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Policy Analyses
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Current Status and Future Direction of Economic Cooperation between China, Japan and Korea Related to a Possible CJK FTA
Given the worldwide proliferation of regional trade agreements combined with and rising interests of Northeast Asian countries in free trade agreements (FTAs)has led to the emergence of a possible , a FTA between China, Japan and ..
Chang Jae Lee et al. Date 2004.11.30
Economic cooperation, Free tradeDownloadContentSummaryGiven the worldwide proliferation of regional trade agreements combined with and rising interests of Northeast Asian countries in free trade agreements (FTAs)has led to the emergence of a possible , a FTA between China, Japan and Korea. has emerged as a long-term possibility. Although On the one hand, there are still many obstacles to a CJK FTA, and on the other hand, its effect, if a CJK FTA is realized, will go beyond the trade related issues. In this volume, many specialists address broader issues related to a CJK FTA, i.e. economic cooperation between the three countries in diverse area such as trade and investment, customs cooperation, IT sector, science and technology, transportation, energy and environment cooperation. (The rest is omitted.) -
An Analysis on Trade Rules of Korea, Japan and China: Implications on an FTA among Three Countries
This study investigates how a Free Trade Agreement (FTA) among Korea, China and Japan contributes to the economic growth of each country. We first estimate the trade enhancing effect of the FTA of the three countries, and then est..
Hongshik Lee et al. Date 2004.11.30
Economic integrationDownloadContentSummaryThis study investigates how a Free Trade Agreement (FTA) among Korea, China and Japan contributes to the economic growth of each country. We first estimate the trade enhancing effect of the FTA of the three countries, and then estimate how this increased trade advances the economic growth. In addition, we explore how the FTA alters the industry structure of trade in each country and thereby influences the growth impact of the FTA.
In contrast to other studies on the economic effects of an FTA, our study relies on the actual data of the past experiences of the existing FTAs. In addition, by paying special attention to the three countries' close geographical location, we develop a new methodology that gives us a more realistic estimate of the trade creation effect of the three-country FTA.
The main body of the study consists of three chapters. In Chapter 2, we use the gravity model to estimate trade creation and trade diversion effects of the FTA or a regional trade agreement (RTA) in general. We included 19 multilateral RTAs such as the European Union (EU), the North America Free Trade Agreement (NAFTA), MERCOUSUR and ASEAN Free Trade Agreement (AFTA), and 49 bilateral RTAs. We extend the conventional gravity model so that we can capture different impacts of the RTA depending on geographical closeness between countries joining the RTA.
We find that an RTA in general enhances trade between members by 51.6∼67.4%. Trade creation is even higher by 35% between countries in close geographical positions. This indicates that the RTA among Korea, China and Japan would create trade even further between members than the general RTA does. We also find that trade between a member and a nonmember also increases by 6.5∼8.9%, indicating that the RTA does not divert trade from nonmembers.
In Chapter 3, we analyze how much the RTA increases GDP, by enhancing trade between members and trade between members and nonmembers. We first survey the previous studies in the literature that theoretically and empirically investigated the effects of the RTA on growth. Relying on the study by Frankel and Rose (2002), we estimate how openness (the ratio of trade to GDP) affects the growth rate of GDP. By adopting an instrumental variable, we avoid the bias that may be caused by the endogeneity of openness. We find that openness significantly enhances the growth rate of GDP.
Our estimates indicate that the FTA enhances the total trade volume for Korea, China and Japan by 85.75∼93.81%, by 49.71∼55.20% and by 23.19∼26.00% respectively. Trade creation for Korea is especially large because trade intensity of Korea with China and Japan is the largest. The increases in trade volume are estimated to raise the GDP of Korea, China and Japan by 5.2%, 3.1% and 1.4% respectively for over 25 years. In annual terms, the growth rates of Korea, China and Japan rise by 0.2%, 0.12% and by 0.06% respectively. Our analyses show that Korea is the largest beneficiary of the FTA in terms of income growth.
The growth impact of the RTA derived in the previous chapters is solely based on the magnitude of the total trade increased by the FTA. However, we also expect that the trade structure is affected as the FTA is formed among the three countries. In Chapter 5, we also consider how the changed trade structure influences the growth rate of each country. Traditionally inter-industry trade was the major venue among the three countries. More recently, however, the share of intra-industry trade (IIT), especially of the vertical rather than of the horizontal IIT, has been continuously increasing. We expect that the IIT will accelerate as the FTA is formed among the three countries. We also expect that the increase in IIT positively contributes to the growth perspective of the three countries.
Our analyses show that the FTA among Korea, China and Japan will promote growth for all three countries. The impact on Korea would be the largest. In addition to the growth effects due to increased trade, we also expect that the FTA among the three countries will accelerate the integration of the economies in East Asia, thereby generating further welfare enhancing effects in the area. However, the beneficial effects of the FTA will be obtained only when the elevated competition due to the enlarged market forces the economies to become more efficient. We expect that accumulation of human capital, R&D investments and macroeconomic stability will be essential for this purpose. -
Economic Effects of Korea-China FTA and its main issues
Multilateralism and regionalism have become the mainstream forces of the world trading system. While Korea had been relatively passive in regionalism movement in the past, its government has recently announced the policy goal to p..
Young-Sook Nam et al. Date 2004.11.30
Economic integration, Free tradeDownloadContentSummaryMultilateralism and regionalism have become the mainstream forces of the world trading system. While Korea had been relatively passive in regionalism movement in the past, its government has recently announced the policy goal to pursue a number of FTAs simultaneously and has been actively engaging in this process. As a country that relies heavily on the external sector, Korea's economic prospects are closely tied to the efforts to secure access to foreign markets through formulating FTAs. In the face of the worldwide proliferation of regional trade agreements, an absence of appropriate policy actions in this area could lead to a loss of economic dynamism that Korea critically needs at this juncture. (The rest is omitted.) -
Politics & Economy of Contemporary France and Korea and France Economic Cooperation
Understanding French Politics & Economy and Prospects for Economic Relations between Korea and FranceMaintaining key bilateral relations with Germany, France has played a major role in the world as well as in Europe. France ha..
Heungchong Kim et al. Date 2004.11.30
Economic developmentDownloadContentSummaryUnderstanding French Politics & Economy and Prospects for Economic Relations between Korea and France
Maintaining key bilateral relations with Germany, France has played a major role in the world as well as in Europe. France has vigorously advocated European integration and wanted Europe to be a 'French Europe'. Although France sometimes takes a different approach from the United States, its basic external policies are based on a practical approach that strengthens economic relations with the outer world.
France has taken a rather balanced growth strategy, developing agriculture and manufacturing sectors as well as services. As a main beneficiary of CAP, France has comparative advantage in some agricultural products. It has an advantage in high-technology areas including automobiles, railway, clothing & textiles, and the aviation industry. (The rest is omitted.) -
The Current Status of Polish Economy and the Economic Cooperation between Korea and Poland
After Poland joined the EU on May 1, the environments for the economic cooperation between Korea and Poland were changed. The result on the economic relations between Korea and Poland is mostly desirable as the joining EU will pro..
Cheol-Won Lee Date 2004.11.25
Economic cooperation, Trade policyDownloadContentSummaryAfter Poland joined the EU on May 1, the environments for the economic cooperation between Korea and Poland were changed. The result on the economic relations between Korea and Poland is mostly desirable as the joining EU will propagate trade liberalization, reduce the tariff rates and eventually lead to the advanced and prosperous economies in Poland. This study aims at analyzing the current status of Polish politics and economy, and evaluating the economic cooperation between Korea and Poland. And we can suggest the alternatives in order to strengthen the economic cooperation with Poland. (The rest is omitted.) -
Exchange Rate Volatilities and Time-varying Risk Premium in East Asia
This paper is to analyze characteristics of the foreign exchange market in four major East Asian countries (Korea, Thailand, Singapore and Japan) before and after the financial crisis and to get implications of it. Our focus is gi..
Chae-Shick Chung et al. Date 2004.11.25
Exchange rateDownloadContentExecutive Summary
I. Introduction
II. Literature Review
III. Theoretical Model for the Time-Varying Risk Premium
IV. Empirical Analysis
V. Conclusion
ReferencesSummaryThis paper is to analyze characteristics of the foreign exchange market in four major East Asian countries (Korea, Thailand, Singapore and Japan) before and after the financial crisis and to get implications of it. Our focus is given on the relationship between exchange rate volatilities and risk premium on the selected countries. The crisis-hit countries in the region including Korean and Thailand show structural break during the Asian crisis in representing higher standard deviations on nominal exchange rates since 1997. However, it is argued that they returned to the previous rigid exchange movements due to a fear of floating. Nevertheless, it is believed that the exchange rate arrangements in crisis-hit countries differ from the previous psedo-dollar pegged system.
To examine the market structure in foreign exchange trading, we take a foreign exchange risk premium in the selected countries. Risk premium is defined as the difference between expected spot exchange rate of market participants and forward rate. Expected spot exchange rate of market participants is inferred by using time series methodology. Risk premium is selected as a standard of actual analysis to compare characteristics of foreign exchange market. The reason of using foreign exchange rate risk premium is because changes in risk premium have been focused in previous works that analyzed changes of foreign exchange system and foreign exchange market.
We present the theoretical model for foreign exchange risk premium in a Lucas type model in order to explore the characteristics of the risk premium. Lucas' model is a dynamic optimizing model of asset pricing that includes an important aspect of money into the model specification.
Empirical analysis of the time-varying risk premium is also provided. To summarize the result of the empirical estimation is following: First, risk premium of won/dollar exchange rate is analyzed to have negative value regardless of period or country. Risk premium of Singapore Dollar on US Dollar has positive value mostly in analysis period. The result of analyzing Thailand is statistically unstable and to use simple VAR for presumption of risk premium is not desirable in case of Thailand.
Second, absolute value of won/dollar exchange rate risk premium decreased after the crisis. Considering that volatility of exchange rate and risk premium has close relationship, it is interesting that risk premium decreased even though volatility of won/dollar exchange rate increased about twice. After all, market risk for won/dollar exchange rate seems to be reduced in Period II, just after the crisis. On the other hand, risk of yen/dollar exchange rate did not change much, but risk premium per unit currency risk is assumed to increase.
Third, correlation of risk premium among countries became stronger after the crisis. The degree of co-movement in risk premium of won/dollar, Singapore dollar/U.S. dollar and yen/dollar increased more than seven times and two times respectively. It is analyzed that increase of correlation on risk premium is resulted from increased co-movement of interest rates. In addition, the increasing volatilities in the selected countries are resulted from the increased covariance between risk premium and forward premium.
According to this analysis, it concluded that increase of exchange rate fluctuation could not be increase of risk in foreign exchange market. In addition, efficiency of foreign exchange market seems to increase in most countries. If the price of exchange rate is determined efficiently due to changes of exchange rate regimes and liberalization of foreign exchange transactions, and reduction of uncertainness caused by governmental interruption, it can be a reasonable consequence. In brief, it can be a positive effect of liberalization of foreign exchange transactions in East Asia. Besides, it is not proper to judge negative effect of liberalization of foreign exchange market and adoption of free floating exchange regime only with increased volatility of fluctuation of exchange rates. -
North Korea's Economic Reform Under An International Framework
This paper endeavors to draw a picture showing the expected roles of important players in North Korea's economic reform. It explores the roles of inter-Korean economic cooperation in North Korea's rehabilitation and transition. Th..
Jong-Woon Lee Date 2004.11.25
Economic cooperation, North Korean economyDownloadContentExecutive Summary
I. Introduction
II. Tasks for South Korea in Inducing North Korea's Economic Reform
1. A Review of Economic Assistance from South Korea
2. Facilitation of Stable Inter-Korean Economic Relations through Institutionalization
3. Economic Assistance Aimed at Bottom-Up Changes through the Expansion of Private Economy Activities
4. The Activation of New Special Economic Zones as Instruments for Economic Openness
III. International Cooperation for Inducing Economic Reform in North Korea
1. Further Relaxation of U.S. Economic Sanctions
2.China's Role in Resolving North Korea's Nuclear Issues and Influencing Economic Transition
3. Economic Assistance from Japan through Diplomatic Normalization
4. The Expansion of Regional Cooperation Projects with Russia
5. The European Union's Humanitarian and Development Assistance
6. Expected Roles of International Financial Institutions
IV. Conclusion
ReferencesSummaryThis paper endeavors to draw a picture showing the expected roles of important players in North Korea's economic reform. It explores the roles of inter-Korean economic cooperation in North Korea's rehabilitation and transition. The measures needed to be taken to encourage North Korea integration with the world economy are also studied, as North Korean issues are closely related to the interests of neighboring powers. (The rest is omitted.) -
Understanding the British economy and economic relations between Korea and the UK
The British Economy has revitalized again since early 1990s. Since 1993 the UK economy has enjoined its longest period of expansion, real GDP growing by an average of 3% per year. Now per capita Income of the UK reached over US$30..
Heungchong Kim et al. Date 2004.11.25
Economic development, Economic cooperationDownloadContentSummaryThe British Economy has revitalized again since early 1990s. Since 1993 the UK economy has enjoined its longest period of expansion, real GDP growing by an average of 3% per year. Now per capita Income of the UK reached over US$30,000 in 2003. (The rest is omitted.) -
The European Integration and Development of European Automobile Industry
The European Integration and Development of European Automobile Industry Young-Gon Park This study analyzes the development trajectory of the European automotive industry and finds specific phenomenons of the industry in the pro..
Young-Gon Park Date 2004.11.20
Economic integration, Industrial structureDownloadContentSummaryThe European Integration and Development of European Automobile Industry
Young-Gon Park
This study analyzes the development trajectory of the European automotive industry and finds specific phenomenons of the industry in the process of european integration. The study also draws implications for the successful development of Korea's automotive industry.
The European Union abolished tariff and non-tariff barriers and unified different technical standards and regulations among member states during the 1990's integration process. The European automobile industry policies, standards and regulations were also unified through the integration process. This study finds that the abolishment of trade barriers for extra-union and the strengthening of standards related to the environment regulations and safety conditions in the union have led the increase the degree of competitive environment in the industry.
Facing a competitive environment, European automobile companies reorganized production and distribution systems, while leading establishment of strategic alliances or acquisitions with competing companies. And European automobile companies transferred their production facilities to Central and Eastern Europe in the late 1990's in order to reduce product costs and reinforce their market dominancy.
After examining the development of the European automobile industry, this study highlights the following implications for the development of Korea's automobile industry. In the EU's case, EU member states reinforced the industry's competitiveness through the abolishment of trade barriers for foreign enterprises and strengthened standards related to the environment regulations and safety conditions of automobile instead of financial and technical assistances to automobile companies. Thus, the recommended policy for the successful development of the automobile industry is one like EU, in which the government creates a favorable environment that could encourages market-competition, rather than providing direct financial and technical supports. To enlarge the market share in the Europe, Korean automobile companies should increase investments through the establishment of local corporations and the raising of the brand recognition in the local market. -
Current Economic Situation in the ASEAN+3 (China, Japan and Korea)'s and It's Economic Relations with Korea
Current Economic Situation in the ASEAN+3 (China, Japan and Korea)'s and It's Economic Relations with Korea Jae-Wan Cheong, Wanjoong Kim, Kyoung-Doug KwonASEAN+3 consists of..
Jae-Wan Cheong et al. Date 2004.11.20
Economic integration, Economic cooperationDownloadContentSummaryCurrent Economic Situation in the ASEAN+3 (China, Japan and Korea)'s and It's Economic Relations with Korea
Jae-Wan Cheong, Wanjoong Kim, Kyoung-Doug Kwon
ASEAN+3 consists of Southeast Asian countries, China, Japan and Korea. The population in the region is more than $ 2 billion, about 32% of the world population, and total GDP is $ 7 trillion, about 19.3% of the world GDP in 2003. Trade value of the region is $ 3 trillion, 20.8% of the world trade value. Thanks to economic recovery, China's growth and trade liberalization and the export oriented economic policy in the region, the trade portion of the region to the world trade is increasing. (The rest is omitted.)
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