In terms of regional institutional economic integration, East Asia lags behind other major economic regions, and within East Asia, Northeast Asia lags even further behind. However, on November 2012, the 16 East Asian countries agreed to start the negotiations for the region-wide FTA (RCEP); and the trade ministers of China, Japan and Korea officially announced the launch of the CJK FTA negotiations. Thus, a significant first step seemed to have been taken toward both the East Asia Economic Community and the Northeast Asian Economic Community. 
Under this historic context, this study aims to propose the establishment of a consultative entity to enhance economic cooperation between China, Japan and Korea, named “the Trilateral Economic Cooperation (TEC),” which could serve as the mid-term goal in the pursuit of both the Northeast Asian Economic Community and the East Asian Economic Community.
Before describing the main characteristics and expected implications of the TEC and the strategies to achieve it, this study analyzes the status of China, Japan and Korea in the world economy as well as the economic interdependency among the three countries. In addition, various existing policy dialogue channels at the central government, regional government, and business levels are examined.
On the basis of assessment of existing policy dialogue channels and comparative studies on existing regional consultative entities such as APEC, ASEAN+3 framework and ASEAN, the main characteristics and expected positive effects of the TEC as well as the gradual strategy to realize it are suggested.
Being a regional consultative entity for economic cooperation, the structure of the TEC is likely to be similar to that of APEC. However, since it has only three members, it would be much easier to agree on the agenda and to operate effectively. In addition, the possible areas of cooperation would be more extensive than other regional consultative entities, because the three countries share many commonalities such as strong manufacturing sectors, weak service sectors and agriculture, high external energy dependency, and usage of Chinese characters.
Apart from its contribution to regional institutional economic integration, the TEC could provide the three countries with various benefits such as new engines of economic growth, enhancement of mutual understanding and confidence building resulting in the improvement of overall relations, effective voice in international economic arenas, and stronger regional political leadership.
Given the current political relations among the three countries, however, the TEC cannot be pursued right away. Therefore, this study proposes a gradual approach to accomplish the establishment of the TEC. At the first stage, one has to consolidate the current Trilateral Summing Meeting framework by aligning and synchronizing the existing Ministers’ Meetings to the Trilateral Summit Meeting, so that it could function more effectively. Having achieved the basic institutional framework necessary for the TEC at the first stage, only sufficient political would be necessary to establish formally the TEC at the second stage.
In the meantime, all three countries should strive to build the consensus on the need for the TEC, which would be instrumental in forming not only the Northeast Asian Economic Community but also the East Asian Economic Community.

Trade liberalization benefits consumers because it gives them access to a larger number and a wider variety of products, at lower prices, than their home country could supply. The principals of comparative advantage and specialization are well known. Competition from the increased availability of imported goods to domestic consumers also forces domestic firms to offer competitive prices, to improve production efficiency, and to innovate. Trade liberalization also presents domestic firms the opportunity to export their products and services to other countries, stimulating domestic growth.
While consumers as a whole are winners from free trade through lower prices and greater varieties, however, certain groups such as displaced workers in the import competing sectors are adversely affected due to increased imports. Much of the existing literature concerning trade liberalization focuses on the impact of trade on aggregate variables, such as the growth of GDP and GDP per capita, or net welfare effect on the economy as a whole. Although there is a general recognition that trade liberalization benefits consumers, there is only a handful of empirical research that investigate the direct impact of trade liberalization on consumers.
In this study, we examine the economic impacts of trade liberalization and estimate the impact of increased variety on the consumer welfare. In particular, within a CES framework, we develop an import price index that is corrected for new and disappearing varieties, by employing Feenstra (1994)'s approach and using Korea’s trade data. New varieties lower the unit-costs depending on their substitutability with other varieties and their expenditure shares. Further, a case study on major consumer goods that are imported by Korea was conducted in this paper. We have investigated the marketing margin of these consumer goods from the border to final consumers and estimated the margin stage by stage for each marketing channel.

Key findings of this paper are summarised as follows:
• Korea has continuously liberalized its domestic market since the mid 1980s. During the Uruguay Round (UR) negotiation and subsequent implementation process, Korea has reduced its bounded tariff voluntarily. As a result, the level of a weighted average tariff was reduced to 5.1 percent in 2011 from 11.3 percent in 1995. The reduction of import tariffs has contributed to the reduction of import prices denominated in domestic currency (Korean won). Nonetheless, final consumer prices do not show any trend of decline according to simple data plots in our investigation despite the reduction of import prices measured at the border. This tells us that there must be some price deteriorations in the process of domestic marketing channels for imported consumer goods.
• Although increased product variety is generally believed to bring welfare gains, standard national measures of welfare and prices do not assess how much better off consumers are when a new variety of an existing good or a new good becomes available. Both the import price index and the consumer price index (CPI) largely fail to capture the introduction of new varieties and the increase in the standard of living that new varieties bring about.Our recalculation of the import price index using Korean data suggests that the variety-adjusted index fell 20 percent faster than the conventional index between 1992 and 2011. To calculate the impact of variety growth on consumer welfare, we have to make an additional assumption about how the increased availability of foreign varieties affects domestic production. With the assumption that the number of domestic varieties is unchanged, we can proceed to estimate the impact of variety growth, due to the continuous expansion of trade liberalization on the well-being of Korean consumers. We found that the official import price index understates the rate of decline in import prices by 20 percent over the two decades from 1992 to 2011. If we take the average import share of Korean GDP for the past 20 years, which is 30 percent, then the value to consumers of the increase in global variety is in the range of 8.3 percent and 21.7 percent  of GDP in 2011, or roughly 93 to 243 billion US dollars depending on the estimates of elasticities of substitution. This sum represents what consumers would be willing to pay to have access to the expanded set of varieties available in 2011.
• We have further investigated the domestic marketing channels of some major imported consumer goods. Main findings of the investigation are summarized as follows:
- Most of imported manufactured goods, in particular, small household appliances are supplied by only one company. In other words, an overseas affiliate has virtually the monopoly power on household appliances in the Korean market.
- The marketing margin of imported goods is in general two or three times higher than that of domestic products.
- The marketing margin generated at the retailing stage is higher than that at the wholesale stage.
- Fair competition is one of the effective ways to reduce marketing costs of the imported goods including the marketing margin.
 
Policy implications derived from these findings are as follows:
• Fostering fair and competitive environments in the domestic market of the imported goods would be one of the most effective ways for reducing the marketing margin of the imported goods on the whole, and resulting in a decrease in consumer prices of those consumer goods, and hence ensuring gains from trade entertained by final consumers.
• Organized efforts by civil organizations and NGOs or consumer groups such as frequent consumer price reviews on imported goods and relevant monitoring activities should be encouraged for the benefits of consumers themselves.

 

Executive Summary 
  
I. Introduction 

II. Literature Review 

III. The Model 

IV. Quantitative Analysis 
1. Parameterization 
2. Results 

V. Conclusion 

References 

 

The fact that fluctuations in real exchange rates are highly volatile and persistent has been the central puzzle in international macroeconomics. This paper studies the role of real frictions in accounting for the puzzling behavior of real exchange rates. We show that the introduction of distribution costs and nontradable goods in an otherwise standard competitive model dramatically improves its ability to rationalize observed real exchange rate dynamics. We view our framework as complementary to those that emphasize the role of nominal rigidities.

 

Executive Summary 

I. Introduction 

II. Inflation Targeting 

III. Sustaining the Foreign Exchange Market 

IV. Regulations on the Capital Market 

V. Conclusion 

References 

 

The Korean monetary authorities have implemented several policies on inflation, foreign exchanges and capital flows during and after the global financial crisis. The inflation target has been missed during the global financial crisis, as the Bank of Korea (BOK) was more lenient to supply shocks’ inflation in order not to impose the additional contractionary pressures on the economy during the global financial crisis. The Ministry of Strategy and Finance and the BOK tried to sustain the exchange market to be available for the public and to prevent the currency crisis. The monetary authorities have succeeded in preventing the currency crisis, but it is hard to say that the exchange market has been stabilized during the global financial crisis. The monetary authorities have imposed three macroprudential measures in order to prepare for the sudden stops. Those measures were not effective on reduction the volatility in the financial markets however they seem to have effect on the capital flows and lengthening the banks foreign debts. 

This year, Korea started FTA negotiation with China and reconsidering Japan-Korea FTA at the same time. Unlike unilateral trade liberalization, the public resistance to FTA often depends on its (potential) partners. Due to the historical background with China and Japan, non-economic factors may strongly influence the FTA preferences and outcomes.
Under democracy, any policy cannot be successfully pursued without public support. FTAs often entail injured industries and individual specific uncertainty. Therefore, the public resistance to FTAs tends to be strong. In order to reduce political transaction cost involving FTAs ex-ante, we must find out the reasons why the public resist to FTAs and then deliver effective communication and promotion policies to the public.
The purpose of this monograph is to investigate both China-Korea and Japan-Korea FTA preferences. In order to analyze factors for FTA preferences, we consider political, economic, social and behavioral determinants that may influence the public opinion for FTAs. Moreover, we provide policy implications based on our analysis. The survey had been conducted by Korea Research Inc. from May 30 thru June 12 of 2012.
According to the survey result, approximately 60% of respondents oppose to China-Korea FTA while 45% of respondents oppose to Japan-Korea FTA. Respondents are more likely to oppose to China-Korea FTA because their concerns for unemployment tend to be higher for China-Korea FTA than Japan-Korea FTA. As expected, potentially injured (agriculture and fishery, small and medium-sized) industries tend to oppose more.
Our findings indicate that the perception about how the overall Korean economy is affected is important in determining the FTA preference: sociotropic concerns. Self interest is not as important as sociotropic concerns in determining the opposition. Respondents who oppose to FTAs tend to show correlated thinking while those who support for FTAs tend to show focus thinking (preference for single factor determines the FTA preference). This finding implies that anchoring and frame effects may be important in determining the FTA preference. Low education background and young age groups are more likely to oppose because they tend to concern more for unemployment than other groups. In case of China-Korea FTA, the respondents are more sensitive to the unemployment issue while, in case of Japan-Korea FTA, the respondents are more sensitive to the issues involved with national pride stemmed from historical background.
Finally, this monograph draws differentiated policy implications for China-Korea and Japan-Korea FTAs. Accurate information regarding FTAs should be provided in order to reduce unnecessary anxiety about FTAs beforehand.

The issues on WTO governance have drawn much attention recently, particularly when an ambitiously launched Doha negotiation turns out to be almost a hopeless failure, or at least a dormant stalemate. In addition to Members’ disagreements on numerous agenda, the systemic problems and drawbacks in the WTO governance itself have been pointed out as important contributing factors for delaying and stalling multilateral trade negotiations. These problems include a wide range of issues such as dispute settlement system, accession process, and roles of civil society.
Despite significant roles in the world trade, Korea has hardly played a role in the WTO system in building new trade rules or deepening trade liberalization. The major concern for agricultural market liberalization has led the Korean government to become very defensive and passive in participating in the WTO system. Considering the fact that potentially very influential new Members such as China and Russia begin to assert their economic rights more forcefully in the WTO system, it is imperative for the Korean government to develop its strategies for reshaping and strengthening its status.
One of the ways to improve the role and status in the WTO system is to host a ministerial conference of the WTO which is held every two years. Since the accession to GATT in 1967, Korea has never hosted a ministerial conference of GATT or WTO although other countries regard Korea as the most prominent beneficiary of trade liberalization initiatives under the GATT/WTO system. It is true that the WTO ministerial conference has the risk to be abused as the opportunity to provoke various protests, anti-globalization or anti-government. Nevertheless, given that Korea is now a G20 member to lead the global efforts to help developing countries and recover from global financial crisis, the Korean government should take the responsibility as a leading exemplary model in the world trading system.
Secondly, the Korean government should promote more nationals to directly contribute to the works of the WTO, especially at the high level secretariat or at a chair level of the committees. Although the Korean nationals working at the WTO secretariat may not favor the Korean government’s interest, such people will be able to able to contribute to the general capacity of Korea. One practical way to promote such cases is to allow special advisor positions in the permanent mission at Geneva, which can be filled by researchers in government funded research institutes or academics who specialize in relevant fields. In fact, more important tasks will be to make a Korean Director-General or Deputy Director-General in the WTO. Heads of international organizations need broad supports from all aspects of membership, which definitely requires government assistance. Therefore, government policies to nurture a leader at an international organization level should be pursued deliberately with a long term vision. This policy may be more rewarding in the future when Korea is regarded politically more neutral between developed and developing countries.
Finally, the government needs to address increasingly complicated accession process of the WTO. As illustrated in the case of China and Russia, WTO accession for non-market economy can be very controversial since it takes sometimes fundamental restructuring of the economic systems. In that regard, the Korean government needs to prepare for the WTO accession by North Korea, which will be the essential element of North Korea’s economic reform policies. Since the whole process of WTO accession will take a substantial period of time and it will take even more time for North Korea to be prepared for any serious discussion related to WTO accession, it would be better to start any preliminary works addressing potentially significant dimensions of North Korea’s accession. In other words, political, diplomatic, social, even cultural as well as economic aspects of North Korea’s WTO accession should be carefully assessed and thereby any necessary work plans must be implemented as early as possible.

The total amount of official development assistance (ODA) that South Korea has made to Africa, including grants and loans, exceeded USD 450 million as of 2010. Despite the impressive growth in the quantity of ODA funding, not much detailed analysis has been done on the quality of Korean ODA projects in Africa. The quality of Korea’s ODA for Africa can be enhanced once we identify which areas or sectors of development cooperation Korea should focus on in providing them. In recognition of this growing need, this study identifies the four core areas of development cooperation between South Korea and Africa in light of Africa’s needs and Korea’s capacity to provide. It also makes a series
of proposals on how to increase and execute ODA for each area.
First, in agriculture, Korea should focus primarily on enhancing technical cooperation and capability development in Africa given the state of
agricultural development on the continent and Korea’s assistance capacity. We must heed the historical lesson that agricultural advancement in Africa will simply not happen through material aid alone. Rather, it requires such “software” components of support for the development of Africans’ own capabilities, which is just as important.
Another important agricultural issue that warrants attention is food processing technology. Most countries in Africa presently lack adequate
processing facilities and are thus compelled to export raw crops, relying heavily on imports for highly processed food products with higher added value. It is thus necessary to support and foster the growth of an agricultural processing industry in Africa, by providing help in developing requisite training centers and processing industry clusters. This will lead to more jobs and higher incomes for Africans and an increasing volume of exports from the continent.
Increasing support for the expansion of agricultural infrastructure, including microirrigation facilities, also needs to be considered. The vast
majority of farms in Africa still rely solely on natural rainfall for irrigation and thus are extremely vulnerable to droughts. In order to ensure the
stability of agricultural production, it is of paramount importance to develop facilities and systems of reliable water supplies. Otherwise, attempts to introduce enhanced varieties or new agricultural techniques would end in vain. Given the present conditions of agriculture in Africa and the limited development assistance that Korea can provide, Korea should concentrate on supporting the expansion of microirrigation facilities that can be achieved at a relatively smaller cost.
This approach will require Korea first and foremost to make a precise and scientific assessment of farming conditions in Africa. The status of irrigation varies greatly in Africa from country to country or region to region. Some regions boast rich reservoirs of water resources, such as lakes and rivers, and can easily benefit from installation of irrigation facilities.
Others, however, lack the requisite natural conditions to make the expansion of irrigation systems effective or feasible. Another important factor accountable for chronic shortages of food supplies in Africa involves postharvest losses (PHLs). The lack of facilities to store harvested crops forces African farmers to sell their crops at very low prices immediately after harvesting, and to purchase food supplies at much higher prices during hard times. In addition, because much of the crops in Africa are harvested when their water content reaches 20-30%, they are especially susceptible to vermin prevalent amid heavy rainfalls during the harvest season. In order to minimize these postharvest losses, it is crucial to provide a greater number of storage facilities for African farmers.
Second, Korea can also benefit Africa by directing its ODA toward enhancing the continent’s capability for environmental management through environmental policy control. Most African states not only lack adequate capability for environmental management, but are also far less aware of the critical nature of environmental problems than countries in the developed world. Korea may provide not only material support but also such “software” forms of support as consulting on policy, systems, and organizations; in addition to transfer of technology. The Korea International Cooperation Agency (KOICA) and the ministry of environment now provide a human resources development program that invites officials and participants from developing countries to Korea to learn about Korea’s experience with environmental policy and technology. It is thus important to recognize the comprehensive nature of impacts that environmental problems can have on poverty, and expand the range and scope of assistance accordingly.
At the same time, it is equally important to provide aid for the development of potable water supplies by digging more wells and installing
more waterworks. Being deprived of these facilities, Africans are forced to drink polluted water, which leaves them more vulnerable to various waterborne diseases. Koreans have so far actively supported digging communal wells, developing master plans for water resources development, and implementing systems for monitoring water quality. These projects have yielded significant results. Korea now needs to take the success of these projects to the next level and expand the range of assistance to include the development of waterworks and other such facilities. As a majority of Africans have difficulty finding clean sources of potable water near their neighborhoods, it is urgent to develop waterworks that can bring clean water from faraway locations into their communities and workplaces.
The accelerated pace of population influx into urban and surrounding areas has led to the formation of mass slums. It is impossible to provide residents of these slums with reliable supplies of water without expanding the existing network of waterworks and without expansion of systems for treating wastewater and garbage. The rapid pace of urbanization in Africa has led to frequent flooding of populated areas by wastewater and refuse.
The absolute shortage of facilities for treating wastewater and waste materials compels residents to discharge trash into nearby river systems or leave them on the street. These, in turn, have directly led to deterioration of public sanitation and health. The accumulating piles of trash in the streets create ripe conditions for the spread of numerous contagious diseases. Korea boasts advanced technologies for the disposal of waste materials. In particular, Korea is well known for its technologies and systems for incineration, solid waste disposal, and waste material recycling. The quality of Korea’s wastewater treatment facilities and filters is on par with that of systems found in other advanced countries. Moreover, Korea has experience of successfully undertaking wastewater and material treatment projects in Southeast Asia, China, and the Middle East, providing these countries with concessional loans from its Economic Development Cooperation Fund (EDCF).
Third, Korea can also channel its ODA toward developing and expanding public infrastructure in Africa. Public infrastructure is almost nonexistent in Africa, and figures directly into continuing poverty on the continent. Public infrastructure is essential for the support of pro-poor and sustainable growth, as it would contribute greatly to economic and social development by cutting the costs of production and logistics. Lacking these crucial public goods, Africa has struggled for decades with the elusive goal of development. The problem is made worse because almost 40% of the entire population of Africa is concentrated in the fifteen or so inland countries.
While numerous governments in Africa have sought to promote the development of public infrastructure, their attempts have come up short
so far due to overwhelming financial difficulties. While these governments desperately try to secure greater amounts of private capital and investments, their efforts have not been successful except in telecommunications, due to relatively shorter payback periods and higher return rates. Projects for developing roads, railways, harbors, airports, and power facilities tend to entail longer payback periods and greater risks, and thus do not have as much appeal to foreign investors. With the exception of a handful of countries, most countries in Africa have low sovereign credit ratings, which makes it all the more difficult for their governments to secure adequate funding in the international financial market. Given these grim obstacles facing Africa today, it is unreasonable to expect the Korean export credit agency to single-handedly handle public infrastructure development on that continent. It would be wiser to expand the range of financial assistance for public infrastructure development in Africa through co-financing with other institutions worldwide with ample experience and expertise, such as the multilateral development banks (MDBs), bilateral development finance institutions (DFIs), and the like.
Another key issue is overcoming the chronic shortage of electricity by developing new and renewable energy and expanding transmission
networks. Of the sources of new and renewable energy, the most feasible for development in Africa at present is solar energy. Solar energy is preferred because, once installed, it incurs little additional or overhead costs.
The Korean government has recently provided EDCF loans for the development of sunlight power plants in Mozambique and Ethiopia. Korea
needs to build upon its experience of successful ODA for energy in Africa by extending the benefits to other African states. Assistance for energy development should also include support for the expansion of transmission networks. Not only does Africa lack proper power plants, but it also suffers from an absolute shortage of infrastructure that can reliably deliver electricity to households. Korea has so far provided EDCF loans for the development and expansion of transmission networks in Tanzania, Ghana, and Ethiopia.
Last, but not the least important, is the need to provide increasing support for the development of human resources, which is crucial in ensuring economic growth and the end of poverty in Africa. The essentials for the sustainable and comprehensive development of a society include not only the quantitative expansion of its workforce, but also the enhancement of the quality of its labor. Korea can help Africa by providing need-based job training programs and support through academic-industrial collaboration. In order for graduates of such training programs to find suitable work, it is vital to provide them with opportunities through close collaboration of schools and industries, and a curriculum that reflects actual demands of their society. Up until now, the assistance that Korea provided for human resources development in developing regions was mostly confined to “hardware” support, involving the provision of building materials and learning equipment required to establish training centers. In order to achieve sustainable and participatory economic growth in Africa, however, it is more important to ensure that human resources in the region are developed in a way that actually serves local needs. To this end, it is necessary to provide training programs and employment services based on an accurate measurement of demand in the local labor market.
Another important issue in this regard is the need to develop and train instructors with suitable qualifications. While assistance for the construction of job training centers is very important to improving Africans’ access to quality career education, assistance for the development and training of well-qualified instructors forms the basic foundation that is key to ensuring sustainable and autonomous growth of the region’s economy. In the same token, while the provision of financial and other forms of support for the training of instructors at individual job training centers is important; a more effective solution will be achieved only by developing a system for training of instructors at the national level.
Interuniversity partnerships will also help strengthen African countries’ capacity for higher education. Leading institutions of higher learning in Africa, such as Addis Ababa University of Ethiopia, the National University of Rwanda, and the University of Lagos of Nigeria, may be partnered with universities in Korea for strengthening postsecondary education in Africa and conducting joint research on agriculture, science and technology, information and communication technology, and environmental protection.
Joint research will not only enhance the capabilities of African universities, but can also help improve regional expertise and sustainability of Korea’s ODA system in the long run. In other words, Korea can gain greater information and knowledge for dispatching specialists, providing policy consulting, and making other ODA-related decisions through partnerships with local universities in Africa.
As discussed so far, this study identifies four core areas of development cooperation between Korea and Africa. In order to support all the projects demanded as a result of the analysis of this study, it is crucial to foster effective public-private partnerships (PPPs) by encouraging active participation of the private sector in public development projects. It is impossible to meet the development needs of Africa and ensure its sustainable development with governmental ODA alone. Advanced donor states have been diversifying the channels of PPPs since the early 1990s to provide more effective and advanced solutions for the problems of Africa.
Having become a donor country relatively late, Korea still relies largely on governmental funding and initiatives for its ODA projects. In order to strengthen the effectiveness of aid, secure new sources of funding for development, and spread out risks, the Korean government needs to make greater efforts to enlist private sector participation - in terms of capital and expertise - in its ODA projects.
Inspiringly, an increasing number of Korean companies are taking interest in ODA projects as part of their corporate social responsibility (CSR) campaigns. The status of PPPs over ODA projects in Korea, however, still lags far behind that of PPPs in other developed countries. Diversifying and strengthening mechanisms of PPPs over ODA projects in Africa will bear fruitful results for the public and private sectors alike, helping companies find new markets in Africa on the one hand, and helping Africa achieve meaningful development on the other. As ODA projects are mostly funded from public coffers with taxpayer money, it will be crucial to ensure that participating companies and businesses do not use these projects for mere profitmaking purposes. In other words, it is necessary to introduce systematic performance monitoring mechanisms so as to make sure that PPPs in ODA projects help fulfill overarching goals of ending poverty and ensuring sustainable development.
Another important factor that must not be neglected is the need to avoid or minimize the overlapping of support for the same projects, or the
fragmentation of assistance, by keeping record of not only the recipient states’ needs and Korea’s ODA capability, but also the forms and details of assistance from other bilateral or multilateral aid organizations. In addition to avoiding concentration of assistance in certain projects or sectors, it will also be important to maximize the effectiveness of assistance by providing budget support, or forming silent partnerships with other contributing organizations or states, in light of the division of roles among the donors and recipients involved.
To this end, Korea should no longer rely exclusively on bilateral, project-type assistance, but diversify the modalities of the aid it provides,
to include budget support, programs, and other efficient forms of assistance.
The Paris Declaration and the Accra Action Plan, motivated by the need to increase the effectiveness of ODA, also stress the necessity of aligning the modalities of aid with the needs and systems of recipient countries.
The specific projects that this study suggests in the four core areas of cooperation - agriculture, environmental protection, infrastructure development, and human resources development - can be arranged and combined so that the required support may be provided not only as projects, but also as programs. For instance, in the area of waterworks development, Korea may help African states develop master plans by providing policy consulting through knowledge sharing programs (KSP). Based on the plans thus established, Korea may provide EDCF loans through its Export-Import Bank for the development of waterworks and offer free grants for technical cooperation geared to developing requisite human and organizational resources in the recipient states.
This study takes a sector-by-sector approach in recognition of the pressing need to improve the quality of the ODA Korea provides. Its motive and aim notwithstanding, this study is limited in terms of the methodology, as it has limited to identifying the core areas of cooperation and due to its failure to prioritize areas of cooperation required for each African state.
Follow-up research will therefore be necessary to provide in-depth analysis of each African state’s needs for development cooperation.

The purpose of this paper is two-fold: First, to examine a) ongoing East Asian integration in terms of intra-regional financial cooperation, b) the proliferation of intra-regional free trade agreements with extra-regional economies and cross-border foreign direct investment flows c) and structural changes in the Japanese and Korean economies in the past two decades and subsequent challenges faced by the two countries. Second, to suggest that Japan and Korea, as the two most mature and closest market economies in East Asia, should not wait to push mutually collaborative FDI until a formal FTA between them is effective. Despite historical legacies, the geographical proximity and the presence of high-tech manufacturing capacities in the two countries could be combined for immediate mutual benefits through engaging in increasingly emerging cross-border value chains. For this purpose, the active promotion of cross-border FDI flows between Japan and Korea is critical for both countries to overcome serious challenges. For the Japanese MNCs hollowing out Japan to respond to the “six difficulties” domestically, Korea could be reassessed as one of the most favored outbound destinations.