Executive Summary

I. Introduction

II. Literature Review

III. Brief Overview of Labor Market Regulations in India

IV. Overview of Matching Function

V. Employment Exchange in India and its Data
1. Public Employment Services in India
2. Data Description

VI. Labor Market Flexibility and Matching Functions in India
1. A Simple Explanation on Labor Market Flexibility in Search-Matching Model
2. Econometric Specifications
3. Matching Function with all States
4. Matching Function with Labor Market Flexibility
5. Robustness Checks
6. Matching functions by Groups in terms of labor market flexibility

VII. Concluding Remarks

References

Appendix

This paper examines the relationship between labor market flexibility and matching function efficiency in India. With state-level disaggregated data, the matching function in India is estimated to investigate differences in the matching function efficiency across regions of different labor market flexibility. In addition, matching parameters are estimated in the respective regions that categorized by the degree of labor market flexibility. It is the first original work that uses state-level data to estimate matching function in India. The data are drawn from Employment Exchange in India, the only public job centre in this country. The results show that there is no link between labor market flexibility and matching function efficiency. The evidence indicates that regions having inflexible labor markets reveal entirely vacancy-driven job matching process, which implies lack of labor demand. For these regions, it is recommended that policies to boost labor demand such as employment subsidies are appropriate to create more employment.

Following the 2008 global financial crisis, the U.S. government acknowledged that the explosive growth of the financial sector and weakened competitiveness of manufacturing threatened the whole economic system and failed to contribute to creating quality jobs. In this context, the Obama administration introduced a number of policies to enhance manufacturing competitiveness with particular emphasis on high-tech and high value-added. The recent U.S. policies to strengthen the manufacturing sector will consequently influence Korea’s manufacturing and export performance as well as the global production network. Based on the analysis of the U.S. government’s efforts to revitalize manufacturing competitiveness since 2009, this report is intended to provide recommendations for relevant policies of Korea.
U.S. manufacturing, which accounted for over 30 percent of global manufacturing production in the 1990s, now contributes only 18 percent. Hence, the share of U.S. manufacturing value-added to domestic GDP fell sharply from mid-20 percent in the 1970s, then 15 percent in the early 2000s and to 11.9 percent recently in 2009. In order to examine the causes behind the recent trend of weakening U.S. manufacturing and whether this trend has changed since the Obama administration took office, relevant indicators such as TFP, TSI, input-output and value-added are reviewed. First of all, the Total Factor Productivity(TFP) of U.S. manufacturing recorded significant increases until the late 1990s, driven by remarkable development of information technology, but TFP began to grow at a slower rate after the IT bubble burst and recently reported a minus growth rate for 2 consecutive years since the 2008 financial crisis. Although the growth rate of the TFP between 2009 and 2012 still remained nearly half (0.6 percent) of the average rate for the last 24 years, or 1.2 percent, it is worth noting that the declining trend in the TFP growth rate came to an end after the Obama administration took office. In terms of Trade Specification Index(TSI), the fact that TSI in steel, chemical, general machine, scientific·medical equipments, semiconductor and so on fell both before and after 2009 indicates that Obama’s manufacturing policies has not yet made significant impact on international competitiveness of several manufacturing sub-sectors. Meanwhile, analysis of the international input-output tables in this report confirms the shrinking share of U.S. manufacturing in global production network after the early 2000s, and a review of value-added shows that most of the U.S. trade deficits resulted from the manufacturing sector.
Increasing unemployment triggered by the global financial crisis as well as worsening productivity and global competitiveness of U.S. manufacturing encouraged the U.S. government to pursue policies for revitalizing the manufacturing sector to increase exports and creating jobs. Therefore, from its early tenure, the Obama administration has highlighted the importance of advanced manufacturing in terms of its potential for innovation, export enhancement and greater economic and social spill-over effects than other industries. Other factors such as decreasing energy costs led by rising production of shale gas in North America, sharply increasing labor cost in developing countries, increasing awareness of intellectual property rights and increasing international transportation costs also contributed to the government’s actions to reinvent manufacturing.
The Obama administration chose to pursue a more proactive and practical policies to achieve its goal of enhancing the U.S. manufacturing sector. In particular, support for advanced manufacturing and tax incentives for reshoring firms are at the core of recent U.S. manufacturing polices. The specific policy measures include promoting exporting of manufactured products, encouraging R&D and PPP in advanced manufacturing, training skilled labor and incentivizing firms to move production bases back to the U.S.. Especially, the government is aiming to establish the ‘National Network for Manufacturing Innovation (NNMI)’, an initiative to promote commercialization of cutting-edge high technology, process and product innovation; and consequently nurture the high value-added manufacturing sector. With joint participation and cooperation among government, industry and universities, the NNMI initiative is designed to build up to 40 manufacturing innovation institutes in the U.S.. Meanwhile, the ultimate goals of policies to promote reshoring include not only reducing the U.S. firms’ operation costs but also reinforcing U.S. manufacturing competitiveness through innovation. There are an increasing number of U.S. companies moving their production facilities from overseas back to the U.S. in order to facilitate innovation in the production process and develop advanced technologies.
It is difficult to estimate the effect of the package in support of U.S. manufacturing by the Obama administration due to the short span of time since the implementation of the package. However, the qualitative, long-term effect of the package could be analyzed through the lens of the industry dynamics model, which represents the key features of U.S. manufacturing. In particular, the model, which features process innovation by incumbent firms and product innovation by entrant firms, allows us to analyze the aggregate effects of the policies related to process innovation and product innovation separately. The main lesson from the analysis of the model is that the policy that supports process innovation by incumbent firms would have a greater contribution to future GDP growth than the one that supports product innovation by entrant firms in a well-functioning, competitive market. The main mechanism is market selection: a surviving firm is more productive than the one that cannot survive in a competitive market. The policy that supports process innovation by incumbents forces the least productive firms to exit and reallocates resources from the less productive to the more productive firms. As a result, the policy would contribute to the aggregate productivity and output growth in that labor and capital would be utilized effectively by the more effective, surviving firms. On the other hand, entrant firms have not been tested by market and it is costly to examine their value added in advance. Without carefully analyzing the value of entrants, however, the policy that supports product innovation might have two opposing effects, e.g. the policy might introduce the new value added to an economy but it might also allocate resources to the less productive entrant firms. The model predicts that two opposing effects would cancel out and therefore the policy which supports product innovation would have less significant aggregate effects than the policy which supports process innovation by incumbents. The Obama administration's package in favor of manufacturing, e.g. tariff benefit for imported raw materials, subsidy for R&D, and reducing energy costs by development of natural gas, tends to strengthen incumbent firms’ productivity. As the U.S. manufacturing industry is a relatively competitive market, the package is expected to have a positive, long-term effects on the U.S. economy.
This report also includes the review of three sub-sectors of manufacturing: automotive, clean energy and IT industry, in which the Obama administration has continually put great emphasis on. To rescue the domestic automotive industry once under the threat of bankruptcy during the recent global financial crisis, the Obama administration introduced emergency relief loans, reward program for used cars and so on. As a result, consumers experienced improved purchasing power, automotive producers benefited from direct assistance to recover and the industry as a whole was able to reverse downward sales trends. Even after overcoming the near-bankruptcy of the automotive industry, the government consistently provided support for environmental-friendly and energy efficient technologies to enhance value-added of and develop new competitiveness in the industry. Meanwhile, despite Republicans’ opposition from concerns about increasing burden for industry, the Obama administration has strategically expanded clean energy industry such as renewable energy, energy efficiency improvement and carbon capture and storage. According to the government’s analysis, it is expected that support for clean energy industry would contribute to improving competitiveness of other sub-sectors of manufacturing through improved energy efficiency as well as creating quality employment. Lastly, the government’s roadmap for strengthening IT competitiveness led to the introduction of, "A Strategy for American Innovation in 2009" and specific measures for extension of broadband and education infrastructure, training IT-specialized labor, appointment of a national Chief Technology Officer(CTO) and so on. In particular, the newly introduced IT industry policies such as establishment of the CTO position which bridges manufacturing and IT divisions within the government, are aimed at promoting the convergence of manufacturing, service and IT industries and ultimately improving innovation and competitiveness of U.S. manufacturing.

The aim of the research is to suggest policy proposals for financial cooperation between Korea and the Middle East in the changing industrial and financial environments after global financial crisis and 'Arab Spring' in the late 2000s and the early 2010s. Although it can be used in diverse frameworks, financial cooperation in the research means development of cooperative financing schemes for investment projects in the Middle Eastern countries and other emerging economies. It is expected that bilateral financial cooperation will help Korean companies including small and medium sized enterprises to make direct investments in the region with job creation. This will also contribute to expansion of the private sector and reduction of the unemployment rate in the Middle Eastern countries.
Recently, industrial diversification has been promoted in response to post-oil era to lessen the degree of dependency on the oil sector in the region. The size of plant construction projects has been growing with increasing demands for financing capabilities. In the process, the role of multilateral development banks (MDBs) and export credit agencies (ECAs) has been augmented while European commercial banks have weakened financing the projects after the Eurozone crisis. Thus, it is necessary to implement government policies to activate financial cooperation with the Middle Eastern financial institutions including sovereign wealth funds and Islamic banks as well as MDBs and ECAs as Korean companies are suffering from shortage of financing sources. In the research, policy proposals for financial cooperation is divided into three fields as follows.
First, financial capabilities for global cooperation should be improved in the finance sector. Korean ECAs can play a leading role in enhancing those capabilities as they have accumulated human resources and experiences since the 1970s. Commercial banks in the private sector should make their efforts to improve their capabilities for debt financing in overseas projects in cooperation with ECAs. It is also recognized that financial cooperation with the Middle Eastern institutions could be hampered by lack of experts in development finance with understanding of regional characteristics of the Middle East.
Second, financial networks between Korea and the Middle East should be strengthened for information sharing and experts exchange, encompassing all the stakeholders related to cooperative financing. This can be developed into an investment platform finding investment opportunity in accordance with industrial and technological demands in the region. It is also necessary for Korean banks to increase their presence in the region, building their brand values and mutual understanding.
Third, co-investment between Korean and GCC investors should be encouraged to develop new projects in the emerging economies in the Middle East, Africa, and Central Asia. Considering country risks in the emerging economies, it is necessary to establish legal and institutional frameworks for implementing various contracts in the public-private partnership projects. Moreover, co-financing models should be designed with help of multilateral development banks, which can play a significant role in financing from other commercial banks and mitigating country risks.

The Visegrad Group is an alliance of four Central European states – Czech Republic, Hungary, Poland and Slovakia. There are three main reasons why interest in the Visegrad Group has been rapidly growing. First, the economic one. Since political transition, which began in 1989, those four countries reached a much higher economic growth rate than other Central and Eastern European countries. After joining the EU (European Union) in 2004 and entering the European Single Market, the Visegrad Group countries have been regarded as a successful model of economic development. They are also evaluated as the most prominently potential region for further growth along with BRICs, and Turkey due to a satisfactory economic growth and prospect of investment. The second reason is that these countries have continued to stand as a bloc of 'Collective Action' within the EU through their strong political solidarity. Even after their accession to the EU, their collective action  is expanding to include the fields of science and technology, education, border controls, and social development policy. Their collective action strategy is strikingly noticeable in the process of distributing the EU Structural Fund. This kind of strong cohesion qualifies them as an independent political actor. Finally, and perhaps most significantly, the Visegrad Group plays a special role in Korea – EU relations. However, there has not been much research carried out about this region in Korea. Hence, there is a growing need to conduct a research on the Visegrad Group.
Currently, 28 member states of the EU have exercised significant political and economic influence as a 'United Europe' in the last 25 years after the end of the Cold War. Therefore, it is impossible to understand today’s Europe without examining its integration issues. Research on the Visegrad Group should be also viewed from the context of the whole European integration process. Accordingly, this research focuses on how the Western Europe-led Integration order has affected the four countries in the Central Europe. Twenty-five years after the end of Cold War and ten years after the EU accession, this analysis adheres to the point of view that the changes in the economic and social structure in the four countries and their locational competitiveness should be understood within the 'United Europe'. Only such an approach can help to accurately explain the political and economic status and role of the Visegrad Group.
The European Integration process has been reflecting newly constructed elements following changes in the situation. It was very important to note that some countries in Central and Eastern Europe entered the European Integration order in 2004, 15 years after the end of the Cold War. And these new elements provided a positive mood in the process of the escalation of the European Integration. After an entry into the European Integration order, the political and economic status and the role of Central and Eastern Europe have significantly changed based on a 'United Europe' over the last 10 years. Current EU regional integration is something higher than just ‘Economic Union’. These four countries share their fate with the EU by mutual relationships. It is impossible, therefore, to explain the political and economic status and strategic value of Central and Eastern Europe by disassociating these regions from Europe as a whole.
Even since the four countries in Central Europe joined the European Integration order in 2004, they have been in the process of convergence to a 'Standard Model' of Western Europe through the continued macroeconomic policy changes. These four countries have consolidated their position as 'Factories of Europe' in the last 20 years of continued economic growth after the system transition. Assuming the average economic level of the 28 EU member states as 100, Poland scored from 43 in 1995 to 68 in 2013, Czech Republic scored from 77 to 80, Slovakia scored from 48 to 76, and Hungary scored from 52 to 67 in the same period. In 1995, an average GDP per capita of four countries was only ??3,305, but it increased about 3.6 times to ??11,895 in 2013. Also, there has been a remarkable change in industrial structure of the four countries after the system transition that included primary industries such as agriculture and fishery. Changes in trade structure consisting of the core of the four countries' external economic relations are also noticeable. Visegrad Group had mainly traded with countries in the Communist bloc before the system transition. However, currently main trade is carried on within other EU member states. It is impossible to consider the economy of these four Central European countries without the EU. AS a result of the integration, the four countries in Central Europe have been gaining importance in the European economy over the years.
Despite the growing homogeneities within the Western Europe-led integration order, the four countries in Central Europe still display some differences. These countries still have lower average income level than Western Europe, and their economic structures have not reached the level of those advanced countries yet. Nevertheless, these four countries proved that they have a significant strategic value with a high economic growth rate after the system transition. Furthermore, as the four countries entered EU, their strategic value has raised. This is because the status of these four markets has changed in the European Integration process. This situation also results from the strengthened locational competitiveness of these four countries.
In regard to the integrated Europe, locational competitiveness of four countries in the Central Europe is determined not only by economic factors, but also by political and geographical factors. Regarding the economic factors, the four countries have relatively lower wage levels than Western Europe, relevant size of domestic market, and economic dynamism compared to the neighboring countries. They also record only 32-44% of the EU's average labor charge per hour, while their total population is comparable to France and the United Kingdom. In addition, as the EU member states, these four countries accomplish a comparatively higher economic growth rate benefitting from the EU Structural Fund. Aside from the economic factors, these countries promote institutional cooperation amongst themselves through a strong political solidarity. Politically, they also tend to take collective actions. As far as geopolitical factors are concerned, they have advantages of locational competitiveness as they are positioned to connect the Western Europe to Russia in the continent. This locational competitiveness provides many advantages for the development of manufacturing as well as logistics industries. Thus, the mix of three factors determines the locational competitiveness of Visegrad Group.
Locational competitiveness of four countries in Central Europe is demonstrated by FDI inflow trend. Since the market economy was introduced after the system transition, increased FDI inflow in these countries has had positive effects to GDP, R&D, and an increase in employment rate. Even though their FDI inflow drew downward curve for a while due to 2009 Economic Crisis, their proportion of FDI inflow has risen approximately threefold from 2007 to 2012 in comparison to the all EU member states. Proportion of these countries in FDI inflow recorded double digits in the whole of EU. These are critical data to explain why the Visegrad Group is an emerging region with locational competitiveness. Of course, it is impossible to explain high level of locational competitiveness only with statistical data. It is true that they have endeavored to achieve goals autonomously. During the period of 25 years after the system transition and ten years of accession to EU, these countries have prepared particular strategies. They also have actively endeavored to attract foreign capital by cash grants, special taxation, and various incentive systems. In conclusion, the four countries in Central Europe have been experiencing changes in economic-industrial structure and locational competitiveness due to the objective factors such as the system transition of the last 25 years and accession to the EU in 10 years, as well as autonomous efforts of each country.
The auto industries of the four countries in Central Europe have been one of the most notable sector in regard to locational competitiveness since the 25 years of system transition and 10 years of accession to EU. During this period, the proportion of these countries have rapidly expanded among European automobile manufacturers. Automobile manufacturing has switched from former major automobile manufacturing countries such as France and Italy to Central Europe dubbed as an emerging market. Automobile manufacturing in these countries by multinational corporations of Western Europe has increased rapidly, and this helps the auto industries of the Central Europe to be integrated into the Global Value Chain.
The importance of this region has to be understood in a relationship with the EU member states because these four countries cannot be separated from Europe as a whole. Thanks to the Korea-EU FTA agreement in 2010, the bilateral relations were formally upgraded. At first, there were growing expectations that these bilateral FTA would bring economic growth, trade expansion, improved market rationality. However, against the initial anticipation, Korea's market share in the internal EU market dropped from 2.6% in 2009 to 2.1% in 2013 since the Korea-EU FTA formally went into effect in 2011. Contrary to the expectations, Korea had a ??4.1 billion trade deficit toward EU in 2013.
The Visegrad Group has a growing importance in Korea’s exit strategy from its trade deficit against EU. Korea could resolve itsproblems related to the EU by expanding trade and investment in these four countries in Central Europe as a detour.
Trade between Korea and the Visegrad Group has rapidly increased after the system transition, from the early of 1990s, and accession to the EU in 2004. Korea's total exports toward the four countries in the Visegrad Group recorded 9.1% of the total exports toward EU. This fell short for France (9.5%), but this was larger than the United Kingdom (8.9%) and Italy (8.5%). The four countries in Central Europe took 9% of Korea's import toward EU, and this was also the fourth largest volume following Germany, France, the United Kingdom, and the Netherlands. It clearly shows that Korea's trade policy toward four countries has changed after the system transition and accession to the EU.
The most notable point is that trade with the Visegrad Group has increased rapidly not only in terms of trade volume, but also in trade content which is in favor of Korea. Korea has had substantial trade surplus with these countries unlike trade with other EU member states after the Korea-EU FTA. This trade surplus is because export volume has steeply increased in contrast with the import volume that has stagnated at certain level after 2003. Korea had more than $9.8 billion trade surplus toward the four countries in Central Europe in 2013.
However, it is difficult to overcome structural problems of Korea's trade deficit with the EU as a whole because this trade surplus of relatively small size is only limited to a certain number of countries in Central Europe. Considering the fact that population of these four countries in the Central Europe constitutes 12.7% of the total EU population, and these four countries are demonstrating the highest economic growth rate among 28 EU member states, it shows that Korea's strategy vis-a-vis Visegrad Group certainly needs an amendment. In order to maximize the effect of Korea-EU FTA which came into force in July 2011, trade needs to be expanded to actively utilize these countries in the Central Europe. As a result, it will help Korea to diversify its trade partners, which are currently concentrated to the major Western European countries.
When it comes to the proportion of export items, trade structure between Korea and the EU, and between Korea and the four countries in Central Europe shows some similarities. This is because Korea's structural problem of export toward the whole EU is also reflected in its trade with the four countries in Central Europe. However, when considering trade with these four countries in detail, it turns out that daily supplies, plastic, rubber, leather products and other consumer goods take significant proportions as they are linked to their specific development level and needs. This shows that structural problems in Korea's trade with the EU as whole can be partially resolved by actively exploiting the current trade modus operandi with the Central European countries.
The expansion of local production through active FDI is also important in order to expand trade volume and maintain stable market share in Visegrad Group which still deems an emerging market. From 2004 to 2013, Korea invested ??3.2 billion in the Central and Eastern Europe. This figure takes only 11% against the ??28.8 billion of investment in all the EU member states. Among Korea's total FDI (??28.8 billion) in the EU, the top five countries are the United Kingdom, Netherlands, Germany, Ireland, and Belgium and these countries take 76% of total FDI (??21.9 billion). When considering the status of the Visegrad Group in the Europe as a whole, it is clear that more active investment strategy should be implemented in this region. Furthermore, it is necessary to fully understand the changes in the four Central European countries, to prepare suitable strategies in order to maximize the strategic value of the four emerging Central European countries.

European banking industry has been faced with unprecedented difficulties because of the global financial crisis and the European debt crisis. It represents a critical moment when European banks should establish strategies that take into account new business circumstances such as tightening of financial regulations, digitalization of financial services, and demands for transparency in management from consumers and investors. This research focuses on strategies of the European banking industry in response to these changes.
There are three representative strategies of the major European banks as follows: ① Strategy for Business Expansion under Mid and Long-term Business Plans (S1), ② Strategy for profit improvement along with realigning on-going business projects (S2) ③ Strategy focusing on banks’ core business in the context of management recovery (S3). For instance, the Deutsche Bank established the “Strategy 2015+” and underwent re-organization by improving organizational culture through recruiting talented personnel (S1). Also, BNP Paribas has attempted to strengthen networking between branches and asset management services (S1). Meanwhile, HSBC has focused on improving profits through business cooperation between regional corporate bodies which were operated independently instead of entering new markets (S2). RBS and Commerzbank, which received government bailout, were still focused on stabilizing management (S3). In particular, Commerzbank has tried to enhance the ability of loan qualification evaluation to small and medium sized firms to guarantee higher objectivity.
In response to increasingly tightening financial regulations, most European banks have made enormous investments towards compliance, and prepared for potential business risks such as class action suit and fine. For instance, BNP Paribas has increased the number of personnel in compliance and developed relevant education programs. In addition, RBS stopped some loan sales and simplified schemes of certain financial products to minimize legal risks. To satisfy demand for business transparency from financial consumers and investors, the European banks have carried out a reshuffle, to create a more customer-centered organization  as well as to focus business capacity on target customers and regions (Deutsche Bank). Also, banks have strengthened customized asset management services (HSBC, BNP Paribas). Digitalization has been applied in the context of improving business efficiency (BNP Paribas, RBS) and creating new profits by building an on-line banking system (Commerzbank).
Strategies of the European banking industry in response to changing business circumstances provide meaningful implications for the Korean financial industry. It, however, should be more careful in the course of implementing specific policies, in consideration of the competitiveness of the Korean financial industry. In other words, unconditional deregulation may have deleterious effects on sustainable development of the Korean financial industry based on interviews with experts in European banking about the recent tightening of financial regulations. Most of them agreed that tightening of financial regulation is positive and a step in the right direction since this has made the European banks focus more on compliance. That is, Korean policy makers should reform financial regulations selectively and deliberately, while giving full consideration to asset soundness and financial consumer protection.

Knowledge produced by the university and public research institutions has been viewed traditionally as a public good contributing to technological innovation and economic growth. The Chinese government has advocated an application-oriented science policy since the 1950s, with emphasis on promoting science-industry linkages. As major assistants to enterprises, Chinese universities and the Chinese Academy of Sciences(CAS) have been playing a key role in conducting cutting-edge research and effectively transferring knowledge to Chinese industries in order to enhance their competitiveness.
This study analyzes industrialization of knowledge from Chinese universities and CAS from both macro and micro perspectives.
In the macro perspective, by analyzing the recent studies on the Chinese national innovation system as well as university-run enterprises and CAS-run enterprises in China, which are distinctively Chinese institutional arrangements, this study shows that the traditional model of knowledge industrialization is being restructured and substituted by a model that is more open, horizontal and based on a diversified network. This indicates the transformation of the Chinese national innovation system. Such open, horizontal and diversified network-based innovation system enhances significantly the regional innovation system and collaboration of industry, university, and research institutes. Given such circumstances, the Chinese university and CAS play an important role in promoting technological innovation.
In the micro perspective, based on the ‘Record Filing of Patent Licensing’ from China’s State Intellectual Property Office(SIPO) and successful cases, we analyze the characteristics of knowledge industrialization of Chinese universities and CAS. The results are as follows: First, electrical engineering and chemistry are the main fields utilizing patents. Second, patent licensing is concentrated in economically developed regions, such as Jiangsu province, Beijing, Shanghai and Guangdong province. Third, local government is the source of institutional force that imposes or try to facilitate industry-university-research institute collaboration regardless of the geographic distance among them. Fourth, among universities, ‘Industry Characteristic Universities(zhuan ye xing daxue)’ have shown better performances in terms of patent licensing. Fifth, universities and CAS have established scientific & technological enterprises with tech-needy firms to engage in commercialization directly and more effectively. Sixth, professors and scientists have been accumulating the industrial technology and knowhow for 20~30 years while serving in additional positions as CEOs or bureaucrats, for better performance of knowledge industrialization.
Our findings could produce useful implications for policy-making related to Korea’s innovation system and collaboration among industry, universities, and research institutes. In this regard, the first issue that stands out is the fact that, historically, there has been poor interaction between universities and industry with respect to research and innovation in Korea. However, given the increasing demands of a knowledge-based economy, Korean government should see universities as agents of innovation and lead them to promote academic innovation based on their respective characteristics and competitiveness. The second point of emphasis here is that it is necessary to establish a highly qualified public research institution not unlike the CAS to respond more fully to the challenges of innovation and more fundamentally to the nation’s innovative capacity. Third, open innovation system is required for collaboration among government, industry, universities, and research institutes. Fourth, the Korean government should enhance a rewards system to encourage innovative research. Rational system of rewards and incentives for individuals who are driving innovation can stimulate the country’s innovative capacity. Finally, Chinese universities and CAS are taking advantage of government support and developing a presence of their own in industries that Korea considers its strategic industries, such as robot technology, biotechnology, environmental technology, petrochemical technology, medical devices and mega science projects. The Korean government should enhance efforts to boost institutional efficiency in knowledge industrialization while expanding collaboration with China in scientific research and technological problem solving.

This study aims to review the policy responses of the European Central Bank (ECB) during the global economic crisis and subsequent Euro crisis, and sheds light on the logic and backgrounds related to these responses. The ECB used increasingly non-conventional measures, such as the purchase of sovereign bonds, which was unexpected before the crisis. In this context, the study raises the following question: is the increasing use of non-conventional measures temporary one in response to an unprecedent crisis or is it a sign of structural change in ECB’s role?    
The ECB has features in common with most of central banks of advanced countries, but it differs from them in three aspects. First, the ECB has a mandate only with respect to price stability. It has a very high level of institutional and political independence. Third, the ECB and the national central banks of the Eurosystem are forbidden to finance governments (monetization). These salient features of the ECB are very similar to those of the German Bundesbank. Given the role of Deutsche Mark and the Bundesbank in the European monetary integration, it seems that the ECB would include features that are legacies of the Bundesbank.     
As the Euro crisis spread over the entire eurozone starting from the European peripheries, responses by the ECB have been increasingly active. In order to keep financial markets stable, it has intervened with non-conventional measures. For the first time, it made large-scale purchase of sovereign bonds from the secondary market and provided long term liquidity to financial institutions with low interest rates. In addition, its Governing Council declared the outright monetary transaction (OMT), which means that the ECB will purchase unlimited quantity of sovereign bonds in case of a crisis. Its willingness and determination toward market intervention played an important role in mitigating the crisis. However, these measures, particularly the purchases or plans to purchase sovereign bonds, caused a dispute between different actors and principles. They were conceived and implemented amidst tension between member states, particularly Germany and France and between ECB’s mandate (price stability) and financial stability (response to the euro crisis).   
During the crisis, the ECB made it clear that its priority and mandate are in maintaining price stability and emphasized that non-conventional measures were implemented to secure a ‘transmission channel’ of monetary policy. Eventually its measures contributed to mitigation of tensions in the sovereign market, but it emphasized repeatedly that these measures were conducted as a part of its monetary policy. Besides, its president underlined that the ECB excluded completely all political influences in its policy consideration.  
Regarding the future change in ECB’s role, it is necessary to note and consider three aspects. First, the Euro crisis provided occasions for reflecting upon the role of the central bank as the ‘lender of last resort’. As the crisis deepened, the role of ECB has been up for discussion. This means that all debates regarding its role during the crisis could become a starting point for its institutional change, albeit small. Second, the role of the ECB will be impacted significantly by the level of economic integration in the EU. Considering that the EU does not have any authority to impose taxes and conduct fiscal policy, it is hardly expected that the ECB provides credit to any European institutions and governments. Third, the ECB has now a supervisory authority over the commercial banks in Eurozone under the ongoing banking union. This means that the ECB has to follow two simultaneous objectives, price stability and financial stability. While the ECB declared that two objectives will be treated individually according to the ‘principle of separation,’ the political and economic dynamics that the ECB has to encounter will be more complicated than before.

Preface
Ⅰ.A Study to Analyze Cost­Benefits of the Reunification of Korean Peninsula to the United States (Marcus Noland) 
1. Unification Scenarios and Interests of the United States 
2. General Equilibrium Calibration of Unification 
3. Implications for the United States from the Gravity Model 
4. Policy Issues 
Ⅱ.A Study to Analyze Cost­Benefits of the Reunification of Korean Peninsula to China (Jin Jingyi et al.) 
1. Introduction 
2. Ideal Condition of the Korean Peninsula within China’s Development Strategy in Northeast Asia 
3. Unification of the Korean Peninsula and Economic Benefits for China 
4. Unification of the Korean Peninsula and Security Benefits for China 
5. Sino-Korean Cooperation Strategies for Korean Unification 
6. Conclusion 
Ⅲ.A Study to Analyze Cost­Benefits of the Reunification of Korean Peninsula to Japan (Kyoji Fukao et al.) 
1. Introduction 
2. Scenarios of Economic Development after Unification 
3. Increase in GDP and Employment in Japan and Other Major Economies 
4. A ‘Super Korea’ as Japan’s Rival in the East Asian Division of Labor 
5. Financing North Korea’s Infrastructure 
6. Role of Japanese Private Firms in Supporting the Infrastructure Projects 
Ⅳ.A Study to Analyze Cost­Benefits of the Reunification of Korean Peninsula to the Russian Federation (Alexander Zhebin et al.) 
1. Factors Determining Russia’s Korean Policy 
2. Major Shortcomings of the Existing Reunification Scenarios 
3. Cost-Benefits of 5 Unification Scenarios 
4. Suggestions for South Korea’s Unification Policy 
Ⅴ. The Effects of Economic Integration between South and North Korea(Sung Hankyoung)
1. Introduction 
2. Changes due to Economic Integration 
3. Model and Scenario 
4. Analysis of Results by Scenario 
5. Comparative Analysis of Scenario Results  
6. Policy Implications 
Ⅵ.Gradual Economic Integration between South and North Korea and Economic Cooperation in Northeast Asia (Kang Moonsung et al.)
1. Introduction 
2. Fundamental Directions for Achieving Economic Integration of North andSouth Korea 
3. North and South Korean Economic Integration and Effects on NortheastAsian Division of Labor 
4. North and South Korean Economic Integration and Northeast AsianEconomic Cooperation 
5. Gradual Achievement of South and North Korean Economic Integration 
Ⅶ.Analysis on Diplomatic and Security Benefits of Unification and Strategies for Unification (Chun Chae-sung et al.) 
1. Introduction 
2. International Politics in the Current East Asian Region 
3. Position on the Unification in the Korean Peninsula of Countries US, China,Japan and Russia 
4. Unification Diplomacy Strategies for the Unified Korean Peninsula vis-à-visNeighboring Countries 

Those of us living in the contemporary times have a common mission to achieve unification in the Korean peninsula for the joint progress of South and North Korea based on the support of the international society and Northeast Asian cooperation. Korean unification is also an historical imperative for the Koreans who have been one nation and one people for a long time. Therefore it is necessary to present to the government strategies and policy alternatives through in-depth research on ‘when’ and ‘how’ unification would be achieved, and ‘what’ kinds of impact it would have, rather than ‘if’ it will happen.

In this respect, this book is a summary of 7 studies conducted under the ‘Research Project on the Unified Korea and Northeast Asian Economic Cooperation’. Its main contents include analyses on the costs and benefits of the unification of Korea in the perspective of its four neighboring countries—US, China, Japan, and Russia; effects of inter-Korean economic integration in Korea’s perspective, and analysis of diplomatic/security benefits of unification.

The world is now more interconnected than ever, and Korean unification will invariably impact its neighbors. In this regard, the cost-benefit analyses of the four countries are quite meaningful in that 12 overseas Korea specialists analyze the benefits of Korean unification and provide policy suggestions to maximize these benefits from the perspective of their own respective countries. In addition, the three research projects conducted by 11 domestic experts which provide advice on the effects of economic integration along with strategies for Northeast Asian cooperation based on their analysis on inter-Korean economic integration and diplomatic/security benefits of unification are also extremely valuable.
The research projects conducted by researchers from 4 major countries present four unification scenarios-status-quo, North Korea’s reform and opening-up, absorption of the North by South Korea, and peaceful unification. In the case of peaceful unification, which is preferable to all parties involved, the US, China, Japan, and Russia will all witness an increase of $7.6 to 48.5 billion in their GDPs, and creation of 210,000 to 5,640,000 new jobs, resulting in positive ripple impacts for all 4 countries. According to the analyses, China will be the biggest benefactor of Korean unification, the US and Japan will reap similar benefits, and Russia will benefit the least. In the event of Korean unification, China’s three northeast provinces will become a vibrant logistics center and  hub for the Eurasian Continent and the Pacific region. According to the study by Japanese researchers, a ‘Super Korea’ will emerge after Korean unification, rivaling Japan. The russian researchers analyzed that if energy exports increases; and the Siberian railway and gas pipeline were connected all the way to the Korean peninsula as a result of unification, it  will lead to an economic boom in the Far East.

Domestic researchers show that unification will bring changes in factors of production, market expansion, decrease in military spending, and improvement in international credit rating. According to their various unification scenarios, North and South Korea’s GDP growth rates will increase 16%p and 1%p respectively between 2016 and 2030. In the early stages of unification, independent currencies should be used but One Korea Indexed Unit of Account (OKU) must also be introduced; and in order to make use of North Korea’s human resources, disparity of wages between South and North Korea is unavoidable. They also analyze that a unified Korea will contribute to the resolution of the security dilemma in Northeast Asia by buffering the competition for economic and military hegemony between major powers such as the US vis-a-vis China and China vis-a-vis Japan, facilitating cooperation. Also, North Korea’s denuclearization alone will, in and of itself, significantly benefit neighboring countries.