The main purpose of this research is to seek for solution concerning “What does Korean diplomacy have to prepare for not only success of ‘Eurasia initiative’ but also realizing a long-range national interest constantly by collaborating with an international society, and by securing international leadership beyond the national division between two Koreas. This project, as its alternative, proposes that Korea must pursue to be “Middle power” itself. This is because “Eurasia initiative”, which the present government advocates it as one of the main foreign policies, may not be realized unless Korea becomes “Middle power”. For the purpose of integrating the Eurasia Continent into a united market and communication space among themselves, it is required to draw solidarity between countries while harmonizing interests and conflicts from a myriad of counties.
To do so, Korea must show a coherent action and intention as Middle power, and suggest a justification and agenda for the sake of international peace, stability and common prosperity. Without this kind of gradual process, Eurasia initiative is not likely to be accomplished by gathering international agreement and participation on it. Korea ought to endeavor proposing agenda and policy that all countries in the Eurasia continent could benefit equally from having no biased impartiality and sense of balance in order to vitalize Eurasia initiative.
Unfortunately, however, proposed present Eurasia initiative has only slogan rather than a concrete policy and content. Additionally, Korea does not suggest what qualification and condition they have to prepare for in order to attain it both internally and externally. If Korea can’t overcome such a limit, there would be less feasibility to realize it such as “Equal diplomacy” or “New Asia diplomacy” which was already proved failed one and ended up with short diplomatic declaration in the former governments.
This study covered what Korea has to make preparations so as to surmount this sort of limits which Korea already faces. Thus this study suggests Korea must be Middle power and there wouldn’t way to alternate it.
Ultimately, this study would explain the questions below in an attempt to overwhelm the limit that mentioned above and to alter Korea into Middle power.
First of all, what characteristics and concept of Middle power does Korea have to seek in the future? What kind of Middle power will Korea be according to various contents and international circumstance surrounding Korean peninsula? What policy implication does the example of Turkey and Kazakhstan where are already Middle powers positioned at strongpoint of the Eurasia continent give Korea to bring Eurasia initiative to a successful issue? What does Eurasian Economic Union (EEU) mean for us as one of alternatives that Korea would become Middle power through diversifying cooperative routes and balancing economically and systematically?
The reason why this study selected Turkey and Kazakhstan is that both countries are considerably crucial parts of Eurasian cooperative strategy of Korea. Both countries are located in geopolitical strongpoint such as Korea, and they seek to be Middle powers actively. Also they are on the strategic point where the interests of great powers cross over and at the same time logistics and communications network of Eurasia. In addition, they advocate being in charge of mediators to connect between Europe and Asia. Hence that means they could take a role in solidarity and communication across the Eurasia continent, and they could be regarded as cooperators of Korea.
Furthermore, the reason why this study focused on EEU is that this organization is likely to provide Korea with alternatives, which could lead Korea into Middle power in the future. Also with the fact that the industrial structure between Korea and participant countries in EEU is complimentary and they declare to integrate economic zone across the Eurasian continent, this study would consider they have mutual interest with Korean policy purpose of Eurasia initiative. The analysis about examples of a variety of Middle powers and EEU proposes that Korea is necessary for policy supplement below in order to establish international credibility, international leadership, broadening various diplomatic options and economic & systematic balance.
First of all, the qualification of being Middle powers requires not only physical condition but also coherent policy for international peace and common prosperity. However, Korea cannot be recognized as credibility and leadership of true Middle power because Korea still lacks of constant practice but they fulfilled external condition with rapid economic development in a long time.
Second, the ideological background backing national identity and sense of duty is necessary to be Middle power. But Korea still doesn’t have domestic agreement and reestablishment regarding to national identity and philosophical background to determine the midterm and long-term way. Thus there have been cases which showed limits of coherent policy and durability in accordance with a number of governments on foreign policy.
Third, the true powers of each country derive from diplomatic strategy through soft power. Korea is a representative cultural power that propagates Hallyu and has a wide range of historical and cultural heritages. However, in terms of foreign policy, they need to supplement more exquisite strategy of soft power.
Fourth, Korea must find their way in the niche diplomacy suggesting and developing creative and independent agenda. Recently, Korea also proposes a variety of the niche diplomacy and policy development vigorously. But in an attempt to be recognized as Middle power having an international leadership, more systematic and active improvement of policy and agenda setting are necessary for Korea.
Fifth, Smart diplomatic strategy combined between bilateral and multilateral relationship must be established with contribution diplomacy united between practical understanding and idealism. Korea carries out dynamic contribution diplomacy as well. But the problem on it is that current foreign policy is biased to bilateral relationship so much. Thus they need to enhance more multilateral approach than present.
Sixth, Korea is required to analyze the meaning of EEU as one of multilateral approaches’ solutions of Middle power towards the Eurasian continent. Effective action regarding to EEU is necessary to lead Eurasia initiative, and to diminish reliance to Chinese economy and balance economic influence. A great deal of experts and diplomats from Kazakhstan, Russia and Uzbekistan showed their optimistic opinions of Korean participation in EEU via unofficial interviews.
Seventh, building an image of independent international power and accumulating confidence through cooperation with near strong powers and pursuit of independent way are significantly essential. Korea also needs to enhance an image of independent power that is an alliance with U.S simultaneously.
Finally, both the success of Eurasia initiative and the feasibility that Korea could build its own independent leadership and influence in international society might be determined by whether Korea applies policy implication given by aforementioned examples of major middle powers to the strategy of Middle power.

With visible changes in the Arctic area in the 21st century, the Arctic is becoming the center of renewed attention. The changes in the Arctic include three main issues that are closely connected to each other. First, as the thawing of the Arctic accelerates due to climate change and is expanding in scope and area, an awareness of the importance of conserving the Arctic environment is growing in the international community. Second, as the commercialization of North Pole Routes and resource development in the Arctic become viable, major countries are developing greater interest in development of the Arctic region. In other words, while the thawing of the Arctic means an ecological crisis for humanity that goes beyond the changes in the natural environment, at the same time it intensifies the paradox of the Arctic, as benefits to the international community are increased by raising the possibility of commercial uses of the North Pole Route and resource development. The third is the pressure of changes in the international governance related to changes in the Arctic. This will likely lead to changes in the AC (Arctic Council), which has functioned as the body for regional governance among the stakeholders in the Arctic territories to date in relation to the development, conservation and use of the North Pole Route. The AC approved South Korea, China, Japan, India, Singapore and Canada as new permanent observers at the Kiruna Ministerial Meeting held on May 15, 2013. The meeting transformed the AC from a body for regional governance led by the European and North American countries into a global governance agency with participation by the permanent members of the UN Security Council and G8 countries.
These three types of changes require continuous attention from the perspective of conservation, which constitutes the 'conventional' agenda related to the Arctic, and raises the issue of “sustainable development” in utilizing the Arctic in the midst of the rapidly-changing environment. In this regard, the Arctic issue after 2013 has undergone a paradigm shift from highlighting the protection of its heritage plus academic cooperation, to “sustainable development” through global cooperation. Sustainable development made the Arctic agenda, which has hitherto been mainly discussed by Europe, more globalized. On the other hand, it would stimulate new competition among nations. This globalization of the Arctic agenda naturally presents the risk of overheated competition between nations, making the Arctic simply another arena for international conflict. In this regard, Arctic cooperation should pursue environmentally friendly, scientific, open and peaceful objectives; bringing it back into focus at the level of international politics and governance; and be handled as an important agenda in the international community.
Also, issues such as greater number of participants in Arctic governance, an increased need for environmental conservation and sustainable development, and the worldwide impact on the existing environment and ecological issues, go beyond the European Arctic governance led by European and North American countries. This requires changes in the Arctic governance framework. The issue of sustainable development emphasized by the Kiruna Declaration is a common concern for all, including the AC member countries, observers, and non-members. In particular, there is the need for a cooperation regime for Arctic development and conservation not only in Yakutia, Kamchatka and Sakhalin in Russia but also in the Pacific region and East Eurasia, including the U.S. (Alaska) and the North Pacific region of Canada, as well. Since the non-territorial Arctic stake holders in the Asia-Pacific region also have large interests in the Arctic, the need to establish Arctic governance in the region will continue to persist until it is actualized.
This research suggests a measure to establish the AP/ARC(Asia-Pacific/Arctic Regional Council) for realizing Arctic governance in the Asia Pacific region, which will emerge as a practical issue in the near future. The establishment of AP/ARC may bring additional benefits that will contribute to regional security through national cooperation among the countries in the Asia Pacific region. Aside from Russia and the U.S., there are no Asia-Pacific countries bordering the Arctic. However, the Asia Pacific countries including South Korea, China, Japan, Singapore and Mongolia have a high interest in the development of the North Pole Route, the East Asia-Pacific region in the Russian Arctic Circle and Alaska. In this regard, AP/ARC is highly likely to serve as a governance body that drives regional cooperation in the Asia Pacific.
There are two ways to establish the AP/ARC that can be considered. The first is to launch the council by inviting the countries among the Asia Pacific countries that are geographically close to the Arctic and the countries and regions interested in Arctic development and the North Pole Route, like the BEAC (Barents Euro-Arctic Council). The second measure is to open it to the nations affected by Arctic climate change by expanding the range of participating countries. Either way, it is necessary to include South Korea, China, Japan, North Korea, Russia, the U.S., Singapore and Mongolia among the initial participating countries. Of course, it is currently unclear whether North Korea will voluntarily join the AP/ARC. However, it is premature to conclude that North Korea will never join the group, because ports in the northeast coast of North Korea including Najin and the entire inland areas are directly affected by the changes in the Arctic area; furthermore, China will inevitably encourage North Korea to join the group as cooperation with North Korean ports on the East Sea is essential for entry into the Arctic.
The changes in the Arctic highlight the need for global cooperation. Such cooperation may be facilitated by obligations, responsibilities and creative challenges among stake holders that will be directly affected by both the positive and negative effects of Arctic development. In addition, such cooperation can only be effectively managed and expanded by the establishment of an appropriate regime. In this regard, it is inevitable to establish Arctic governance in the Asia Pacific region. Given the geopolitical and geo-economic conditions of the countries in the Asia Pacific region; the roles played by Yakutia in Russia, the U.S. regions including Alaska, and the Asia Pacific countries including South Korea, Japan and China, are extremely important.

The Kaesong Industrial Complex has, for the most part, experienced relatively stable operation over the last decade, and has become the most visible and representative inter-Korean economic cooperation project amidst deteriorating inter-Korean relations. However, in the course of normalization of its operations after its sudden closure in 2013, the issue of internationalization of the Complex has been strongly raised, as part of efforts to ensure greater stability and continuity in its operations. Under these circumstances, many studies regarding the internationalization of the Kaesong Industrial Complex were recently conducted. However, most studies are limited in that they tend to utilize similar research methodology, merely presenting solutions to deal with its shortcomings in connection with the current situation. This study, in an attempt to provide a more systematic and differentiated analysis, tries a methodical approach with investment condition analysis based on a theory called “FDI Decision Factor”. The summary and results of this study are as follows.
In this study, the achievements of the Kaesong complex to date and the current situation including the overview of its development, related laws and systems, management/operating system, industrial structure and trade status are examined first prior to conducting detailed analysis on the Kaesong Industrial Complex in terms of international competitiveness. According to the initial observation, it is clear that improvements in the system as well as quantitative growth, such as increasing production scale and employment, have been achieved. However, various problems, including some major ones, still remain unresolved: facilitating entry procedures, upgrading of communications infrastructure, streamlining of customs rules and securing labor for the workforce.
Second, this study compares in both qualitative and quantitative terms the conditions of the Kaesong complex with industrial complexes in other countries such as China and Vietnam, based on a theoretical review on the FDI decision factors, divided by element factors, demand factors and institutional factors. According to the comparison, the Kaesong complex is evaluated as having comparative advantage in terms of production cost with respect to element factors, particularly in labor forces and supply of industrial sites. However, in terms of demand and institutional factors, the Kaesong complex has relatively low competitiveness in attracting FDI when compared to industrial complexes in China or Vietnam. With such conditions taken into consideration, the Kaesong Industrial Complex is assessed as being strong (among the types of FDI) in ‘resource seeking’ FDI, and particularly in ‘cost saving’ FDI, but has low comparative advantage in ‘market seeking’ and ‘efficiency seeking’ FDI.
Third, considering the current conditions of the Kaesong Industrial Complex based on aforementioned analysis on the factors, this study suggests methods to improve its investment environment. First, with respect to element factors, it highlights the need to provide proper supply conditions for labor forces and to strengthen autonomy in hiring and management of workers. In addition, to improve the supply of industrial sites, it suggests differentiated preferential treatment according to the enterprises and enactment of measures for providing additional industrial sites. On the other hand, in order to improve the conditions regarding supply of raw materials, bringing in raw materials from other areas in North Korea should be made possible in the long run. Concerning its physical infrastructure, the most important task is to improve communication environment along with expanding industrial and logistics infrastructure in the long term. Next, regarding demand factors, efforts should be made in the following areas. The governments should create favorable conditions for selling products from the Kaesong Industrial Park in North Korea and promote more inter-Korean economic cooperation projects to improve the growth potential of the North Korean economy and make an effort to have products from the Kaesong Industrual Park recognized as South Korean products by designating the Park as South Korea’s outward processing zone.
Meanwhile, regarding improvements in institutional conditions including trade liberalization, legal stability, intellectual property rights; the most important part is to utilize the Kaesong industrial complex as a test bed for experimental reform measures, enhancing international credibility through such efforts. Lastly, the two Korean governments need to establish a joint steering committee and operate the complex on the basis of mutual cooperation.
Fourth, based on the analysis of general conditions and evaluation results, this study presents both future development plans along with tasks in the short-term which need to be considered first. To begin with, given the overall conditions of the Kaesong Industrial Complex, it is better to maintain its current concept and develop stage by stage from a long-term perspective in the first stage of its development. Then over the long run, it is required that the complex be developed to serve as a leading benchmarking model of development and management for other development bases in the country. However, more realistically, even with various constraints at the moment, it is desirable for the governments to make Kaesong Industrial Park more attractive investment destination. In particular, both Korean governments should try to provide government-led public relations strategies, systematic support and favorable conditions for luring foreign investment through measures for overhauling support/management systems related to foreign investment.

Executive Summary
I. Introduction

II. ICT Development and Cooperation in APEC
1. APEC Activities and ICT Cooperation
2. APEC TEL Focus and Targets

III. IDI and ICT Development in APEC
1. ICT Development Index (IDI)
2. ICT Development in APEC

IV. ICT Development and Economic Growth
1. Reference Studies and Motivation
2. Production Function Approach
3. Endogenous Growth Model Approach
4. ICT Development and Economic Growth in APEC

V. Implications for APEC Cooperation

References

Appendix

ICT and Internet economy development has been one of the main interests of Asia-Pacific regional cooperation from the early stage of APEC and the Telecommunications and Information Working Group (TEL or TELWG) was established in 1990 to promote building the Asia-Pacific Information Society (APIS). The objective of this study is to highlight and analyze the economic benefits ICT development or the Internet economy will offer as a new source of economic growth, promoting innovative development in the Asia-Pacific region. This study begins by briefing the activities of APEC and the APEC Telecommunications and Information Working Group and then overviews the current state of ICT development in the APEC member economies based on the ICT Development Index (IDI) published by ITU, analyzes the potential benefits of further ICT development in terms of economic growth, or in some sense, productivity growth, and finally presents implications and suggestions for ICT development or the Internet economy to facilitate economic growth of the Asia-Pacific region. Some of the findings and implications of this study are as follows. Despite the huge gaps among the APEC member economies, ICT as a whole has been developed significantly in the APEC region and the gaps have also been reduced in general during 2002-2012. The progress seems to be converging rather than diverging among the APEC member economies. However, there are still huge and enlarged gaps between these economies when it comes to ICT utilization. APEC therefore needs to make efforts to bridge the ICT development gaps existing among its member economies, especially regarding ICT utilization, in addition to continued efforts to further close the gaps in ICT infrastructure, which is regarded as a great achievement of the previous decade. ICT development is expected to bring about significant progress in the economic growth of each of the APEC member economies as well as APEC as a whole. APEC can share the experience of member economies with extraordinary progress in ICT development between 2002 and 2012, such as Viet Nam, Russia, Indonesia, China, Philippines, Peru, Malaysia, etc. APEC needs to identify and share their success factors and policy experiences.

Since Kim Jong-un came to power, the North Korean regime has placed greater emphasis on the economy, adopting the policy line of “Simultaneous development of Economy and nuclear weapons capability” in 2013. North Korea has promoted the “Measures for Our Way of Economic Improvement”(so-called June 28th measures) since 2012 with the aim of increasing the efficiency of its economic operation. In addition, the Kim Jong-un regime newly designated 19 special economic zones in an attempt to attract more foreign investment and has not suppressed the market despite changes at home and abroad. Partly boosted by these efforts, North Korea’s economy is reportedly improving in recent years. However, there are few signs of a rapid economic growth that North Korea is so eager to achieve. This is attributable to North Korea’s system itself, the socialist economic system, acting as a primary constraint to the country’s economic growth. For North Korea’s robust economic growth, economic reforms within the system are not sufficient, but rather the country should move forward towards transition to a market economy.
This study was conducted to identify the determinants of economic growth for North Korea and to present policy suggestions for its successful transition. To this end, the study analyzed the determinants of economic growth of transition economies as well as countries by income level. Based on the analysis, it deduced the determinants of economic growth for North Korea.
In this study, variables such as infrastructure, institutional conditions, human capital, domestic investment were identified as important variables for economic development of North Korea along with several transition-related variables such as privatisation, corporate restructuring, and trade/foreign exchange system. The policies which simultaneously affect all the determinants of economic growth are not feasible, and are likely to put a greater burden on the country both politically and economically. In this regard, this study suggests policies along with timing and sequencing for the economic development of North Korea, through analysis of examples from transition economies.
The study proposes policies that can successfully eliminate fundamental barriers to economic development in North Korea, providing greater economic boost but reducing the possibility of shocks for the country. By conducting theoretical analysis for the socialist economies in addition to the empirical analysis, the study seeks to improve the coherence of the empirical study.
This study presents policies by period, dividing the periods into short term, mid term and long term. In the short term, North Korea should set out to introduce small-scale privatisation on its own along with price liberalization, and the international community should offer help with respect to improvement of the impoverished country’s essential infrastructure and nutritional/dietary conditions of its population. For the mid and long term, it is necessary to promote policies regarding improvement of trade and foreign exchange systems, large-scale privatisation, corporate restructuring, and competitiveness. During the process of adopting these policies, the assistance of the international community is indispensable.
Policies regarding North Korea have often been suggested without firm academic evidence. Against this backdrop, the results of the study can provide evidence which can help empirically evaluate economic policies of North Korea. This study is distinguished from previous studies in this issue in that it also suggests inter-Korean cooperation policies on the part of the South Korean government, considering both sequencing and timing.
Unfortunately, this study was not able to consider all variables regarding economic growth. Instead, it chose variables that can be applied to policies and of which relevant data were accessible. Despite such limitations, this research can hopefully become a stepping stone for further policy research on North Korea’s economic growth.

Subsidy disputes under the WTO system have continuously increased in number as a result of the strengthened WTO discipline on governments’ subsidization policies which were previously viewed as intrinsic economic policy measures. In particular, as subsidization policies to support such major basic industries as steel, vessels, aircraft and energy are closely related to countries’ export growth and economic development, and thus considered to be unfair trade-related measures, there have been a number of counter -subsidy disputes to directly counteract the WTO-inconsistent activities of other Members under the WTO dispute settlement system.
This study examines the WTO rules and the practical application of the rules on subsidies related to several major key industries through legal analysis of subsidy disputes involving the aircraft, vessels, and renewable energy industries that were brought to the WTO dispute settlement system since 2005. Based on the analysis, this study has identified several important issues related to subsidy policies in major basic industries, and provided several policy and legal implications regarding the discipline on subsidies in accordance with the WTO Subsidies and Countervailing Measures (SCM) Agreement.
As a result of the analysis, we have identified several common characteristics in WTO subsidy disputes involving basic industries. First, as shown in the WTO subsidy disputes involving vessels and large-sized aircraft, a number of disputes seem to take the form of counter-subsidy disputes. This may be proof of the importance of the relevant industry in the country’s economy, and the willingness to resolve disputes in an expeditious and efficient way. Secondly, most of the direct grants and tax incentive programs provided to major key industries were determined to be government acts to provide ‘financial contribution’. This may be due to the fact that significant amounts of initial investment by the government are inevitably required to establish basic industries. On the other hand, there were different rulings regarding whether the subsidy measure provided a ‘benefit’, while the appropriate ‘market benchmark’ and consideration of both the supply and demand aspects in selecting the appropriate ‘market’ were considered to be important elements in the ‘benefit’ analysis of a subsidy. Thirdly, most of the subsidy measures in the basic industries were considered to be ‘specific’, particularly based on the documental evidence that explicitly showed that relevant subsidy programs targeted specific industries.
There are several implications for policy and legal reform that have been derived from this study: First, bilateral agreements that provide the terms for appropriate discipline on the use of subsidy measures among the parties to the agreement may be considered as an effective method for regulating subsidization practices in basic industries. In most cases, the multilateral discipline on subsidies is more desirable since a mere bilateral agreement to regulate subsidies may enable ‘free-riding’ from non-parties. However, in the case of basic industries, which are inherently dominated by a few number of competitive countries that can afford to make substantial investments in the establishment and maintenance of the industry, a bilateral form of agreement to discipline subsidization activities may actually be effective without concerns about ‘free-riding’.
Secondly, as a means to prevent subsidy disputes involving basic industries which typically involve a substantial amount of R&D programs, joint international R&D programs may be considered as another practical alternative. Compared to other industries, basic industries require more substantial amounts of fund for establishing the facilities and manufacturing the products, while appropriate economies of scale and large enough markets for the recovery of moneys from the intiial investment are also needed. A joint R&D program among WTO Members that are engaged in R&D activities in the relevant industry may help to reduce financial burdens and prevent WTO disputes at the same time.
There also lies the need for legal reform to the current WTO rules on subsidies and dispute settlement. First, many R&D contracts that are frequently ordered out by the government fall under ‘services’, whereas there are currently no rules to regulate service-related subsidies under the WTO SCM Agreement. Such absence of rules may open the door to opportunistic acts by some WTO Members, when subsidies for services have the same impact as subsidies for goods through distortions in resource allocation and competition. Furthermore, the criteria for selecting the appropriate ‘market’ for the ‘benefit’ analysis in subsidy disputes is unclear, leading to the need for reform through clarification of the ‘market benchmark’ criteria. Also, the current WTO subsidy rules do not provide clear regulations on ‘green subsidies’, of which there has recently been an apparent increase in WTO disputes involving countervailing measures.
Lastly, the prompt implementation of WTO Dispute Settlement Body (DSB) rulings is particularly important in the case of subsidy disputes involving basic industries due to the size and economic importance of the industries involved. However, the current WTO rules on subsidies and dispute settlement only provide for ‘prospective’ remedies which do not provide any reparation of damages incurred by subsidies that are paid in the past. Furthermore, despite the more expeditious dispute resolution procedures provided for subsidy disputes as compared to the general dispute settlement procedures, there appears to be a significant delay in withdrawing the illegal subsidy measure. The limitations of the current rules on subsidy dispute settlement thus require reforms to address this problem.

About KIEP
President’s Message
About KIEP
Mission & Vision
Organization
History
KIEP 2013

Infographics
KIEP in Policy
KIEP in the Media
KIEP in the World

Highlight 2013
Top Research by Category

Bright 2013
Key Research in 2013
Research Goals in 2013
Project Composition
International Macroeconomics & Finance
Trade and Commerce
International Cooperation Policies
Asia-Pacific Studies
Europe, Americas and Eurasia Studies

Flight 2014
2014 Research Goals
The Way Forward in 2014

Appendix
2013 Settlement of Accounts

The 2013 annual report is a compilation of our in-depth studies and reports to give readers clear information on what we have done over the year. KIEP’s research spans a broad range of economic issues - i.e. the Korean economy and its increasing relevance to the global economy; new global challenges, such as climate change,
development aid, and global commons; economic integration in East Asia and in Asia-Pacific; Korean economic paradigm and income disparity; and country comparison of issues, such as employment and population aging.
KIEP’s work will gain importance as a reliable source of information and analysis in shaping public policies. KIEP remains committed to supporting the government in its economic policy development. On behalf of KIEP, I extend my heartfelt gratitude to all for the support and keen interest in our work.

Executive Summary
I. Introduction

II. Empirical Methodology and Data
1. Dynamic Latent Factor Model
2. Variance Decompositions
3. Dynamic Correlations
4. The Data

III. International Business Cycle Comovements
1. Latent Factors of International Business Cycles
2. International Business Cycle Comovements

IV. Driving Forces of Business Cycles
1. Regional Characteristics
2. National Characteristics

V. Concluding Remarks

References

Appendix

This paper examines the characteristics of international business cycles among the Asia-Pacific economies in the period of 2000:Q1-2013:Q4. A dynamic factor model is estimated for the output fluctuations and five macroeconomic drivers of business cycles. The estimation extracts the latent common factor shared by fourteen APEC economies and the region-specific factors of North America, Northeast Asia, Southeast Asia, and Oceania. We find that the relative contributions of the common and region-specific factors of business cycles are significant in accounting for national output fluctuations. Evidence for international business cycle comovements is strong between North America and the common business cycle particularly at low frequencies. North America and Northeast Asia also show significant business cycle synchronization. As for the driving forces of business cycles, international trade provides the largest contribution across four regions in the Asia Pacific and the monetary policy and productivity drivers are subsequent to it. The overall finding signifies the greater probability of economic cooperation and regionally coordinated monetary policies among the APEC economies.

Executive Summary I. Introduction II. The Panel Smooth Transition Regression Model III. Results from the PSTR Mode 1. Data 2. Results from the PSTR Model IV. Supplementary Linear Panel Estimations 1. Linear Dynamic Panel Estimations 2. Panel Granger Causality Test V. Conclusion References Appendix

This paper investigates the nonlinear relationship between income inequality and economic growth using a heterogeneous panel data set of 77 countries. The estimated nonlinear function exhibits relatively smooth regime switching, as regards the income inequality level in the previous period. The point above which the time-varying coefficient estimate on inequality turns from positive to negative is found to be the Gini index of 24.5. The results suggest that while inequality hinders economic growth in most of the countries, it accelerates economic growth only in a country where the level of inequality is very low. Furthermore, the results reveal that the negative effects of income inequality on economic growth become more serious in developing countries whose level of inequality is relatively higher. The supplementary linear regressions with various specifications generally confirm the results obtained from the nonlinear model.

China’s IT industry ranks high in the world. As the production network expanded during the 2000’s, China emerged as the world’s center for global IT production. In 2013, China accounted for more than half of the world demand for major IT products including mobile phones, computers, and color televisions.
China’s IT industry has been developing mainly along the eastern and coastal regions including the Pearl River Delta, the Yangtze River Delta and the Bohai area. But recently, these areas have experienced a steep rise in factor costs and pressure from industrial advancement due to changes in the methods of economic development. It forced the IT manufacturing industry of China to gradually shift its production base from the eastern coast to the western inland areas. Most IT enterprises have moved manufacturing facilities to cities like Chongqing, Chengdu, Xi’an, with these cities concomitantly emerging as China’s new IT manufacturing clusters. In this regard, this study conducts a comparative analysis on core manufacturing clusters in Chongqing, Chengdu and Xi’an. Based on the findings, this study provides implications for Korean companies seeking to conduct business operations in the area and also for the Korean government in supporting these companies.
In comparison, IT manufacturing clusters in the West are similar in that they are formed around a key industrial complex. Nonetheless, the clusters in Chongqing, Chengdu, and Xi’an possess distinctive features. For instance, Chongqing IT manufacturing industry has seen a rapid annual growth of more than 77% for three consecutive years, starting in 2009. Such rapid growth was a result of an increase in the number of laptop computer manufacturers in the Xiyong micro electronics industrial park, which also led to a vertically integrated production system with computers and the peripherals in the center. Centering around the Chengdu hi-tech industrial development zone, many companies whose business involves IC‧Display‧Computer and related peripheral and communication networking devices made its inroad to Chengdu. The cluster also has a well-established value chain from raw material to product manufacturing. Meanwhile, centering around the Xi’an hi-tech industrial development zone, the sectors of IC and telecommunication devices are highly developed in Xi’an. Xi’an is also noted for RF (Radio Frequency) products and sensor industry within China. Also, R&D sector is one of the Xi’an’s strengths as there are ample numbers of research personnel for electronics and telecommunication sectors. Nonetheless, with the exception of a few products such as computers, production in the IT manufacturing clusters in the West are not fully compatible to those in the Eastern region. Therefore the central and local governments in China are providing various measures for budding IT enterprises in western China. These preferential treatments include deduction in corporate tax, subsidy grants, and support for zero interest loans from the local banks. In practice, these preferential treatments worked as an important motivation for enterprises which made their inroads into the mainstream industry.
The prospect for IT manufacturing clusters in West appear to be positive for the central and local government are providing ample and active support. Nevertheless, companies seeking to invest in western China must thoroughly examine the local market as the level of technology and the extent of development varies by each cluster.
These regions commonly possess high demand for companies specializing in the design and manufacturing of SoC (System on Chip) in the communication and network facilities sector. On the other hand, the Chongqing cluster lacks competitiveness in digital medical system, and the automobile-IT convergence system, while the Chengdu cluster has weakness in IC for display devices and color filter manufacturing. Therefore, Korean SMEs (Small and Middle Enterprisers), noted for high-end technology and innovative idea, have a high chance of promoting successful business in the area. Such SMEs will not only be able to seek their own economic benefit but also will contribute to technological development of the clusters.
On the other hand, the Korean government should step up its collaboration with the local governments in China since the local governments play a pivotal role in the development of the cluster. Also, it is necessary that the Korean government provide support in identifying and developing inter-enterprise collaboration through measures such as business counseling. Since many SMEs experience hardship in acquiring information and network in the region, such opportunities will facilitate the network between the SMEs and the local businesses, eventually leading to increased partnership. In addition, forming a durable base for active technical cooperation is imperative. By launching joint research programs between institutions in Korean and those in Chengdu and Xi’an, we will be able to construct a stable base for technological cooperation. Lastly, the governments could consider collaboration in establishing special industrial zones which provide a favorable environment for Korean enterprise. With their expertise, the Korean companies will be able to complement the growth of the clusters and at the same time take advantage of the abundant labor in the region.