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Policy Analyses
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Digital Transformation and Its Impact on Labor Market Outcomes: Analyses Based on Country-Level, Korean Workers, and Korean Firm-Level Data
Digitalization in production and distribution has been progressing continuously for the past 30 years. In the past decade, led by advances in artificial intelligence and machine learning technologies, digital transfor..
Do Won Kwak et al. Date 2021.12.30
Labor market, Electronic commerceDownloadContentSummaryDigitalization in production and distribution has been progressing continuously for the past 30 years. In the past decade, led by advances in artificial intelligence and machine learning technologies, digital transformation has accelerated further. As a result, the effect of digital transformation on labor market outcomes has become more evident recently. There are two opposing hypotheses about the impact of digital transformation on the labor market: a decrease in labor demand due to labor substitution and an increase in labor demand due to a rise in productivity. This study empirically quantifies the changes that digital transformation brings to the labor market based on data at various country, firm, and industry levels.In a country-level analysis in chapter 2, we find the expansion of e-commerce has been shown to lower the employment rate and increase the unemployment rate. Looking at the heterogeneous effects according to educational background, the negative impact of the expansion of e-commerce on employment and unemployment was more significant in the low-educated workers. In the heterogeneous effect analysis by age, the negative effect on labor and unemployment was substantial in the working population aged 25 and over. In sum, the expansion of e-commerce has had a significant negative impact on the working population aged 25 and over and the low-educated population.Chapter 3 analyzes the effect of the development and utilization of digital transformation technologies such as the Internet of Things (IoT), big data, and robotics on firms' employment and labor productivity in manufacturing and service industries using the 2016-2018 Business Activity Survey, collected from the Statistics Korea. We find that the development and use of digital transformation technology reduce firm‘s employment with relatively low average wages in the manufacturing industry. This implies that the impact of digital transformation technology on firm employment depends on labor characteristics (e.g., required skills) in the manufacturing industry, which can be inferred from the wage level. Finally, we find that the development and use of digital transformation technology had a relatively more positive effect on service firms' employment and labor productivity. This is because the service industry relies more on human capital than physical capital in the production process than the manufacturing industry.In chapter 4, using 38 industries data from Korea Productivity Center for the period 1995-2018, we study the effect of labor productivity improvement on employments and wages. We find an increase in labor productivity reduces labor demand through the substitution effect. However, considering the externalities between industries, we positively affect labor demand through between-industry externality. As a result of estimating the heterogeneous effect (i) the negative (-) effect on employment through the substitution effect was found to be driven by large companies, and (ii) service industry. It was also found that the service industry absorbs the positive (+) externalities most significantly. For the effect of an increase in labor productivity on labor income, we find that the share of labor income has gradually decreased since 1995 with an increase in labor productivity.In chapter 5, using PIAAC data, we identify skill items that showed a high positive correlation with employment and wage. We find that the most significant increase in employment occurred in industries with high utilization skills of physical labor and ICT proficiency. On the other hand, the most considerable wage increase occurred in sectors with high utilization skills of continuous education and systematic and planned work performance. Industries with these skills showed a high negative correlation with high employment. At the individual level estimations, we find no significant change in employment and wage found for professional workers. The significant effect in employment was concentrated on non-professional workers.The results of empirical analysis at the country, firm, and industrial level consistently show that the impact of digital transformation on the labor market differs depending on the level of skill and education. To mitigate the negative impact of digital transformation on the labor market, the government should provide professional vocational education to develop high problem-solving and ICT-related skills in addition to the knowledge provided by university education. Furthermore, the government can improve the efficiency of the labor market by promoting the smooth transition between jobs and re-employment of displaced workers through the establishment of a strong educational infrastructure. High-quality skill education, vocational job training education, personalized education, and online education should be accessible to the greater population. The government should guarantee no worker is getting behind to attain proper skills to work at the age of digital transformation. -
Trade Environments and Industrial Structures of the RECs in Sub-Saharan Africa and South Korea’s Cooperation Plans
The purpose of the paper is to analyze the current status of Regional Economic Communities (RECs) in Africa, focusing on industrial and trade environments, and to find out strategies and cooperation plans for South Ko..
Wonbin Cho et al. Date 2021.12.30
Economic integration, Economic cooperation Africa Middle EastDownloadContentSummaryThe purpose of the paper is to analyze the current status of Regional Economic Communities (RECs) in Africa, focusing on industrial and trade environments, and to find out strategies and cooperation plans for South Korea to enter into the African emerging market.Do the African RECs work as a driving force for the economic growth of African countries and income convergence among member states in the region? Also, would RECs' efforts to pursue regional integration make African countries catch up with developed countries? In response to these questions, our result shows that intra-trade is practically active compared to offshore trade in the case of COMESA, EAC, ECOWAS, and SADC. Regarding this, the Dispersion Index analysis confirmed that all those 4 RECs member countries have a higher level of homogeneity with production and export structure in trade among member countries than with non-member countries. It is expected that such progress in production and trade structure homogenization among member states could help the economic growth of the African continent and resolve regional income disparity.In addition, the results of the gravity model suggest a direction for the trading strategy of the Republic of Korea to increase trade with African countries in the future. First, it is necessary to expand trade relations, focusing on countries with as large an economy as possible within the African RECs. Since trade among member states within each REC is actively taking place, South Korea should strengthen the cooperation with countries with large trade volumes and power to a spillover effect. Second, South Korea needs to expand trade relations with African counties that have high levels of democracy. The result of the gravity model empirically shows that African countries with relatively higher levels of democracy tend to be more active in international trade engagement. This finding seems because, with higher levels of democracy, the country tends to be more concerned with economic policy outcomes and relatively have a higher government quality. Although most African countries have small economies, some have rich natural resources such as water, forest, mineral, and oil. So, RECs is pursuing a development strategy to enhance intra-trade by fostering leading trade partner countries. Moreover, they have an effort to promote sustainable and inclusive economic growth by achieving strategic outcomes like expanding regional infrastructure, modernizing transportation systems head to landlocked countries, establishing an integrated resources management system.This paper suggests ideas for Korea-Africa cooperation and the Africa expansion strategy of Korea through RECs as the central axis of regional development and promoting trade in the African continent. We selected two major cooperation partner countries (one for a significant cooperation partner country and one for a country with high potential) each for the four RECs and analyzed the selected eight countries' national development strategies and industry and trade structure. Based on the analysis, we presented the industrial and investment sectors that would cooperate and specific items to increase trade with South Korea. We selected the following eight countries. The former is, in each RECs, a significant cooperation partner country, and the latter is a country with high potential. 1) Egypt and Ethiopia in COMESA; 2) Kenya and Tanzania in EAC; 3) Nigeria and Ghana in ECOWAS; 4) South Africa and Angola in SADC.Recently, the role of the RECs has been growing in terms of regional integration and economic development strategies in the African continent. In particular, the African Continental Free Trade Area (AfCFTA), which is evaluated as the largest free trade area of the world, officially opened on 1 January 202l, African countries' trade and investment with other African countries and with international economies is expected to significantly increase. In turn, South Korea needs to develop a new and effective trade strategy toward Africa. As the movement of regional economic integration with the AfCFTA opening is about to be more active, it is necessary for South Korea to develop a multilateral cooperation model based on the critical role of African RECs. -
Analysis of Economic Effects of the COVID-19 Pandemic on Global Trade
Although many studies have documented that financial and political crises are associated with severe recessions, little attention has been paid to pandemic crises. Furthermore, they focus on estimating the effect of t..
Soon Chan Park Date 2021.12.30
Trade structure, Trade policyDownloadContentSummaryAlthough many studies have documented that financial and political crises are associated with severe recessions, little attention has been paid to pandemic crises. Furthermore, they focus on estimating the effect of the crises on economic growth and unemployment, but not on trade. With deepening global value chains, the growth of trade exceeds that of GDP, and countries are increasingly exposed to foreign risks or shocks. International trade therefore is no more derived transactions but a crucial factor driving economic growth. This paper makes progress understanding the economic effects of the Covid-19 by investigating the impact of the previous 21-century pandemics and the Covid-19 on trade.To study how long the negative effects of the pandemics persist, we also estimate the effect of these health crises on trade, both in the onset year of the crisis as well as the dynamic effects over time. An another important question on the economic effects of the pandemics is whether pandemics are demand shocks or supply shocks. This is a fundamental question for both economists and policymakers, because it helps design effective policy responses to future health crises. Yet there were few evidence-based arguments based on similar events in the past.Our findings are as follows:First, we find a larger negative impact of the severity of the Covid-19 on bilateral exports, implying that effective prevention and control measures for pandemics do matter not only for human life, but also for economic performance. The severity of the Covid-19 is measured by the mortality rate, death cases per 1000 population and confirm cases per 1000 population. It reveals that each of them serves as a good proxy variable for the severity of the Covid-19.Second, we find that ICT development contributes to mitigate negative effects of the Covid-19 on exports. The Covid-19 and resulting public health measures necessitated many workplaces to permit workers to work from home. We test the hypothesis that the productivity of remote working depends on the ICT development, and this leads to better export performance.Third, we find that the previous 21-century pandemics including SARS, H1N1, MERS and Ebola are a supply shock resulting in the reduction in exports of final goods, but leaving exports of intermediates inputs largely unchanged. These results imply that consumers in importing countries substitutes the final goods from non-affected countries for those from affected countries, but the inputs souring decisions of firms are not affected by the pandemics.Fourth, we find that it takes at least 4 years for the negative effects of the pandemics on trade to disappear, identifying the dynamic effects of the pandemics.Based on our empirical findings, finally, we discuss some policy implications for mitigation of economic damage, protection of business from destruction and facilitating recovery. -
A Study on Korean SMEs Policies for the Carbon Border Adjustment Mechanism (CBAM)
In July 2021, the EU announced the Carbon Border Adjustment Mechanism (CBAM), which obligates importers to purchase certificates corresponding to the emissions embedded in imported products. Implementation of the CBAM..
Hyeri Park and Ji Hyun Park Date 2021.12.30
Economic development, Trade policyDownloadContentSummaryIn July 2021, the EU announced the Carbon Border Adjustment Mechanism (CBAM), which obligates importers to purchase certificates corresponding to the emissions embedded in imported products. Implementation of the CBAM will have a negative effect on the Korean economy, which is highly dependent on trade and carbon-intensive industries. Another point of particular concern lies in that domestic SMEs will also be affected by the CBAM directly or indirectly. Therefore, this study examines the impact of the CBAM on SMEs in Korea, and evaluates different industries for their vulnerability to the CBAM. Implications for government policies and strategies for SMEs to effectively respond to CBAM are drawn.This study differs from previous studies in that it analyzes the impact of the CBAM from the perspective of SMEs. Few domestic studies have analyzed the impact of the CBAM on SMEs. This study examines various aspects of the CBAM, including statistical analysis of vulnerabilities to the CBAM in the area of SMEs, and case studies of carbon neutrality support policies for SMEs in major countries. Various analysis methods are attempted, such as measuring the export status of SMEs’ CBAM target items and domestic SMEs' distribution of CBAM target industries, evaluating the SMEs’ vulnerability to the CBAM by sectors, and measuring carbon emissions embedded in SMEs’ exports. Moreover, overseas carbon neutrality support policies for SMEs are investigated to identify recent policy trends in major countries and learn from benchmarking cases.Chapter 2 discusses the major issues of the CBAM. As the CBAM is expected to expand in the future, response strategies for the CBAM are needed not only in the steel industry but also in other industries. Moreover, if composite materials and indirect emissions are included in the scope of the CBAM, SMEs are also directly subject to CBAM regulation. Therefore, SMEs should prepare an adaptation strategy for the CBAM through active communication with the government while paying attention to the implementation progress. The government should carefully establish its position on the CBAM, while monitoring responses in other countries to the CBAM and cooperating with major countries. The Korean government should also make preparations on issues for bilateral CBAM consultations with the EU.According to the analysis results in Chapter 3, while direct exports to the EU by Korean SMEs do not account for a large proportion of items falling under the scope of the CBAM, it is confirmed that the impact on domestic SMEs increases when indirect exports are taken into account. When considering indirect exports, the sectoral vulnerability to the CBAM appears in different patterns from when indirect exports are not considered, and it is also found that vulnerability to the CBAM differs by sector.Chapter 4 investigates carbon-neutral policy cases for SMEs in Korea and major countries. In Korea, it appears that SME support policies related to carbon neutrality are mainly composed of short-term projects, and there is no long-term support policy. In addition, it is found that domestic SMEs lack the ability to respond to the CBAM and carbon neutrality, and SMEs have more demand for policy financing than strengthening their capabilities for carbon neutrality.The results of this study yield the following important implications.First of all, a phased response strategy is needed according to the timing of CBAM implementation. The role of the government is important during the CBAM transition period (2023-25). In order for SMEs to adapt to the CBAM, the government should provide information about the CBAM, prepare education programs, and design support systems for SMEs. If the CBAM is implemented after 2026, substantial response actions by the government and companies should be prepared. An integrated carbon-neutral data management system and advisory agency for SMEs should be established, while forming cooperational networks between large companies and SMEs. In the long run, SMEs should prepare export strategies to cope with the era of carbon neutrality. At the same time, they should de-carbonize their production processes and develop low-carbon, high-value-added products, and the government should participate in international discussions and negotiate the conditions of CBAM implementation.The detailed response strategies by the government and SMEs to the CBAM are recommended as follows. First, the government should come up with a long-term carbon-neutral support policy that focuses on SMEs. Second, when it comes to response strategies to the CBAM, indirect export as well as direct export must be considered. If the CBAM is expanded in the future and all supply chains are included in the scope of CBAM regulations, SMEs will also be subject to CBAM regulations. Therefore, the CBAM affects domestic SMEs through direct or indirect channels, as exporters are expected to force suppliers to comply with environmental standards and demand the supply of eco-friendly intermediate goods. Third, it is necessary to develop various types of carbon reduction programs that can promote SMEs' participation in carbon neutrality. Export support systems for environmental products and technologies, carbon reduction support through ICT, local government carbon neutral support policies, and cooperation between SMEs and large companies can be benchmarked from overseas cases. Fourth, the policy direction for carbon neutrality support for SMEs should prioritize implementation of support for eco-friendly process transition, followed by the provision of incentives based on carbon neutrality performance. Fifth, support policies for SMEs should be designed considering conformity with WTO agreements. Finally, a control tower that supervises SME carbon neutrality policies should be established. We propose the launching of an "SMEs Carbon Neutral Response Team" or “CBAM TF” dedicated to SME policies.SMEs must accurately inform themselves on the scope of the CBAM and international discussion on the CBAM, because the impact of the CBAM on domestic SMEs depends on how far its scope extends. Second, SMEs should actively participate in the carbon neutral policy design from the initial stage so that the specificity and difficulties of SMEs can be reflected. Third, the ability to respond to the CBAM should be strengthened. SMEs should secure professional manpower with CBAM-related administrative capabilities, reporting capabilities, and verification systems by making the most of government support during the CBAM transitional period. Fourth, it would be more effective to formulate response strategies by industry. Carbon emissions, reduction efficiency, and reduction technologies all vary by industry. Therefore, an effective approach would be for each company to participate in the development of benchmarks for their respective industries, develop standards for reporting emissions by industry, and share best practices. In addition, since the vulnerability factors by the CBAM are very different from industry to industry, government support should be established along the path of vulnerability. Finally, carbon neutrality is a challenge for SMEs in the short term, but it can be an opportunity if successfully overcome. SMEs should establish response measures to the CBAM from a long-term perspective. -
Analysis of FTA Utilization Infrastructure and Economic Cooperation Mechanism between Korea and Latin American Countries
In 2007, when the Korea-US FTA negotiations were concluded, the government of Korea started a program to support the utilization of FTAs by SMEs. Since then, through the enactment of laws and the related regulations,..
Inkyo Cheong et al. Date 2021.12.30
Economic cooperation, Free trade Latin AmericaDownloadContentSummaryIn 2007, when the Korea-US FTA negotiations were concluded, the government of Korea started a program to support the utilization of FTAs by SMEs. Since then, through the enactment of laws and the related regulations, it has established a systematic FTA utilization support system that cannot be found in other countries. Korea’s FTA utilization support system has been modified and supplemented for more than 10 years. FTA utilization support includes providing information on FTA utilization (opening a website or holding education and briefing sessions, etc.), consulting on FTA utilization (preferential tariff, country of origin, FTA business model, etc.), and establishment of FTA utilization infrastructure (origin management system, customs clearance and preferential tariff margins with FTAs), and fostering professional manpower (undergraduate, graduate course, etc.).No country in Latin America has a comprehensive system to support the use of FTAs. The text of FTAs, the tariff concession schedule, and the rules of origin for goods are presented on the website of the national government (public) institution or the Organization of American States (OAS) FTA Information Center (SICE). Many low-income countries, such as Nicaragua, El Salvador, and Honduras, have a lot of difficulties in promoting the use of FTAs due to poor physical infrastructure including the Internet.Recently several countries have shown interests in adopting Korea’s FTA utilization support system. Korea, along with Chile and Mexico, has built the world’s widest FTA network, but there are several factors adverse to its export performance such as WTO’s lethargy, COVID-19 quarantine measures, global protectionism, and decoupling of the US and China economy. In order to respond to changes in the global trade environment, it is necessary to enhance the utilization of the existing FTA and to strengthen the FTA policy by negotiating to upgrade the existing FTAs and promoting new FTAs.This study intends to explore economic cooperation measures to support the use of FTAs among Latin American countries that have concluded FTAs with Korea or have raised the need for a new FTA. A total of 10 countries were selected for analysis, including 4 member states of the Pacific Alliance (Chile, Peru, Colombia, Mexico) and 6 Central American countries (Guatemala, Nicaragua, El Salvador, Honduras, Costa Rica, and Panama).The conclusion of the FTA negotiations with the MERCOSUR, which is currently underway, is the top priority for Korea’s trade policy with Latin American countries. In the case of the MERCOSUR, since internal policies within the block become a critical factor in the process of negotiations, it is difficult to expect the desired results from economic cooperation without a change in the attitude of the MERCOSUR countries (Brazil, Argentina, Uruguay, and Paraguay) at the regional level toward the FTA with Korea. While many research reports on the necessity and strategy of economic cooperation with the MERCOSUR have already been published, research reports on economic cooperation with small and medium-sized countries in Latin America are rare.In addition, securing the status of an associate member of the Pacific Alliance (PA), which can have an effect comparable to that of an FTA with Mexico, is an important issue in Korea’s trade policy. This study focuses on research to find ways to strengthen economic cooperation with Mexico, which is not making progress. However, this does not mean to underestimate the importance of economic cooperation with the MERCOSUR countries.Through transferring Korea’s FTA utilization support system to the Latin American countries in the form of economic cooperation, it is possible to expand economic gains earned from the FTAs with Latin American countries and to raise local interests toward the FTA utilization. The purpose of this report is to select a set of countries of priority for economic cooperation in the transfer of Korea’s FTA utilization support system.Chapter 2 summarizes the development process and the main contents of Korea’s FTA utilization support system. The enactment of laws and regulations have been described in detail. Based on Korea’s experience, it is necessary to transfer a support system suitable for local conditions in Latin American countries and induce them to develop step by step.Chapters 3 and 4 try to find the target countries for economic cooperation supporting the use of FTAs and to estimate the effects of economic cooperation. Even if a large number of FTAs have been concluded, it will be difficult for this economic cooperation project to proceed smoothly in the case of countries that do not provide FTA utilization support services to their own companies. With this point in mind, the criteria for selection of priority countries were established. One of the criteria is the impact on the GVC of Latin American countries, based on the reports by the international economic organizations (World Bank 2017, 2018; UNCTAD 2020, etc.) arguing that FTAs not only deepen participation in GVC, but also help economic growth by activating trade in intermediate goods.In Chapter 5, based on the analyses in Chapters 3 and 4, the target countries for economic cooperation to support the use of FTAs have been selected, and accordingly, the policy issues that should be focused on supporting those countries have been derived. In this study, Mexico, Colombia, and Guatemala have been selected as the priority countries for Korea’s FTA utilization support economic cooperation through an analysis of various aspects such as the FTA utilization support infrastructure, industrial base and structure, and the impact of the project on GVC. Finally, the conclusion and policy implications are given at the Chapter 6. -
Global ESG Trends and the Strategic Role of the Korean Government
Recently, ESG(Environment, Society, and Governance) concerns are rapidly growing both domestically and internationally in various fields such as investments, management, consumers, and government policies. Beyond the ..
Sang Buhm Hahn et al. Date 2021.12.30
Financial policy, Environmental policyDownloadContentSummaryRecently, ESG(Environment, Society, and Governance) concerns are rapidly growing both domestically and internationally in various fields such as investments, management, consumers, and government policies. Beyond the concept of investment criteria or policy instruments, ESG can be defined as a value system for sustainable prosperity of the human community. ESG issues are rapidly becoming impending socioeconomic risk factors, but it is also being actively researched and implemented as an opportunity and solution in a variety of fields.The current popularity of ESG can be explained in terms of the role-sharing relationship between the government and the market. The characteristics of political demands have altered as existing socioeconomic problems have accumulated. And the technologies that could be used to solve problems advanced quickly. As a result, not only has the nature of the problem in each industry changed dramatically but so has the relative superiority of efficiency between the market and the state. In the role-sharing of the market and the state, there are wide spectra between mutually exclusive extremes of market failure and government failure.Shareholder capitalism has not been able to adequately respond to various side effects that damage the natural environment and social community in the process of pursuing economic growth. In the early 1980s, the international organizations began addressing sustainable development in which current economic development does not jeopardize future generations’ economic prosperity. Concerns about sustainability began with environmental issues and grew to include human rights and social ideals. It has been summed up as the ESG concept in recent years, which encompasses three aspects: environmental, social, and corporate governance.We present examples of companies that are following an ESG approach. Many businesses are spearheading ESG initiatives, and their patterns vary. Some companies, such as Patagonia, have been doing ESG activities consistently since the beginning. In some cases, such as with Unilever, ESG difficulties are represented in existing business practices, but corporations like Schneider Electric, CLP Group, and Oersted have entirely rebuilt their businesses, eliminating certain existing businesses and launching new ones that are compatible with ESG ideals. ESG is also attracting a lot of attention from Korean businesses, particularly in the area of environmental challenges. Given the current situation in Korea, where controlling owners frequently exercise management rights, corporate governance challenges are considered to represent both a threat and an opportunity for the Korean firms.National ESG strategies are also required, in addition to business ESG plans. The notion of “market failure” serves as a justification for national policy intervention in general. Many initiatives, however, have unintended consequences or are ineffective, as the term “government failure” implies. Market and government roles should be linked on the basis of efficiency. Not a binary distinction of “market or government,” but new frameworks of collaboration between the “market and the government” should be sought. Referring to the remarkable ICT developments such as AI and big data, cutting-edge financial instruments, and various organizational/ management techniques, it is necessary to readjust the existing government policy intervention area and redesign the method innovatively.Carbon taxes and minimum corporate tax rate regulations are two contemporary international ESG concerns that have been explored. Korea has evolved in terms of economic size and technological level, but still remains developing status with the environmental and energy challenges. As a result, we should create phased implementation schemes and support systems for the significantly and abruptly burdened industries and SMEs, while actively participating in international ESG talks and reforming associated institutional structures.We also present policy examples from a variety of countries on ESG challenges. The European Union (EU) has taken the lead in instituting ESG regulations such as green taxonomy, sustainable financial disclosure, corporate sustainability reporting, human rights and environmental due diligence responsibilities of business supply chains, and carbon taxes. The U.S. Biden administration drafted state goals closely related to ESG, such as restoring democracy and strengthening human rights, digital innovation, regional development, resolving educational inequality, diversity and equality, and expanding corporate transparency and corporate responsibility. In Japan, diversity guidelines and health management strategies are notable. Individuals and enterprises’ social credit in China are assessed at the national level. This summer, the Chinese government formally unveiled the slogan “Common Prosperity.” Chinese ESG initiatives, such as outlawing monopolies, cracking down on giant platform businesses, and expanding educational equity, are also noteworthy. India is the only country in the world where corporate social responsibility is required by law, and non-compliance with CSR expenditure obligations can result in criminal penalties for firms and their leaders. Meanwhile, the OECD announced on October 8, 2021, that 136 countries and jurisdictions have agreed that certain multinational enterprises (MNEs) will be subject to a minimum 15% tax rate, effective from 2023. Korea also has to develop policies to improve tax transparency and corporate social responsibility.Investment and business management ESG infrastructures are also critical. This necessitates an adequate division of the roles between the public and private sectors. We need consistent standards for ESG financing, which necessitates an ESG disclosure system and a green taxonomy to determine whether it belongs under the ESG category. Many private agencies have started offering ESG rating services in recent years, but their rating methods are vastly different, and the results are under-correlated with each other. There are also worries that foreign agencies’ ESG assessments do not fully represent Korean-specific circumstances. It might not be a good idea for the government to conduct ESG evaluations directly because it could weaken market discipline. The government, on the other hand, should appropriately oversee the ESG rating system’s entire structure.We discuss how to establish and implement ESG policies in Korea in a strategic fashion. K-SDGs and the Korean New Deal are two of the most common ESG policies now in use. In addition, 23 Presidential Committees have been established to advise and deliberate on the national policy agenda, including the National Balanced Development Committee and the Aging Society and Population Policy Committee. In addition to the Prime Minister and ministries, there are around 500 committees. This policy approach appears to be in line with ESG trends that are now gaining traction around the world. However, because overlapping policy implementation by separate committees or ministries can lead to inefficiency and conflicts of interest, it is vital to examine integrated policy design and action plans.We recommend that the National ESG Committee, ESG reports from each ministry, and national ESG strategy reports are established. To begin, we need a policy classification system, such as modularizing individual policies, to effectively control and manage policy duplication. This system should be based on the ESG national plan and be as consistent as feasible with the green categorization system (K-taxonomy). From an ESG viewpoint, it is vital to identify major problems and hazards affecting our society, as well as to map existing policy goals for each risk category. We propose that social “issues” or “risks” be organized into the K-Risk Matrix, with K-SDGs as a primary subset of solutions. The K-Risk Matrix is a diagram that depicts the “likelihood” and “impact” of threats to Korean society, and it may be created using information from the World Economic Forum’s Global Risk Report.As an action plan, we must first define and taxonomize ESG activities and then construct ESG information infrastructures such as accounting and disclosure systems. ESG rating agencies, in particular, should be prepared with suitable regulations and supervisory processes. These ESG policy objectives should attempt to promote fair and efficient market competition and give a solution to both market and government failure. -
The New Southern Policy Plus Progress and Way Forward
Over the past three decades, the Republic of Korea (hereinafter, Korea) has shown a great commitment to cooperating with ASEAN member states and India. Starting with the establishment of a sectoral dialogue partnershi..
Kwon Hyung Lee and Yoon Jae Ro Date 2021.12.30
DownloadContentForewordContributorsI. Overview1. The New Southern Policy Plus and ASEAN-Korea Relations2. The New Southern Policy Plus and India-Korea Relations3. Advancing the ASEAN-Korea Partnership: From Sectoral Dialogue Relations to the New Southern Policy Plus4. The New Southern Policy Plus and India: Progress and Way ForwardII. ASEAN5. Strengthening Trade and Investment between ASEAN and Korea6. FinTech and Financial Inclusion: A Vital Space for ASEAN-Republic of Korea Cooperation7. The ASEAN-Korea Cooperation and Connectivity: Beyond the New Southern Policy Plus8. Missing Pillars of Strategic Autonomy? Security Cooperation Between Korea and ASEAN9. Advancing ASEAN-Korean Cooperation on Non-Traditional Security Challenges in East Asia10. Education and Human Resource Development of Korea’s New Southern Policy: Taking a Step Forward11. Building a Sustainable Mekong-Korea Partnership for the People, Prosperity, and PeaceIII. India12. Role of Korea–India Bilateral Economic Ties in India’s Trade and Investment Strategy13. Strengthening Economic Relations with ASEAN: Role that India and Korea Can Play14. The Role of a Korea-India Strategic Partnership in the Indo-Pacific15. Promoting Korea-India Mutual Understanding: Social and Cultural AspectsIV. Concluding Remarks16. The New Southern Policy and Afterwards: Forging New Dimensions of ASEAN-Korea Partnership17. The Prosperity of the New Southern Policy: Achievements and Remaining ChallengesSummaryOver the past three decades, the Republic of Korea (hereinafter, Korea) has shown a great commitment to cooperating with ASEAN member states and India. Starting with the establishment of a sectoral dialogue partnership in 1989, Korea has developed a comprehensive partnership with ASEAN over the years. The ASEAN-KOREA FTA was completed in 2009 and the elevation of bilateral relations to a ‘strategic partnership’ in 2010 served as a momentum to strengthen our economic and security partnership. By sharing cultural proximity rooted in Asian values, ASEAN and Korea have also enjoyed robust socio-cultural exchanges. Meanwhile, regarding to India and Korea relations, both countries established a long-term cooperative partnership for peace and prosperity in October 2004 as a channel to enhance mutual interests between the two countries. Korea has further deepened its relations with India by concluding the CEPA in 2009 and upgrading its relations into a ‘special strategic partnership’ in 2015.The New Southern Policy (hereinafter NSP), announced in November 2017 in Indonesia, has further deepened Korea’s strategic partnership with ASEAN and India under the vision of achieving a ‘People-centered Community of Peace and Prosperity.’ ASEAN-Korea relations were developed to a level of Korea’s diplomatic ties with the United States, China, Japan, and Russia. The India-Korea Summit of 2018 adopted the Shared Vision for People, Prosperity, Peace, and the Future to strengthen mid-to-long term bilateral relations. President Moon Jae-in visited all ASEAN member states and had two summit meetings with India. Moreover, the Korean government hosted the ASEAN-ROK Commemorative Summit, launching the first Mekong-ROK Summit in 2019.The NSP pursues the three pillars of People, Peace, and Prosperity as a common foundation to realize its vision. ‘People’ aims to make safer, better lives and greater interaction in the NSP region, that is, ASEAN member states and India. ‘Peace’ seeks a community where all are free from fear or threat. The goal of ‘Prosperity’ aims to create mutually beneficial and future-oriented economic cooperation. The number of visitors, trade volume, and investment between Korea and the NSP region has unprecedently increased with the help of NSP partners’ policies.The NSP has since evolved into the NSP Plus amid the Covid-19 pandemic and the US-China rivalry. Korea and NSP partners together have to overcome the global health crisis and reconstruct global value chains to ensure the safety of the people and free trade in the region. To achieve these goals, the Korean government presented an upgraded version of the NSP in November 2020, reflecting changes in the current environment for cooperation. The NSP Plus promotes seven Initiatives as follows: 1) comprehensive healthcare cooperation, 2) sharing Korea’s education model for human resource development, 3) promotion of mutual cultural exchanges, 4) formation of mutually beneficial and sustainable trade and investment, 5) support for rural villages and urban infrastructure development, 6) cooperation in future industries for common prosperity, and 7) cooperation for safe and peaceful communities.In this context, this publication aims at examining the progress of the NSP Plus and discussing a way forward for sustainable cooperation between Korea and NSP partners. It comprises four sections and eighteen chapters. Section 1 provides overviews of the NSP Plus from the perspectives of Korea, ASEAN, and India to evaluate the NSP in a more comprehensive manner. Sections 2 and 3 deal with a sectoral analysis of the NSP Plus including trade, investment, infrastructure, human resource development, and security in the divisions of ASEAN and India. Section 4 summarizes the progress of NSP Plus in the region, suggesting prospects and future tasks to further expand cooperative relations between Korea and NSP partners.I would like to express my deepest gratitude to the distinguished scholars from Korea and NSP partners who have gladly contributed to this publication. Special appreciation goes to honorable ambassadors for their insightful overviews of the NSP Plus: Ambassador Kim Young-sun, Ambassador Shin Bongkil, Ambassador Ong Keng Yong, and Ambassador Mohan Kumar. I am also grateful to our research fellows and senior researchers in the New Southern Policy Department at the Korea Institute for International Economic Policy (KIEP), who managed the whole publication process and contributed two chapters in Section 4.I hope that this publication can promote active discussions on new visions and policy proposals for the New Southern Policy Plus, as we work to advance together in the fast-changing global environments. -
China’s Economic Engagement in Latin America and Africa: Characteristics and Outcomes from a Comparative Perspective
Over the past 20 years, China has become increasingly active in engaging Latin America and Africa. Starting from the early 2000s, China has increased its regional influence in various areas such as trade, investment, ..
Seungho Lee and Munsu Kang Date 2021.12.30
Economic relations, Economic cooperation Latin America China Africa Middle EastDownloadContentSummaryOver the past 20 years, China has become increasingly active in engaging Latin America and Africa. Starting from the early 2000s, China has increased its regional influence in various areas such as trade, investment, policy loans, official development assistance and people-to-people exchange. It has done so under the banner of strengthening solidarity between developing countries through South-South cooperation, and has now become a major economic partner in the majority of countries across Latin America and Africa.We assume that there are underlying objectives behind China’s economic engagement in Latin America and Africa, given that the two regions are characterized by relatively low degrees of economic interdependence with China and present less direct geopolitical interests to China. Against this backdrop, we aim to offer a comparative analysis of what has driven China to engage Latin American and African countries with economic instruments and how its economic engagement has materialized in these regions.We first examine in Chapter 2 how Chinese foreign policy has changed its course in general since the foundation of PRC in 1949. We then delve into how its approach to Latin America and Africa has evolved over time, depending on its foreign policy objectives and external conditions.Chapter 3 shows some main trends in China-Latin America and China-Africa trade and some characteristics of Chinese investment, lending and official development assistance in Latin America and Africa and people-to-people exchanges between the two regions. In addition, we also explore how China has been strengthening its efforts for cooperation with Latin America and Africa amid COVID-19.We find that China’s share in Latin American and African exports and imports has rapidly increased since the early 2000s. In 2020, China’s share in total exports and imports of Latin American countries was around 20% and 13%, respectively. In Africa, exports to China captured about 18% share in the region’s total exports and 10% in its total imports in 2019. China’s imports from the two regions are comprised mostly of natural resources. We find that China has relied significantly on a number of Latin American countries for petroleum, copper, iron ore, lead ore and zinc, and a few African countries for petroleum, aluminum, cobalt and diamonds.China’s average yearly investments to Latin America and Africa recorded around $9 billion and $7 billion between 2005 and 2020. Although Chinese investments are still dwarfed by those from major investors in these regions, it is noteworthy that their increasing trend has continued until the mid-2010s. Chinese investments have stemmed mainly from state-owned enterprises in both regions. Investments in Latin America have been primarily through brownfield investments, whereas a large proportion of Chinese investments in Africa have been greenfield investments.Chinese policy banks such as the China Development Bank and Export-Import Bank of China have acted as major providers of loans to several Latin American and African countries since lending to the region took off in the early 2010s. Between 2008 and 2019, China provided $11.7 billion on a yearly average to Latin American countries, with a tendency to allocate most of its resources to the extractive sector of a small number of countries. Over the same time period, China provided a yearly average of $10.7 billion to African countries. In Africa, policy loans have been directed to a larger set of countries in the region, while focusing on infrastructure.In terms of executing official development assistance, Chinese activities have been far more pronounced in Africa than in Latin America. Indeed, Chinese aid flows to Latin America were almost negligible between 2000 and 2014 with the exception of the case of Cuba. In contrast, aid flows from China to Africa recorded a yearly average of $1.6 billion over the same time period, largely due to a dramatic increase beginning from the mid-2000s, mostly in the area of infrastructure projects.In the realm of human-to-human exchanges, we observe that immigrant flows from China to Latin America and Africa have continuously increased. However, they have been more dramatic in Africa. Across Latin America, it is primarily a small number of South American countries that have witnessed notable immigrant inflows from China. Across Africa, the inflow of Chinese immigrants has particularly been significant in the countries with ongoing large-scale construction projects by Chinese firms.With the outbreak of COVID-19, China’s cooperation with Latin America and Africa has entered a new phase. China has engaged Latin America through donations of medical supplies, excluding countries with diplomatic ties with Taiwan. Also, many Latin American countries have purchased large amounts of vaccines from China. Its activism has also been witnessed in Africa, where China has donated significant amounts of medical supplies and vaccines. However, among the relatively small amounts of vaccines secured by African countries through purchases, the proportion of Chinese vaccines was found to be very low.Chapter 4 provides a quantitative analysis of what determines the scale of China's economic engagement in Latin America and Africa, and the outcomes of this economic cooperation in the two regions. First, our Tobit estimation results find evidence that China prefers to allocate more economic resources in the form of investments, policy loans or official development aid to those with higher levels of GDP and natural resource abundance in both regions. We also find that China tends to reward those with a partnership status with China in Latin America, whereas the presence of the partnership status does not necessarily serve as an advantage in Africa. Access to sea is also found to be an important factor in attracting Chinese economic resources in Africa.Second, the results from dynamic panel estimation suggest that, in both regions, China’s economic engagement tends to increase imports from China and the level of indebtedness to China, either in terms of the absolute level or the ratio of debt from China to GDP. However, there is no statistically significant relationship between the scale of China’s economic engagement and exports to China from Latin American or African countries.In Chapter 5, we examine the implications of China’s economic engagement in Latin America and Africa for Korea’s cooperation strategy in each region. China’s growing influence in these regions, backed by economic instruments and various bilateral and multilateral cooperation frameworks, clearly presents challenges to Korea’s foreign policy, which remains relatively limited in resources that can be employed for geopolitical purposes in these regions. In this context, this study suggests that Korea engages Latin America and Africa by fully exploiting its comparative advantage in each region.Our findings suggest that China has been systematically approaching Latin America and Africa with disparate strategic objectives through different means to achieve them, under the grand strategy of expanding its sphere of influence across the globe. Given China’s growing influence in the two regions, it is hard to deny that China has become an important variable to consider when Korean policymakers design cooperation strategy in Latin America and Africa. The findings of this paper should help to analyze Chinese economic activities in the region and identify Korea’s comparative advantage for each region, these being a high priority task in foreign policy decision-making. -
Prospects and Policy Implications of the WTO Multilateral System in Strategic Competition between the US and China
As of December 2021, a significant number of countries are pursuing membership in the WTO. This means that there are still expectations for the role of the WTO as a multilateral trading system. However, several issues..
Yoocheul Song et al. Date 2021.12.29
Multilateral negotiations, Trade policyDownloadContentSummaryAs of December 2021, a significant number of countries are pursuing membership in the WTO. This means that there are still expectations for the role of the WTO as a multilateral trading system. However, several issues must be addressed for the WTO to remain effective in the future, especially under the new world trade order, including those caused by COVID-19. Therefore, WTO member states will have to strike a balance between negotiating on 21st century issues and tackling long-standing trade-related unresolved issues such as agriculture and development. In addition to these practical problems, the WTO must also address institutional problems.In addition, alleviating tensions in the world trade system following China's incorporation into the world economic system is a task that the WTO must solve. For example, it will have to come up with a way to address US and EU claims that existing WTO rules are inadequate to address China's problems with intellectual property rights, state-owned enterprises and industrial subsidies. As countries like the United States increasingly rely on bilateral and regional trade agreements to better address this issue, an alternative is to address them through open plurilateral agreements.Given its share in world trade and the global economy, China could potentially play a significant role in WTO reform. China has been involved in WTO reform discussions. China's proposals for reform in the WTO indicate that it will resolve the deadlock in the Appellate Body and prioritize negotiations on subsidies for fisheries and e-commerce. However, with respect to state-owned enterprises, it has limitations in repeating vague promises of fair competition and emphasizing the need to respect the diversity of development models among member countries.China is also showing efforts to cooperate with other countries on WTO reform, claiming to be the defender of the world trade system on behalf of the United States. However, in light of China's growth and economic model in the global economy, a key question is whether WTO rules can be updated and implemented in a way that accommodates two fundamentally different economic systems. The solution does not lie in changing the nature of China's economic system. Rather, it should be about creating enforceable rules that allow the two systems to interact and reaffirming the key role of the WTO within the world trade system.Since 1998, WTO member states, agreeing that e-commerce will play an increasingly important role in the global economy, have established a working program to review all trade-related issues related to global e-commerce. The rules governing online transactions will become more important than ever, especially as COVID-19 accelerates the transition to e-commerce. However, unlike trade in goods and services, few international rules apply to e-commerce between countries. Therefore, a realistic approach could be to focus on reviewing the status of e-commerce initiatives and agreeing on a roadmap for the negotiation process and future work, in the short term, while focusing efforts toward developing specific texts for negotiations and reaching partial agreement on the rules of e-commerce in the medium to long term.Although trade and investment are closely linked, the WTO was launched with an incomplete treatment of investment issues. Multilateral attempts to negotiate rules on investment protection and liberalization in the WTO failed, and in 2004 investment was removed from the WTO negotiation agenda. However, many countries deal with investment provisions through bilateral investment agreements or chapters of bilateral and regional free trade agreements. A new attempt to include investment in the WTO began in the form of “structured discussions with the aim of developing a multilateral framework on investment facilitation” among more than 70 WTO member states. These discussions are projected to have a greater chance of success than past efforts by focusing on facilitating investment and excluding issues that have been difficult to reach consensus, such as market access, investment protection, and resolution of investor-state disputes.Discussions are also underway to improve the WTO Agricultural Agreement, which came into force in 1995. Policy makers continue to work to make agricultural trade fairer and more competitive, aiming to reform subsidies and high trade barriers that distort agricultural trade. In 2015, WTO member states committed to abolish agricultural export subsidies and agreed to find solutions to the problem of public stockpiling for food security, an issue that needs renewed attention under COVID-19. It was also agreed to develop special safeguards for developing countries and agreements on cotton trade. WTO member states continue to negotiate on these issues. The next WTO Ministerial Meeting should be a milestone for progress in this area. Improving notification obligations on agriculture is also an important task. Especially in the agricultural sector, special treatment for development issues and developing countries has been one of the most important areas of WTO work since the Doha Development Agenda was launched in 2001. However, in order to advance the discussion, the problem of developing country status will need to be addressed. Korea announced that it would no longer maintain its developing country status in 2019. Of course, negotiations within the WTO are not currently underway, but it is time to analyze and respond in advance to problems that may arise when Korea does not maintain its developing country status in the agricultural sector.Trade and the WTO can play an important role in achieving the UN Sustainable Development Goals and the Paris Agreement goals. WTO members have been discussing various trade sustainability issues, and areas that are likely to reach agreement and that can make a significant contribution to the green recovery of the COVID-19 crisis include: first, the WTO member countries concluded an agreement to limit subsidies for fisheries; second, the WTO played a role in reforming fossil fuel subsidies; and third, the WTO member states made efforts to reach an EGA negotiation.It has long been recognized that there are many links between trade policy and non-trade issues such as environmental and labor standards. However, there are many differences of opinion as to whether non-trade issues should be linked to WTO negotiations and subject to WTO rules and regulations. Past efforts to link non-trade issues to trade have been pursued to encourage compliance and enforcement. Traditionally, dispute resolution mechanisms have been used as a way to link non-trade issues that are difficult to enforce with the global trade system, but as the WTO Appellate Body crisis continues, these resolution methods lose their effectiveness. Also, there are limits to what the WTO can and should do with respect to non-trade issues. In particular, the WTO's role in achieving the SDG goals requires careful adjustment. If links are too weak, the WTO risks becoming irrelevant in its efforts to address key global challenges. However, if the linkage becomes too excessive, the possibility of overburdening the already troubled WTO increases. The best bet may be to focus on increasing policy coherence and interaction between stakeholders rather than focusing on creating new rules.Since the WTO is a member-driven body, reforms must be decided by member governments. Therefore, domestic support for policy makers is necessary in order to proceed with the discussion and process on WTO reform.WTO reform is an important issue. However, WTO modernization will not be provided in a single package, and discussion of various issues and participation of stakeholders is essential. WTO reform will require a significant amount of effort and time. The new secretary-general is also frequently emphasizing the need for WTO reform, and as a new administration is launched in the United States, a change of position can be expected. If the WTO can function properly in the process of coping with COVID-19, the COVID-19 crisis may provide new impetus to the WTO. While we cannot expect too much, if the US makes an explicit proposal for a solution to reform the WTO Appellate Body, or at least explains acceptable changes to the Appellate Body, the chances of success are high.Under these circumstances, what kind of policy response Korea should take is a very important issue, because Korea has enjoyed the benefits of the multilateral trading system. In particular, it can be said that Korea is at a crossroads where it has to make a policy choice between the United States and China. According to the Biden administration's strategy to strengthen alliances, the US will demand a choice from Korea, and it will inevitably be very difficult for Korea, which is highly dependent on the Chinese economy, to make a decision. -
Case Studies and Empirical Analysis in Social Services Employment
This study (i) compares the size of social services employment across countries, (ii) case-studies benchmark countries and (iii) estimates the determinants of social services employment. By doing so, this study aims to offer a com..
Dong-Hee Joe et al. Date 2021.12.27
Competition policy, Labor marketDownloadContentSummary정책연구브리핑This study (i) compares the size of social services employment across countries, (ii) case-studies benchmark countries and (iii) estimates the determinants of social services employment. By doing so, this study aims to offer a comprehensive reference for policy making in related fields in Korea. In particular, this study compares the size of social services employment per population using the OECD data. Motivated by the Moon Jae-in administration’s expansion of social services employment, this study compares the value of this variable in 2016, right before the Moon administration, and in 2019, the most recent data available as of this study, across countries. This study takes the representative countries for each category of the commonly used categorization of welfare state regimes, namely Germany (Conservative), the United Kingdom (Liberal), Sweden (Socio-democratic) and Japan (East-Asia). For each case, this study looks at the definition of social services, characteristics of their delivery and the sizes of government spending and employment in that sector. Finally, this study estimates a fixed-effects panel model for the determinants of the size of social services employment per population, using the OECD data.
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