easing policy called QE2 was announced in November 3, 2010 and the current account target was presented in Seoul G20 summit in November 2010. The long argument related to the Renminbi exchange rate policy is still continuing.
The Renminbi appreciation issue is at the center of ever-sharpening dispute between the US and China. Some Chinese studies recently assessed that the undervalued Renminbi is one of the various factors causing the external imbalance of the Chinese economy. Therefore, they suggest that the policies for reforming systems such as privatization, normalization of the financial system functions, fiscal reform to minimize the internal reserves of state-owned enterprises and the reform of the factor market etc., are more important than Renminbi appreciation for decreasing the Chinese current account surplus and resolving the external imbalance.
China is actively investing much of its foreign exchange reserve investment into buying US treasury bonds. China’s US Treasury Bond purchase accounts for 33.4% of total foreign exchange reserve as of the end of September 2010 and China surpassed Japan to become the largest holder of US Treasury Bonds in 2008. Though the global economic crisis caused the US dollar to become weak, which created the risk of net loss for China in holding on to US dollar assets, China could not help but continue its purchases of US treasury bonds because it could not find any other place to invest its huge foreign exchange reserve. At the same time, buying US dollar assets has similar effects to the US economy as Renminbi appreciation so that the pressure could be relieved. Even without abrupt exchange rate appreciation, China could secure some time to change its economic development strategy from an export-and-investment driven economy into one driven by domestic consumption. In the short and medium term, the current trend where China keeps buying US dollar assets is likely to continue, but for the longer term, it is accepted that there is a rising need for a strong international currency that can replace the US dollar. The Renminbi is considered by some as an influential currency which can assume such a role, and the Chinese government has been accelerating the Renminbi internationalization after the crisis.
The bilateral trade disputes in the future will continue due to the national interests of both the US and China, and attempts to arrive at a compromise will occur at the same time. Meanwhile, a serious confrontation is expected concerning the Renminbi exchange rate policy. A consensus has developed inside China that a too rapid Renminbi appreciation is not the solution to the surplus in current accounts. On the contrary, it may harm its export industries.
Finally, we will examine the direct and indirect influences of the Sino-American trade dispute on the Korean economy so that Korea can stay prepared, as detailed analysis and strategies on Korea’s position are required in coping with a potential Renminbi appreciation.

It had been difficult to find repeating patterns of business cycles in the Chinese economy previously. Instability seems to have been its general trait, with repeated fluctuation from drastic overheating to shrinkage in short periods until the 1980s. However, as it entered the 1990s, the business cycle in the Chinese economy settled into very stable conditions and it succeeded in maintaining an economic growth rate of over 7% during the Asian economic crisis. It was deemed that all the accomplishments of the Chinese economy were due to the strengthened ability on the part of the Chinese government to forecast and adjust to changing macroeconomic conditions. Since entering the 2000s, China’s economic growth accelerated again, in connection with its WTO membership. And before the global economic crisis in 2008, China had shown consistently high rates of economic growth, stable prices and huge trade surpluses. But, since the third quarter of 2007, there were some changes in basic economic conditions in China which were represented as a high growth-stable prices pattern that had lasted almost 10 years. And from that point in time, the importance of adapting macroeconomic policies aimed at achieving conflicting goals of economic growth and price control began to increase.
When we look at the changes in major economic indices in the recent business cycle in China; such as consumption, investment and export; the most unstable index was export, being sensitive to influence from global economic conditions. Meanwhile, the Chinese government would offset the unstable export demand by controlling the government sector’s investments, including those by state owned enterprises. However, although exports are shaky, the impact of sudden change is limited in reality, because of the high proportion of processing trade in Chinese exports. In other words, even though China has a high level of dependence on exports, the percentage of exports connected to domestic added value is quite limited.
In case of China, the economic indicator with the closes connection to trends of GDP growth rate change is the industrial production growth rate, rather than demand side indicators such as consumption, investment and export. We can observe this fact in the process where the impact of the global economic crisis in the second half of 2008 was passed on to the Chinese economy. At that time, while there were no changes in consumption, investment and export indicators, the industrial production growth rate changed drastically and it lead to slowdown of the GDP growth rate.
In this paper, we studied the main determining agent of the Chinese macroeconomic policy, along with the structure and process of decision-making in order to forecast and deal with changes in macroeconomic policy. And we also suggest some examples as to how Chinese macroeconomic policy is determined.
Despite the limitations of one party rule, the process of policy decision making is becoming more regular, specialized and diversified. However, it still has the distinctness and limitations expected in a transition country. The party center and the State Council depend on achieving control and conformity in wielding the power of decision without the institutionalized or the verification procedure in the policy process. This practice, based on democratic centralism, is of a systemic nature and constitutes a limitation of structure of Chinese policy determination.
It is important to know the structural characteristics of the Chinese economy to understand its’ business cycle and macroeconomic policy. In this paper, we divide the structural characteristics into characteristics related to policy objectives and structural characteristics of each economic field.
China is likely to keep growing and could attain a high growth rate of 7~8% through steady mobilization of production factors and improvements in efficiency. And the Chinese government suggested the increase of domestic consumption, improvement of income distribution and gradual opening of the capital market in its 12th Five Year Plan, which will be implemented from 2011 till 2015. This kind of mid-to-long-term strategy might influence the structure of consumption, investment, export or the direction of the execution of the macroeconomic policy substantially.
Aside from character of its policy objectives, there are some important things concerning China’s economy. First, the portion of private consumption in the demand side is decreasing continuously. Second, there is a need for the restructuring of its enormous excess capacity. Third, there is also a need to achieve a balance between price stabilization and supply expansion in the property market. Fourth, China may use an aggressive fiscal policy that is based on sound financial capacities. We also discussed the Chinese economic policy implementation during the economic upsurge and slowdown in recent years.
This paper forwards some implications for understanding the flow of the Chinese economy, and policy recommendations for the Korean government in establishing a policy direction toward China. First of all, the export factor acts as a connection between changes in Chinese economic conditions and the Korean economy. Korea’s export to China is connected directly with Chinese exports to the world. And Korean exports to China is immediately precedes that of China’s to the world, as Korea’s exports to China mostly consist of raw materials and parts.
Second, it is important to understand and make use of changes in China’s development strategy that emphasizes the role of domestic demand in the economy. This paper emphasizes that the Korea-China FTA is the most influential method for Korea in entering the Chinese domestic consumer market. Furthermore, there is a need for active efforts to enter the Chinese services market, which is expected to grow rapidly as a result of the enlargement of the consumer market and technical development. We also need to be ready for new risks that changes in China’s development strategy might bring forth.
Third, it is necessary to understand the structural characteristics of the Chinese economy. There were changes before and after 2007, and the condition of the Chinese economy is changing, as the Chinese economy is moving from a pattern of high growth-low inflation into high growth-high inflation. We must pay attention to these kinds of pattern change because there won't be any high economic growth based on low material prices in the future. We have to pay particular attention to trends of product prices and the capital market when making forecasts on Chinese economic trends and policy changes. Also, this paper emphasizes that greater attention be given to mid-to-long-term effects on industrial competitiveness by changes in the Chinese business cycle and macroeconomic policy. Finally, this paper suggests the necessity of building a system for sequential analysis of the Chinese macro-economy, by monitoring the policy determination process and announcement of key economic indicators etc.

 

 Throughout the globe, many free trade agreements (FTAs) have been signed, negotiated or implemented. Amidst the increasing trend in FTAs, Korea has also been actively pursuing FTAs with many strategic trading partners. Recently, Korea has completed seven FTAs, including Korea-Chile FTA, Korea-Singapore FTA, Korea-EFTA FTA, Korea-ASEAN FTA, Korea-U.S. FTA, Korea-EU FTA, and Korea-India CEPA.
As for gains and losses of having multiple FTAs, the first thing that comes to attention is benefits of enhanced market access opportunities vs. costs of complexity created by rules of origin (ROOs). As existing studies have already pointed out, the positive economic effects from trade liberalization can be reduced due to the complexity of ROOs. With multiple FTAs, the operational complications stemming from different ROOs lead to higher compliance costs for local firms, which are likely to exceed benefits from FTA preferences. Therefore, firms may eventually give up on the use of FTA preferences.
Indeed, there have been growing concerns regarding the complexity and inconsistency imposed by the ROOs in Korea’s FTAs. Accordingly, there is a growing consensus that Korea needs to build its own position on the ROO and apply them to the remaining FTAs. Motivated by this necessity, this study attempts to propose possible suggestions for Korea’s FTA rules of origin.
After completing the FTA negotiations with the U.S. and EU, the remaining task for Korea’s FTA policy is to form FTAs with China and Japan. It should be noted here that in the case of Korea’s FTA with China and Japan, any kind of FTAs can be possible: a series of bilateral FTA with each country, a trilateral FTA, or a plurilateral FTA including ASEAN countries. In this regard, the scope of our discussion is expanded to include the issue of East Asian Integration, to cover all possibilities.
This study begins with a discussion of the dynamics of East Asian Economic Integration and the importance of adopting a unified ROO for this region. Then, it follows a detailed examination of ROOs in Korea’s existing FTAs as well as ASEAN+1 FTAs. The ROOs in the ASEAN+1 FTAs are relatively simple and consistent across agreements compared to the ones in Korean FTAs. In fact, the ASEAN+1 style would be a good starting point as an enabling model for the ROO in achieving East Asian Integration. Given the above, Korea’s position on ROOs in FTAs with East Asia countries should not be different from the ASEAN+1 FTAs.
Then it goes on to analyze the results of the survey conducted by Gallup Korea. In all, 1,500 firms participated in this survey and around 80 percent were SMEs. The main part of this survey asked for suitable rules of origin to receive FTA preferences. Noticeably, most of firms in the manufacturing sector chose ‘wholly obtained criteria’ as the suitable rules of origin to receive FTA preferences, which reduces the reliability of the overall survey results.
So far, five FTAs have entered into force in Korea, and the main focus of Korea’s FTA policy now is on implementation of the FTAs. However, it turns out that domestic firms still lack information about the ROOs, which is the basic concept they would need to know in order to use the FTAs. Collecting reliable information from firms is a prerequisite for a building a proper model of Korea’s own position on FTA rules of origin. Therefore, it is necessary to help domestic firms acquire correct and practical information about FTAs. Given the different level of expertise among firms; various seminars, training opportunities, or consulting should be provided frequently throughout the countries.
Finally, this study sets out guidelines for Korea’s own model of FTA rules of origin. In building Korea’s position on ROOs, emphasis is placed on the need to support the sophisticated production networks in East Asia, to maintain consistency vis-à-vis ROOs in the existing FTAs, and to improve the domestic regime related to the ROOs.
Knowing that the ROO is the result of the FTA negotiations, Korea seemed to put the least priority on the ROOs among the various FTA negotiation topics. It can be explained by the fact that Korea has not built a concrete position on ROOs. For the remaining FTAs, Korea should engage in efforts to adopt a simple, unified and consistent ROOs to reap the full benefits of the multiple FTAs.

 We analyze the asian bond markets, especially the effect of global financial crisis on the markets. We are going to focus on the coupling of the asian bond markets and foreign investments. In the chapter 2, we first summarize the bond markets' trends of Korea, Japan, China, Indonesia, Malaysia, Singapore, Philippine and Thailand. Before the financial crisis, the macro-economic status of them were not similar to each other, so the bond markets showed little similarities. The global financial crisis, as the common shock to all of asian countries, resulted the drops of GDP growth rates of all Asian countries and the expanding monetary policies with low policy rates. Even with low policy rates, the long term market interest rates stayed high due to the credit tightening of financial institutes, so the term spread has gotten wide. With recovery from crisis, the term spread has gotten narrower than that during financial crisis, but the financial institutes are smore risk averse than pre-crisis era.
In chapter 3, we analyze the coupling status changes due to the crisis of interest rates, CDS premium, CRS rates. We found more coupling relationships after the crisis. One of the reasons of increasing coupling relationships is the increasing the importance of China in Asian economy. We found less coupling relationships after crisis in CDS premiums due to deeping of credit differentiations during crisis. We found more coupling relationships after crisis in CRS rates which were affected by bond and foreign exchange markets.  
In Chapter 4, we analyze the deciding factors of foreign investments on Asian bond markets. We found that the credit ratings and interest arbitrage incentives were the significant explaining variables on foreign bond shares in Asian bond markets and the GDP and CDS premium were the signifiant explaining variables on foreign bond holding amount in Asian bond markets by using quarterly data from ADB. In Korean bond market, the interest arbitrage incentives were the significant explaining variables on foreing net buys by using daily data.
The relative fast recovery of Asian economies are attracting the global investors to Asian financial markets. We need to stabilize the investing incentives in order to stabilize the foreign investments. Our analysis indicates that the stable GDP growth, CDS premium and interest arbitrage incentives would stablize the foreign investments on bond markets. Therefore we need to sustain the GDP growth, good fiscal status and to stabilize the currency swap markets.

 The global economy has been suffering from financial collapse and economic recessions, triggered by the U.S. subprime mortgage crisis. As a consequence of international cooperation to overcome the current crisis, the Group of Twenty (G20) has emerged as the new global entity of a premier forum for international economic cooperation.
The East Asian financial crisis in 1997-98 highlighted the significance of financial risk coming from a premature financial market and its contagion to neighboring countries in the region. In the aftermath of the crisis, not only was there a heightened perception of East Asia's regional exposure to external economic shocks, but there was greater interest in attempting to develop a regional mechanism as self-help measures against the recurrence of similar future crisis.
From East Asian perspective, two tracks of post-crisis financial cooperation were established: the G20 process in a global sense and the Chiang Mai Initiative Multilateralization (CMIM) in a regional dimension. The Chiang Mai Initiative (CMI) was agreed to in May 2000 in Chiang Mai, Thailand, with the objective of establishing a network of bilateral swap arrangements among ASEAN+3 countries to address short-term liquidity difficulties in the region and to supplement existing international financial arrangements. The framework was basically a set of bilateral swap agreements between the central banks of the two countries involved in each swap arrangement.
ASEAN+3 countries have agreed to multilateralize the CMI in such a way that any member country can utilize liquidity support from the total fund of $120 billion under a single agreement. Members have agreed to a two-tier contribution scheme: 20 percent contribution by ASEAN countries and 80 percent by the Plus Three countries. The CMIM, which came into effect on March 24 in 2010, is basically a commitment to provide U.S. dollars to member countries in crisis. The CMIM, however, has several limitations: insufficient amount of swap facilities available under the CMIM, the IMF-linked portion of 80 percent, institution building of CMIM secretariat, IMF-CMIM linkage program and their cooperation, among others.
The Asian Bond Market Initiative (ABMI) aims to develop efficient and liquid local currency bond markets in Asia through investment of huge savings of Asian countries in the region. It is expected to mitigate the problem of both currency and maturity mismatches in East Asia. This came about because of an underdeveloped regional bond market, and heavy dependence on bank financing without issuing and trading local currency bonds. Thus, the aim of the ABMI is to create regional bond markets where bonds are denominated in regional currencies. One of the reasons for the lack of development of Asian bond market is that the reserves and capital in Asia have been largely invested in the U.S. and Europe, and then they are re-invested in Asia through international investment institutions and hedge funds.
This study reviews the evolution of East Asia's financial cooperation, including the CMIM and the ABMI, and suggests policy implications for more effective and forward-looking regional financial cooperation under post-crisis international economic order. Moreover, it analyzes the economic impact of Asian bond market by simulating a five-country DSGE model.

The exchange rate is one of the most important macro-economic issues in the Korean economy. South Korea had suffered from an extremely severe currency crisis in 1997. During this period, national wealth plummeted by 20~30%. Furthermore, the Korean economy nearly escaped encountering a second currency crisis due to the global financial crisis in the wake of the Lehman Brothers Bankruptcy in 2008. Korea’s foreign exchange (FX) market had been struggling to change its structure after Korea’s 1997 Currency Crisis. Opening financial markets and liberalization of capital movements progressed rapidly by adopting the floating exchange rate system. Increase in the volatility of the exchange rate increased, and keeping the exchange rate stable has become a top policy priority.
This study comprises of three key aspects. First is a relationship analysis between the characteristics of the Korean FX market and the exchange rate. The Korean FX market has been transformed by continuous liberalization from 1997 to the present, necessitating an analysis on how this change is related to the exchange rate. The second is the analysis of the effect on the exchange rate fluctuation caused by characteristics of supply and demand on foreign exchange. The exchange rate is determined by supply and demand because the currency of emerging economies such as Korean Won does not have international convertibility. Consequently, in case there is a threat to or no guarantees for the stable supply of foreign exchange, the exchange rate could be overshot, and the phenomena can become the seed of tragedy (currency crisis). Existing exchange rate theories have difficulties in reflecting the characteristics of exchange rate fluctuation in emerging economies. Thus, we should try to find policy responses appropriate for the current Korean market, based on accurate analysis and understanding. The third aspect involves the analysis on the determinants of foreign exchange rate. Policy directions are influenced by real and financial factors; and supply and demand factors simultaneously. Without accurate evaluation of these factors, policy effectiveness can become diminished. So it would be necessary to analyze them with respect to its factors to obtain basic references for policy.
Exchange rate fluctuation is becoming more frequent and increasing in duration in South Korea. It is because, after opening its capital market, capital movements became a dominant factor in determining exchange rates. The Korean economy is a small and open economy, and again, its domestic currency lacks international convertibility. Supply and demand of foreign currency, therefore, exercises unilateral influence in determining the Korean Won’s exchange rate. That is, foreign exchange has asymmetric power in relation to the Korean Won as a determinant of exchange rate. For this reason, the following should be noted when making exchange rate policy in South Korea.
First, it would be desirable to prepare for the eventuality that rapid fluctuation and instability of exchange rates might become routine. After opening its capital market, fluctuations in the Korean FX market tends to be caused more by capital market factors rather than economic fundamentals; as a result, being more easily exposed to frequent change and instability. This situation warrants an immediate solution. Second, it is required that portfolio investment and other capital account balance be managed simultaneously: both influence substantially the supply and demand of foreign exchange in South Korea. However, both of these balances are investment balances for the short-term, which means they are vulnerable to high volatility for the short term. It is important to find the way either to lower the proportion of these balances or to spread them out over a longer period of time. Third, if the exchange rate imbalance is unavoidable, the Korean Won exchange rate should be depreciated rather than be appreciated to facilitate its management, because it would be possible to control the rates using the domestic currency when depreciated.
According to the results from modeling related to the balance of payments, it is shown that the supply and demand of foreign exchange is determined by the balance of capital accounts in the short run, and by the current account balance in the long run. As capital investments consist mostly of short-term investments, it is impossible to completely overcome instability at a certain level, in determining the balance of capital accounts. In a longer period of time, however, when the balance of current account is a surplus, the capital inflows expecting exchange gain also increase and its amount become even greater with a bigger surplus; and it implies that economic fundamental still has an important role as well. The following are policy suggestions drawn from these characteristics of supply and demand of foreign exchange.
First of all, managing the balance of current account is a prerequisite for the stability of exchange rates. It would be especially desirable to maintain the balance of current account at a certain level of surplus; which helps to keep the supply of foreign exchange stable. During a crisis, the balance of current account tends to determine the direction of all balances comprising the balance of capital account. It is important, consequently, to maintain surplus on a consistent basis, even if the amount is small. Second, a buffer is needed to control volatility in the short term. Although fluctuation of the balance of capital account can be caused by domestic factors, it is not unusual that foreign factors such as the global financial crisis of 2008 to cause more serious fluctuations in certain instances. In this situation, retaining foreign reserves would be the first policy choice. Third, measures to prepare for the uncertainty of oil prices and price of raw materials in the supply side is also needed. Analysis of the accounts balance reveals that oil price is the most influential factor in determining the exchange rate of the Korean Won, followed by price of raw materials. Oil price is the most crucial factor determining the capital account balance as well, but happens to be a variable that Korea has no control over. The Korean economy is also highly dependent on foreign raw materials. For this reason, responses to the volatility derived from the shock of oil and raw materials prices must be formulated beforehand. Fourth, to manage the economic fundamental is the most important factor in the end. Composite Leading Indicators (CLIs), prospect of domestic economic growth rate, seem to be very important when it comes to early warning of the fluctuation in the balance of payments. CLIs are considered the most important index in capital movements as well. Strong economic fundamentals are likely to ensure high CLIs and maintain the balance of current account in a surplus. One of the indices determined directly by the fundamentals is direct investment. Hence, managing fundamentals could be the most critical solution for maintaining surplus and stability in the balance of payments.
‘Real demand’ is the primary macro-economic factor identified by the analysis of determinants in the fluctuation rates of the Korean Won. The demand related to exports is representative of demand in the Korean economy. Maintaining export demand requires possessing export competitiveness. On the other hand, the demand related to domestic consumption becomes more stable due to the increase of income level; albeit being limited in scale compared to other developed countries. Moreover, the demand-related government consumption is also limited, by budget constraints. Stabilization of demand related to investment can be achieved by preemptive macro-economic policy since it can be affected by economic forecasts. Yet even in this case, as investment is decided by the private sector, it can be only achieved by improving economic fundamentals.
Since Korea’s 1997 currency crisis, supply and nominal factors are becoming more likely to impact the exchange rate. In case of the supply factor, it seems to be caused by shocks from policy changes, bottleneck effect of raw materials, and technological progress in industries such as IT. In the future, it can be implied that stability of exchange rate requires constant technological improvement and appropriate supply of resources. In case of the nominal factor, it seems to be caused by policy changes and globalization of financial markets. Capital flows and volatility of exchange rate would be caused by changes in financial and monetary division, expectations of investors, or policy directions. It is, generally, difficult to control international capital movements and its fluctuation of exchange rate caused by economic shocks. Finally, although supply and nominal factors are necessary to the stability of exchange rates in the short run, the economic fundamentals would primarily influence the stability of exchange rates in the long run.

 In November 2010, the Leaders of APEC gathered in Yokohama under the 2010 theme of “Change and Action” to articulate their vision of further building and integrating the Asia-Pacific economic community in the 21st Century, and the paths to realize that vision. They endorsed the Report on “APEC’s 2010 Economies’ Progress Towards the Bogor Goals”, agreed the APEC Leaders’ Growth Strategy, and instructed to accelerate work to strengthen and deepen regional economic integration in the coming year. They reiterated their commitment to take concrete steps toward realization of a Free Trade Area of the Asia-Pacific (FTAAP).
In this regard, there is no doubt that the Korean government needs to set up relevant strategies for its participation in APEC’s ongoing REI activities. To this end, this paper first analyzes APEC’s 2010 Economic Progress Towards the Bogor Goals and reviews what was achieved by APEC activities for economic integration. In this paper, the achievement of APEC’s activities is empirically identified by quantitative analysis.
Chapter II examines, with various data set and analytical tools, the nature and structure and characteristics of APEC’s economic growth since the Bogor Declaration in 1994. The outcomes reveal that significant institutional and market-driven integration has progressed in the Asia-Pacific region, the world’s most dynamic economic region. The analysis of the economic environment indicates that APEC’s economic integration creates strong positive welfare effects. For starters, the Asia-Pacific region accounts for 40% of the world population as of 2009; APEC economy account for 54.5% of the world’s GDP and 34.1% of trade in goods as a percentage of GDP. FDI inflows to the APEC region reached US$440.4 billion or 40% of the world total, with FDI outflows from APEC economies growing to US$579.7 billion or 53% of the world total. Aside from the size of its economy, APEC has been exerting great influence in the world economy with a diverse array of activities for economic cooperation over the past 20 years. Although there were no remarkable changes in intra-regional dependency in trade and investment, the trend towards the expansion of RTAs/FTAs is distinct within APEC. The number of RTAs/FTAs implementd by APEC economies stands at 119 and intra-APEC RTAs/FTAs take up 50% (60 intra-APEC RTAs/RTAs). In general, the characteristics of APEC members’ RTAs/FTAs depend on geographical proximity. However, the recent FTAs/RTAs have tended toward diversifying their partners in terms of region. It can be interpreted as economic factors and geographical proximity being taken fully into consideration in selecting RTA/FTA partners. The quantitative and qualitative analysis is made to find out whether intra-APEC economic factors; including size of the economy, trade barriers, trade size, trade costs, industry structure, economic development, etc; can bring about strong positive welfare effects by trade and investment facilitation. The results of the analysis reveals that economy of scale from regional economic integration, growing efficiency from competitive and integrated intra-APEC market, and strengthened industrial competitiveness lead to increase in welfare. It can also be seen that development gap and mounting trade costs will not lead to much negative effect.
Chapter III provides the sectoral improvements and implications of APEC’s progress for the Bogor Goals based on fact sheets submitted by 13 economies, referred to as “2010 Economies”. The major findings are as follows. First, trade in goods by APEC economies was US$11.4 trillion in 2009 with 7.1% annual growth during the period 1994-2009, with US$2.4 trillion being traded in services. The annual growth of FDI inflows is 13%, and 12.7% for FDI outflows. Second, average of MFN applied tariffs decreased from 8.2% in 1996 to 5.4% in 2008, compared to a world average of 10.4% in 2008. This decrease in intra-APEC trade barriers is attributed to the spread of intra-APEC RTAs/FTAs and voluntary liberalization measures. Third, the agreed commitments in the RTAs/FTAs attained deeper liberalization on trade in services than the GATS commitments. Fourth, the number of bilateral investment treaties (BIT) providing most favored nation (MFN) treatment increased from 160 in 1996 to 340 in 2009. Fifth, such a tremendous improvement was made in trade facilitation through streamlining of customs procedures and their alignment with international standards. Between 2002 and 2006, Trade Facilitation Action Plan I met its target of 5% reduction in trade transaction costs for businesses regarding trade in the region. Nevertheless, progress in lowering and eliminating tariffs has not been uniform across sectors. Tariffs on clothing, agricultural products, and textiles remain higher than the APEC’s overall average tariff across all goods. As for services, there remain restrictions in sectors including financial, telecommunications, transportation and audiovisual services. With regard to investment, there are sectoral investment restrictions in the form of prohibition or capital ceilings. Additional sectoral efforts are needed.
We draw the following policy implications and tasks from the 2010 Bogor Assessment. First, APEC and individual APEC economies in pursuing free and open trade and investment have made visible progress toward sustainable growth. The efficient construction of mechanisms for regional economic integration requires more practical and systemic work including cost-benefit analysis and analysis on the impact of APEC’s activities on trade and growth, rather than providing mere policy directions. Second, the 2010 Bogor Assessment should have provided accurate diagnosis on achievement of the Goals and prescribes remedies to shore up the weaker sectors. In this respect, 2010 Bogor assessment needs to be differentiated by a Mid-term stocktake of progress towards the Bogor Goals in 2005 which presents a roadmap for achieving the Goals. The 2010 Bogor Assessment uses more flexible and objective assessment tools in taking a dynamic approach in light of changes in the economic environment and information technology development. Notwithstanding, there is a problem that the “Fact Sheet” submitted by 13 economies for final assessment has little distinct progress compared with the Matrix of a Mid-term stocktake, in terms of assessment composition and analysis systems. In addition, it focuses more on exploring best practices rather than evaluating the progress and drawbacks in a balanced manner. Third, the participation of 13 economies for the 2010 Bogor Assessment, which was supposed to be 5 economies originally, will create more favorable circumstances for APEC’s activities for regional economic integration. In light of consensus building, which is APEC’s primary principle in decision-making, the majority’s participation will be a catalyst for prompting regional economic integration in the form of peer pressure.
Chapter IV presents the extent of the increase in national income from trade creation that APEC activities contribute to, using the gravity model. The gravity model analysis is used to find out how much APEC activities contribute to trade, as well as to the growth of APEC and non-APEC economies. The estimate from fixed effects of Panel Data Analysis indicates a 34.4% increase in intra-APEC trade and an 11.6% increase in trade between APEC economies and non-APEC economies. It implies no trade diversion effects, which does not reduce trade with non-member economies for more intra-APEC trade. Using time-varying exporter and importer fixed effects model, the result reveals that the formation of APEC raises intra-APEC trade by 90% and APEC’s trade with non-APEC economies by up to 44.5%. For the past 25 years, previous studies show that trade between APEC and non-APEC economies create positive effects for economic growth.
Chapter V addresses ways to strengthen regional economic integration for the realization of the Asia-Pacific economic community and work that needs to be done, followed by policy and strategic implications for Korea. First, Korea should keep track with changes in economic circumstances of major member economies, as they relate to expansion and reinforcement of Korea’s FTA Roadmap, to develop strategies and to promote regional economic integration. Second, it is necessary to establish Korea’s position towards the formation of an FTAAP and the TPP (Trans-Pacific Strategic partnership Agreement). As Korea is not participating in the TPP negotiation at present, it is expected that the opportunity cost will be substantial if the TPP is successfully formed. As the objective of the TPP is to reduce all trade tariffs to zero by 2015, some developing economies, like Malaysia and Vietnam, are reluctant to jump into the TPP bandwagon. Furthermore, it is noteworthy that Australia and the United States lead the TPP negotiation although there are significant exceptions for sensitive sectors in the FTA between the two economies has. On the other hand, the participation of Korea, Japan, and China in the TPP will facilitate and accelerate the realization of an FTAAP. Taking all possibilities into account, it is suggested that Korea reinforce strategic ties with China, Japan and developing economies which are hesitant to join the TPP, to achieve the goal of liberalization without exception, and seek collective efforts for flexible adjustments to the objectives of TPP. Third, it is desirable to set up supplementary strategies to Korea’s FTA Roadmap by industry in consideration of possibilities of TPP formation in addition to ASEAN+3 and ASEAN+6. Accordingly, pushing forward discussions on a China-Japan-Korea FTA will lead to development of policy alternatives for ongoing regional undertakings such as ASEAN+3, ASEAN+6, and TPP; and a catalyst for early realization of an FTAAP. In particular, Korea should induce China’s active participation which can invigorate the progress towards East Asia economic integration, so as to enable Korea to highlight and strengthen its contribution and secure a position to influence reorganization of the world economy. Fourth, it is indispensable to formulate a standard model for FTAs with APEC and non-APEC economies in accordance with progress being made toward liberalization for APEC’s economic integration. Above all, it is of great importance to invest additional efforts for harmonization and simplification of Rules of Origin (ROO) and develop an optimal model for APEC ROO through various studies and analysis. Fifth, it is recommended that Korea express its continued support for APEC’s open regionalism and play a leading role in establishing optimal intra-APEC RTAs/FTAs to promote an FTAAP. This WTO-plus approach will provide an impetus for sustainability of regional economic integration even in case of successful negotiation of DDA (Doha Development Agenda), and contribute to stable operation of Korea’s international economic policy. Sixth, the successful establishment of an FTAAP requires capacity-building for negotiation skills of developing economies. The Survey on APEC’s REI (Regional Economic Integration) Capacity Building Needs conducted by Korea in 2010 shows that there is a need to develop a tailor-made capacity-building program to specific circumstances and sectors of member economies. It entails a wide range of experts and human resources in terms of developing and implementing the program. In this regard, it is necessary to provide incentives for stimulating trade and investment liberalization, promote CSR (Corporate Social Responsibility), offer financial support, and develop a program whose practical benefit would go to developing economies. It will enhance the brand value of participating companies and the international standing of the Korean government. Moreover, it will be a stepping stone for expanding business opportunities of Korean companies in developing economies. Lastly, some sectors are still in need of improvement regarding such areas as tariffs and non-tariff barriers; even though Korea shows above-average improvement on the whole in the 2010 Bogor Assessment and have made greater advancements in some sectors in terms of structural reform than the advanced economies. Nevertheless, redoubled efforts to upgrade its economic constitutions by harnessing reforms and open-door policy are essential for Korea to strengthen its competitiveness and gain greater access to foreign markets.