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.

 Executive Summary

I. Introduction

II. Patterns Of Economic Integration In The APEC Region
1. Trends in Trade and FDI
2. Mapping Cross Border M&As in the APEC Region

III. Determinants of CBMAs in the APEC Region: the Role of Trade Cost
1. Theoretical Background
2. Empirical Methodology
3. Variable Construction and Data
4. Estimation Results

IV. Conclusion

References

This study attempted to map out the patterns of cross border M&As (CBMAs) in the APEC region, and empirically verify the determinants of CBMAs, focusing on the role of trade cost. Despite the increasing levels of CBMAs in the APEC region, its determinants and impacts in the region, especially in the less developed economies of the region, remain under-researched. This study hopes to contribute to filling this gap in the literature. The empirical analysis shows that cross border mergers increased with the size of the two countries involved, as expected. While multilateral trade cost in general had a positive effect on bilateral CBMA, indicating reduction of overall non-horizontal biddings from competing countries, the effect becomes negative as proportion of horizontal mergers increases. This implies that high trade cost encourages tariff-jumping, horizontal CBMA from other competing countries. In the case of bilateral trade cost, number of CBMA decreases as trade cost increases in general, reflecting the high degree of non-horizontal CBMA in the APEC region. However, this became positive, as proportion of horizontal CBMA increased.

Executive Summary
I. Introduction

II. Methodology

III. Data

IV. Empirical Analysis
1. Stock Return Volatility around Elections
2. Robustness Checks

V. Conclusion

References

This study investigates movements of the stock return volatility during election periods (from one-year before an election to one-year after the election) with the use of data from 16 countries. The main findings of this study are (1) stock return volatility declines over time as elections approach, (2) the level of the stock return volatility during election periods is lower than that during non-election periods, and (3) the stock return volatility rises quickly during election months and immediately after the elections. The first and second findings confirm conjectures made on the dynamic pattern of the volatility in previous studies such as Pantzalis et al. (2000) and Wisniewski (2009).

This policy paper analyzes the structure of Islamic finance based on recent literature. It focuses on Islamic banks, the most important financial institution and the sukuk, which are crucial instruments of the Islamic financial market.
Chapter 2 reviews the overall characteristics and structure of Islamic finance. It describes the basic principles of Islamic finance and analyzes the practice and structure of Islamic finance in accordance with Islamic principles. It examines the practice of Islamic contracts in terms of financial intermediation and discusses the features of Islamic banking.

The Islamic economic principles aim at just financial interaction which are realized by Islamic finance. Islam tries to establish a financial system that makes the parties to a transaction share the risks and information in order to achieve fairness between the parties. Islamic prohibition of riba(interest) and exclusion of gharar(uncertainty) represent the key principles of Islamic finance. Islam tries to support and regulate the structure and transactions of Islamic finance with Shari'ah(the Islamic law system) which intends to enhance public welfare. Based on Islamic principles, Islamic finance rejects debt financing and encourages equity financing.

The structure of Islamic banking and sukuk is founded upon practices related to Islamic contracts. The Islamic contracts can be categorized into (1) transactional contracts, (2) financing contracts, and (3) intermediation contracts. Transactional contracts are for facilitating transactions and form the core of economic relationships in real activities. Financing contracts are for creating and extending credits, accumulating capital, and facilitating financing. Intermediation contracts are for providing the means to implement and promote transactional contracts and financing contracts efficiently. Intermediation contracts includes intermediation through partnership, trust, and guarantee.

The murabahah contract is cost-plus for credit transaction. It is also a standout contract related to trade in terms of financing contract. While the istisna' and ijarah are both contracts for assets based on financing, the istisna' is for make-to-order and the ijarah concerns lease with respect to transactional contracts. The mudarabah and musharakah contracts started as financing contracts and have been developed as important intermediation contracts by which Islamic banks are established and operated. The mudarabah and musharakah contracts are similar in that they are operated like a partnership in terms of financing and intermediation contracts, yet are different as intermediation contracts in that the mudarabah is operated by trust and the musharakah by joint investment.
Islamic banking can be characterized as raising of funds through investment deposit based on the mudarabah contract, trust deposit based on the amanah contract, and agency base on the wikala contract, and invest funds into real sectors. Islamic banking by investment deposit, trust deposit, and agency implies that Islamic banks do not create money in the process of financial intermediation. Since Islamic banks are required to distribute capacity into management of real assets, they could experience difficulty in liquidity management. The three modes of Islamic banking imply that while an individual Islamic bank could face high variability of performance, the entire system of Islamic banks could achieve sustained stability.
Chapter 3 analyzes the structure of sukuk and discusses related issues. It reviews the general structure of sukuk and compares the characteristics of sukuk with those of direct investment instruments. It closely examines the more important types of sukuk used currently and widely. Finally, it discusses the issues of property ownership related to sukuk.

Sukuk are certificates representing ownership of properties on which their issuance is based. The principal-agent relationship between the originator and the special purpose vehicle (SPV) is established for all sukuk. In the process of securitization for sukuk creation, the originator is the principal who owns the underlying assets initially and the SPV is the agent who issues sukuk. The SPV takes the underlying assets from the originator and issues sukuk based on those assets. The SPV also plays the role of the agent for sukuk holders who own the right to share in underlying assets. As underlying assets are transferred from the originator to the SPV, the underlying assets are removed from the balance sheet of the originator who demands the funds and are recorded on the balance sheet of the SPV. Therefore, the underlying assets become bankruptcy remote, from the potential bankruptcy of the originator.

We then compare sukuk with bonds, equities and other asset-backed securities. Bonds are not issued based on underlying assets and represent liabilities guaranteeing payment of principal and interest; sukuk are linked to underlying assets and represent the right to share in those assets and earnings connected to their performance. Equities and sukuk have a common feature in that they are direct financing instruments. However, equities are shares of an entire corporation, whereas sukuk are shares of specific real assets for a specific project. Therefore, equities have no maturity while sukuk does. Sukuk have something in common with usual asset-backed securities in that both of them are securities structured by links to underlying assets. However, sukuk have different characteristics from usual asset-backed securities with respect to underlying assets and property ownership. While the ownership of underlying assets is a given with sukuk, usual asset-backed securities do not guarantee their ownership.
This paper also conducts a concrete and detailed examination of the structure of sukuk based on the Islamic contract practices. We are able to ascertain that the funds raised by issuing sukuk are not for general use but are used for specific purposes of a specified contract which is the basis of sukuk.

Recently the issues of property ownership related to sukuk have risen. As some sukuk failed recently due to the 2008 Global Financial Crisis, controversies emerged regarding the ownership of underlying assets for sukuk. To sukuk holders, the ownership of underlying assets related to sukuk is different depending on whether the sukuk is asset-backed or asset-based. When default of sukuk or the failure of a project for asset-based sukuk occurs, legal disputes are highly likely. Most sukuk currently issued are structured with purchase undertaking. Purchase undertaking is ultimately related to the ownership of underlying assets at the expiration date of the sukuk. That is, purchase undertaking is related to whether sukuk become similar to usual bonds.
Chapter 4 discusses policy directions for introduction of Islamic finance into Korea. First, we gauge the feasibility of Islamic banking in Korea. It is expected that employing Islamic banking would be difficult for both Korean banks and customers, considering the small size of the Islamic population and the features of Islamic banking based on real activities. If Korea adopts Islamic banking, the Korean government would face the difficult task of regulating and supervising Islamic banks in harmony with the Korean banking system. Therefore, at this juncture, the benefits of introducing Islamic banking into Korea are not many.

Then, it discusses taxation issues related to issuing sukuk in Korea. Issuing sukuk could help achieve financial stability of the Korean financial market by diversifying the foreign sources of financing. Since sukuk are beneficiary certificates linked to real assets and are also a form of foreign currency denominated securities, revision of the tax laws are required to introduce sukuk into Korea. Sukuk would not be attractive over bonds if taxes are levied on them according to current tax laws. Recognizing this situation, the Korean government tried to revise tax laws from 2009 to facilitate issuing sukuk in Korea. However, the issue has not been discussed actively and legislative work on tax revision has stopped.

Because sukuk are structured securities, the problems arise concerning the taxation of the transfer of real assets and income between the SPV and the transactional parties related to sukuk issuance. The core purpose of the tax law revisions that the Korean government has pursued is to exempt taxes on earnings from sukuk holdings as well as on the transfer of real assets related to sukuk issuance. This is done by defining earnings from sukuk holding as interest earnings of foreign currency denominated bonds, in a separate clause for sukuk in the 'Tax Reduction and Exemption Control Act'. The basic stance of the Korean government is appropriate, seeking tax neutrality between sukuk earnings and interest earnings of foreign currency denominated bonds by taxing them on an equal basis, while raising additional foreign funds with a new instrument.
From an economic point of view, it is appropriate that, for transactions occurring by issuing sukuk, to levy taxes on the income generating process and exempt taxes on simple transfer of assets generating no income. Therefore, it is resonable that taxes be exempt for the transfer of real assets between the SPV and the transaction parties; and be levied on income flows and capital gains related to issuing and trading sukuk. At the same time, sukuk income flows should be treated as neutral to interest income.
Considering the feature of sukuk as beneficiary certificates, it is appropriate that the Korean government pursue tax neutrality by legislating exemption of taxes on earnings of sukuk, effectively defining them as income from dividends and not as interest. It is desirable to allow the sukuk types to be applied comprehensively to various commodities and projects. In addition, it is necessary to reconsider the clause of the revised version of the 'Tax Reduction and Exemption Control Act' that states the SPV should be established as a foreign entity, since the placement of the SPV does not significantly matter.

Chapter 5 summarizes the contents and concludes the overall discussion. Islamic finance is developing fast, and is expected to continue to develop in the future. However, Islamic finance would not replace the traditional finance system, but become a part of overall financial structure coexisting with the traditional finance.

Introducing Islamic finance into Korea could diversify the source for financing and have a positive effect on the development of the Korean financial system. However, Korean institutions should approach Islamic finance with tempered expectations. Korean institutions need to apply sukuk to proper areas where they their strengths could be best utilized. For example, they could apply sukuk to projects from the MENA region, as sukuk’s advantages are in project financing.
We do understand Islamic finance in a limited scale, since Islamic finance has a short history and is developing rapidly. Therefore, we need to pursue research on Islamic finance deliberately and continuously in terms of philosophical foundations, structure, legal feature, bank regulation and supervision, and market trends. Since Islamic finance could be a complement in providing financial stability, Islamic finance should be sought out more actively.

Recently, the production processes from material procurement to marketing have been split up into many stages and the value added from the production was divided among various countries. In other words, the global value chain has deepened, thereby changing the trade in goods to trade in tasks.
Therefore, we need to approach the international trade in terms of value added rather than gross value. This study investigates the share of employment and value added of each industrial sector, utilizing the World Input-Output Tables and the Socio-Economic Accounts.

In the Korean case, notably, the employment share of the industrial sector has changed rapidly, compared to exports and the value added. When we analyze the correlation among export, employment, and value added, it turned out that manufacturing export and employment are correlated by -0.82 which is statistically significant. However, the correlation between export and value added is not statistically significant, while the statistical relationship between value added and employment is not supported by the data.

This study also analyzes the effects of final demands such as export, investment, and consumption on the value added, based on Meng et al.(2006), WTO and IDE-JETRO (2011), Stehrer (2012), Stehrer et al.(2012). The results indicate that the share of value added induced by export to the total value added has increased since 1996, while the value added inducement coefficient of export has decreased consistently.
When we investigate the effects of final demands such as export, investment, and consumption on employment, it yields similar results to the value added. It turned out that the share of employment induced by export to the total employment has increased steadily, while the employment inducement coefficient of exports tended to decrease during the period from 1996 to 2009.

Utilizing a plant-level panel dataset on Korean manufacturing, this study estimates the effects of exporting on the relative employment and wage of the skilled workers, as well as on the absolute levels of employment and wages of the skilled and unskilled workers. We find clear evidence that exporting increases the employment and wages of both skilled and unskilled workers, which implies labor reallocation from less productive, domestically-oriented producers to more productive exporters.

More importantly, we also find that exporting increases the relative demand for skilled workers. Specifically, exporting is found to increase both the relative employment and wage of the skilled workers, with the former effect more pronounced than the latter. The results found in this study are broadly consistent with the view that trade liberalization brings about not only benefits but also costs: the increased disparity between skilled and unskilled workers in the labor market outcomes.

This study also investigates the determinants of trade in value added, after analyzing the trade in value added of 40 countries and 35 industries contained in the World Input-Output Tables. Specifically, it incorporates the gravity model, the Heckscher-Ohlin model, and the Ricardian model to explain bilateral trade as a dependent variable. It applies the panel data methodologies including the least squares dummy variable, the unequally spaced panels with AR1 disturbances, the Heckman's two stage approach, and the Poisson Pseudo Maximum Likelihood.

The empirical results indicate that the test statistics have improved substantially when we take into consideration trade in value added as a dependent variable, compared to trade in gross value. It is because the gravity model was used to include the GDP into the right-hand side of equation as an explanatory variable. The net value such as the GDP can explain the value added better than gross value.

According to the results for Korean trade, the higher the share of high-skilled persons to the total employment is, the more the trade in value added tends to increase. In addition, the medium-skilled products turn out to occupy a greater portion of the current Korean trade than the high-skilled products, while the share of value added to trade tends to decrease steadily.

This study provides the following policy implications for the Korean economy. First, Korea needs to prepare employment policies that considers the fact that the effects of trade on employment may differ by the skill levels of labor. Second, Korean export strategies need to focus on the products with a high share of value added, strengthening the competitiveness of material and intermediate goods in case of the industries with a low value added inducement coefficient. Third, the globalization process in general strengthens the case for active labor market policies, such as re-training and re-education, in order to ease the adjustment burden of those who become unemployed. Fourth, it is also necessary to strengthen, and improve the effectiveness of, the social safety net in general. This approach is considered to be better than strengthening the trade adjustment assistance (TAA) program, which target only workers displaced by FTA-related increased import competition, and hence discriminates against those who become unemployed due to other causes. Finally, given the interdependence among exporting, innovation, skill upgrading, and the disparity between skilled and unskilled workers, the policies related to the employment and  technology development at the industry level, in particular, should be closely linked to the strategies aimed at upgrading the trade in value added.