FinTech is a combination of the words finance and technology, signifying innovation in existing financial businesses using information and communication technology (ICT). China is making remarkable progress in the mobile payment sector, especially in the various fields of FinTech. There are also predictions that China’s mobile payment platform will lead China to become the world’s first “cash-free society” by integrating on-line and off-line payments and quickly replacing existing payment methods such as cash and credit cards. On the other hand, mobile payment services in Korea show a relatively low penetration rate. According to a survey, as of November 2017, only 26.1% of mobile payment services enable the use of mobile devices to purchase products, which is much lower than in China.
   Therefore, this study analyzes the development status of mobile payment platforms in China and suggests policy suggestions for the improvement of mobile payment services in Korea. The platform for mobile payments in China is driving the development of the FinTech industry, creating a variety of innovative business models that span both offline and online payment alternatives. In this way, we sought to gain implications for Korea by identifying the factors behind China’s rapid development, obstacles it is encountering, and future prospects of China’s mobile payment platform, which is developing at the fastest rate in the world.
   Chapter 2 summarizes the current status and characteristics of the mobile payment market in China. The mobile payment market in China has grown rapidly in both the banking and non-bank payment markets, while the growth rate of payments conducted through the Internet has been curbed sharply. In particular, mobile payment services provided by non-bank payment companies showed more rapid growth than mobile banking payment services provided by banks. The reason for this rapid growth in non-bank payment companies’ mobile payment services is related to how in 2000, with the rapid growth of its wireless communication base, China’s online shopping sector rapidly shifted from PC internet shopping to mobile shopping, while the settlement systems of non-bank internet electronic commerce companies such as Alibaba have expanded significantly due to the lack of online payment systems at Chinese banks. In addition, Alifaba’s AliPay is not just a means of online settlement, but a financial account that can be used for various financial activities such as active asset management, online insurance, and stock trading, and various financial services such as cultural contents, education, medical care, beauty, and O2O (Online to Offline) services. In other words, it has gained a superior advantage over existing Internet payment systems and banks’ mobile payment systems, while securing diverse business models connected with financial services and O2O services for everyday use, extending beyond payment financial services.
   Chapter 3 focuses on the development of business models for mobile payment platforms in China, centering on the case of AliPay. Unlike Korea, the AliPay payment platform has a business model at every stage of the payment system, from payment to clearing and settlement. Thanks to the huge customer base that uses the Alibaba e-commerce platform, AliPay was able to negotiate with individual banks and develop various financial services connected with the banks to provide them to customers. Unlike Korea, this was the background of the development of various business models centered on mobile payment platforms. AliPay has introduced a mobile asset management fund, YueBao, and other financial services to broker loans, and established a mobile-based online bank MyBank, which provides comprehensive financial services. In addition, Alibaba launched a personal credit rating business (Sesame Credit) utilizing personal transaction information and financial information obtained through the Alibaba Online e-commerce Alipay payment platform, which become a “credit evaluation ecosystem” centered on Alibaba. In the offline payment market, Alibaba realized cost advantage by enabling QR code-based easy payment and various O2O (Online to Offline) services to financial customers. Finally, Alibaba is also contributing to the development of China’s shared economy by promoting the creation of a “FinTech settlement ecosystem” by providing an open settlement platform that encourages the development of diverse business models by individual businesses.
   Chapter 4 analyzes how the non-bank payment platform of China is expanding into the international payment system. First, the increase in the personal income level in China is leading to an increase in overseas travelers and overseas purchases. Second, the Chinese government’s policy to allow non-financial companies to engage in international settlement business has contributed to growth in the sector. Third, various measures were taken by Alibaba, such as providing overseas shopping tax refunds and overseas shopping O2O services, actively forging alliances with local financial institutions in third countries, and the advancement of overseas mobile remittance services. China’s entry into international mobile payment systems is particularly meaningful when linked to the Belt and Road Initiative. The new international financial system driven by China is challenging the existing international financial system centered on the US and the dollar. However, problems are also arising as the Chinese mobile payment sector undergoes rapid international expansion. As seen in Vietnam, which recently banned Chinese mobile payment systems, the biggest problem is that the payment system can be used illegally for P2P transactions. If China is to further expand the international scope of its payment systems, it must resolve these issues with urgency.
   Chapter 5 suggests policy recommendations to Korea based on an analysis of the development of mobile payment platforms in China. Unlike China, growth in the FinTech sector is centered on mobile-based non- bank payment companies in Korea, meaning the sector is subject to various restrictions posed by regulations such as the Electronic Financial Transactions Act. While China has no divisions between the various forms of electronic payment, making it possible to develop diverse business models while expanding into various business areas such as money transfers, direct debit payment, prepayment and electronic payment, and payment settlement services, Korean non-payment companies are limited to the area of payment orders, i.e. the earliest stage of the payment process, and it is impossible to offer a wider range of services because the clearing and the settlement stages are defined as the domain of financial corporations. Therefore, as long as no serious threat is posed to the stability of the overall financial system, it would be desirable to encourage the development of new industries through deregulation, while adopting an active negative regime or allowing pilot projects. Second, in contrast to China, Korea has difficulties in developing various business models for its non-banking mobile payment companies because of regulations on loans or asset management by financial legislations. Thus, as in the case of China’s AliPay, easing regulations to allow new FinTech providers to operate based on mobile payment services and develop various financial services could be a good way to promote development in the FinTech industry. From the same perspective, it would also be worth considering the deregulation of sales of asset management financial products by non- financial companies in Korea. Finally, we should pay close attention to the trend of internationalization of mobile payment systems taking place in China and determine how this phenomenon is affecting the internationalization of the yuan, and the existing international financial order centered on the US and the dollar. Through this process we can identify potential opportunities and risks for Korea, and identify countermeasures for Korean financial companies to properly respond to these changes. 

   The Republic of the Union of Myanmar (hereinafter Myanmar) is one of Korea’s priority partner countries for official development assistance (ODA), mainly focused in the four sectors of public administration, rural development, transportation and energy, based on the Korean government’s Country Partnership Strategy (CPS). As of 2015, the country’s total population has risen to almost 51 million, among which the urban population accounts for 30.0% and rural population 70.0%. Although the urban population is increasing rapidly, the majority of Myanmar people reside in rural sectors and engage in agriculture and forestry, utilizing the abundant natural resources of land, water, grass, trees, and mountains. Land use by these primary industries remains high in proportion.
   This research studies Korea’s agricultural and forestry development cooperation with a focus on rural development, which is one of the focal areas approved by Korea’s CPS with Myanmar. Our study begins with current agricultural and forestry development and future needs for Myanmar, scheduled in particular within its agricultural development strategy for the next five years (ADS 2018-19~2022-23) recently approved by the Ministry of Agriculture, Livestock, and Irrigation (MOALI) in 2018, as well as the national forestry master plan (2001-02~ 2030-31) approved in 2000 by the Ministry of Forestry. We examine in detail agricultural and forestry programs in Myanmar supported by other countries or international organizations such as Japan, Germany, the UK, USA, Australia, Asia Development Bank (ADB), World Bank Group (WB), Livelihoods and Food Security Fund (LIFT), and Food and Agriculture Organization (FAO), to identify possible avenues for cooperation and draw significant implications for promising agricultural and forestry programs. Meanwhile, Korea’s agricultural and forestry capacities are essential for implementing programs suitable to Myanmar, meaning that Korea’s agricultural and forestry programs currently being implemented offer valuable lessons. Both grant and loans are studied for a better understanding of the bottlenecks or challenges in Myanmar. Based on agricultural and forestry needs in Myanmar and Korea’s capacity in the same sector, our findings suggest several promising agricultural and forestry programs.
   Myanmar’s ADS (2018-19~2022-23) has three objectives: 1) enhanced governance and capacity of institutions responsible for agricultural development, 2) increased productivity and farmers’ income, and 3) enhanced market linkages and competitiveness. The target rate for agricultural growth in five years is 4.0%, aiming to double the current 2%. The target for land and labor productivity in five years is to realize 50% increase compared to the current $1,200/ha and $1,600/labor, respectively. The target for agrifood exports is $3,865 million in five years against the current $2,400 million. Under the first objective of governance, there are nine outcomes (needs), including: 1) planning, 2) policy, 3) monitoring and evaluation, 4) statistics, 5) associations and groups, 6) land rights, 7) coordination and participation, 8) food and nutrition security, and 9) MOALI restructuring. There are nine outcomes (needs) in the second objective, productivity, as well: 1) research, 2) extension, 3) education, 4) irrigation and water management, 5) crop inputs, 6) mechanization, 7) livestock and fishery, 8) good agriculture practices, and 9) resilience. Finally, the third objective of competitiveness aims to achieve the following nine outcomes: 1) Business Environment, 2) Intellectual Property Rights, 3) Quality System, 4) Participatory Planning for Rural Development, 5) Rural Infrastructure, 6) Agro-enterprise Development, 7) Food Quality and Safety, 8) Financial Services, and 9) Trade Facilitation and Export Growth.
   Myanmar received a total of almost $1.5 billion in 2016 from international societies, of which agricultural and forestry ODA account for only 5.9%. Japan ($235 million) is the biggest donor country, followed by the USA ($183 million), Korea ($124 million), Germany ($72 million), France ($48 million), UK ($46 million) and Australia ($46 million) in 2016. The World Bank ($300 million) and Asian Development Bank ($263 million) also support many programs in Myanmar. Technical cooperation programs with Japan, including the private sectors, are most dominant in Myanmar, indicating there will be an increase in private sector investment in Myanmar from Japan. Germany focuses on environmental and forestry development by advocating for human rights and the wellbeing of minorities residing in remote areas. The USA has engaged in agricultural development projects to support small farmers’ production and marketing capabilities in response to climate change. The Australia Center for International Agricultural Research (ACIAR) has been conducting research in collaboration with Myanmar experts, making much scientific information available within ACIAR’s networks. The ADB’s strategy focuses on enhancing agricultural value chains, technical cooperation for rural development, and natural resources. The WB supports Myanmar by providing agricultural package programs in the areas of finance, urban and rural development, and environment management. LIFT has helped farmers and their families to generate more income, maintain the environment in their village, and ensure that children and women are getting enough nutrition. The FAO has focused on enhancing the food value chain through mitigating natural disasters and coping with climate change.
   Korea is an important donor in Myanmar which has provided many projects such as technical assistance through the Korea Program on International Agriculture (KOPIA) center of Rural Development Administration (RDA), rural development projects that focus on Korea’s New Village Movement, post-harvest research center, and enhancing agricultural marketing ability with wholesale market through KOICA, consulting agricultural policies through the Korean Agricultural Policy Experiences for Food Security (KAPEX) program at the Korea Rural Economic Institute (KREI). Future activities should be more aligned with each other to increase aid effectiveness in Myanmar.
   In conclusion, the future direction in agricultural and forestry development cooperation with Myanmar should first of all focus on sustaining the agricultural policy framework, by continuing current programs such as the KAPEX, KSP, CPS, and other ODA policy research, leading to the initiation of pilot programs for good agricultural and forestry policies in Myanmar for mutual recognition. There should be additional discussion on the aid effectiveness of the pilot program currently being conducted with rural community development projects, supported by a total of $22 million by 2019. Second, facilitating and implementing agricultural policies in Myanmar should be supported by Korean government programs in areas such as technical assistance, capacity building, and agricultural value chains in order to create a good business environment in the private sectors. Third, agricultural and forestry development programs should be linked with current frameworks such as the Korea-Mekong Initiative, Korea-ASEAN cooperation projects, and the Korean government’s New Southern Policy. Fourth, incorporating private sectors and/or non-government organizations (NGOs) throughout the programs is important for sustainable agricultural and forestry development activities in the long run. These programs should contribute to the social and economic growth for Myanmar to grow into a middle-income country in the near future. 

   This paper investigates the path of knowledge diffusion into China. While economic development occurs at multiple levels of technology, we are primarily interested in China as a emerging innovating nation, and as such, focus on how China has been absorbing frontier technologies from abroad.
   To this end, we consider utility patents granted by US patent office (USPTO). As observed by Kwon, Lee, and Lee (2017), Lee, Lim, and Jung (2018), and others, China's patent production in the US has been rapidly increasing since the turn of the century. This pattern is similar to patenting activities of Korea and Taiwan in the 1990s, two neighboring countries that recently graduated from followers to leaders in the global technology ladder. Analyzing Chinese patents granted by the USPTO offers a potential barometer for predicting the role of Chinese economy in the years ahead.
   This paper adopts the framework of Hu and Jaffe (2003) and study the geographic patterns of patent citations by Chinese inventors. Japan, Korea, and Taiwan are all global innovation leaders and compete in similar industries. Also, they are located in similar proximity to China, which allows us to  abstract from the effects of distance in knowledge spillovers.
   Controlling for the size of citable patents across countries, our main finding shows that Chinese inventors are most likely to cite Taiwanese patents followed by Korean and then Japanese patents. The reliance on Taiwan was particularly dominant in the early years of Chinese patenting growth. Korean technologies became more important over the recent years but the gap against Taiwan continues to remain.
   Taiwanese impact on Chinese knowledge production has been particularly important in electrical/electronics and machinery sectors. Korean patents have been frequently cited by Chinese inventors in chemical and computers/communications sectors, while the impact of Japanese patents has been generally limited.
   We also compare the market structure of patenting activities in China with the other countries. Specifically, we calculate the modified Herfindahl-Hirschman Index proposed by Hall, Jaffe, and Trajtenberg (2001) across (i) technology classes and (ii) patent assignees. It turns out that Chinese patenting has been highly concentrated in terms of technological spectrum, similarly to both Korea and Taiwan, but the ownership of Chinese patents are much more dispersed. The latter observation presents another close connection between Chinese and Taiwanese innovation sectors. 

   The aim of this research is to suggest policy proposals to enhance bilateral cooperation for SMEs(small and medium sized enterprises) between Korea and the Middle East through an examination of case studies of Saudi Arabia, UAE, Egypt and Tunisia.
   Chapter 2 examines the background and characteristics of measures to foster SMEs in the Middle East, going on to analyze the business environment in the region. SMEs are expected to play an important role in sustainable economic growth in the future, for instance by contributing to diversity in the economy and creating jobs in the Middle East. While the contribution that SMEs make to GDP is relatively low in the region compared to that of developed countries, SMEs account for the majority of all firms and contribute largely to employment. Amid the growing need for economic diversification and private sector development following the drop in oil prices that started from the second half of 2014, oil-producing countries in the Middle East have become more active in promoting SMEs to achieve their goals. Governments have expanded their support programs and investments for corporate development, which has led to an increase in local startups. While the growth potential of SMEs in the region is assessed to be quite high, there is still a need to improve the environment for fostering businesses. The Middle East ranked low overall on the Ease of Doing Business Index, Global Competitiveness Index, and Global Innovation Index, all of which evaluate business environments and competitiveness of countries. Notwithstanding differences among countries, SMEs in the Middle East struggle with limitations in financial access, lack of legal institutions, and poor efficiency in the labor market, problems which must be addressed with priority. Another challenge in the Middle East is the high preference for public sector jobs, and the lack of human resources to meet demands in the private sector. While job seekers generally avoid taking jobs in the private sector, which tend to pay lower wages for relatively heavy workloads, there is an urgent need to foster the private sector through SMEs in order to develop the economy and resolve unemployment issues in the future. Under these circumstances, labor productivity should be improved through education reform and vocational training, and efforts must be made to improve the public perception of employment in the private sector.
   Chapter 3 touches upon major policies and cases of inter-government cooperation related to the development of SMEs in four Middle Eastern countries — Saudi Arabia, UAE, Egypt and Tunisia. Saudi Arabia has recently presented its vision and detailed strategies for SMEs through the announcement of the “Saudi Vision 2030” and the “National Transformation Program 2020.” The Saudi Arabian government is providing credit guarantees and long-term financing to SMEs through the Saudi Industrial Development Fund, and promoting SMEs’ technological innovation by operating technology incubators, technology transfer programs and so on. The UAE has also shown strong interest in promoting SMEs by introducing new legislation for the small and medium enterprises sector(the SMEs Law) in April 2014. Through the Khalifa Fund for Economic Development, the UAE government offers various financial programs for SMEs based on their size, characteristics and the urgency of their financial needs, and promotes technological start-ups by holding contests for business ideas in the area of technology and technology commercialization programs.
   Egypt has outlined six strategies for promoting SMEs through the announcement of its “Industrial and Trade Development Strategies 2016-2020” in 2016 and established the Micro, Small and Medium Enterprise Development Agency(MSMEDA) in the following year to enhance the efficiency of its support policies. The Egyptian government has shown relatively high interest in promoting start-ups, but its policy on SMEs innovation seems somewhat lacking compared to the other three countries. Egypt has pushed for a total of four projects with the Canadian government in the SMEs sector. Tunisia reorganized its existing Ministry of Industry into the Ministry of Industry and Small and Medium Sized Enterprises in December 2017, and established a new department within the ministry to oversee matters related to SMEs. To promote technological innovation for SMEs, the Tunisian government emphasizes the importance of clusters such as technology parks. Policies for vitalizing start-ups in Tunisia are being implemented, together with the creation of business incubators and efforts to streamline business establishment procedures. Tunisia has recently stepped up its cooperation with the EU and German governments in areas such as financial and technological support for SMEs.
   Chapter 4 analyzes current trends of Korean SMEs in the Middle East and the Korean government’s support programs for them, also examining the difficulties and policy demands through survey data as well. From Korea’s perspective, the Middle East is a region where SMEs account for a larger portion of exports into the region than large corporations, and SMEs also show less volatility in their export volumes than conglomerates. The major export destinations for Korean SMEs in the region are Iran, UAE, Saudi Arabia and Egypt. Foreign direct investment in the region by Korean SMEs remains relatively low. Major investors in the region include Saudi Arabia, UAE, and Egypt, with the construction and real estate sectors accounting for the largest proportion of this investment. The biggest difficulties of Korean companies in the Middle East are caused by the unique laws and regulations in the region, including the sponsorship and workforce nationalization policies in private companies. According to the survey, most of the Korean companies in the region have worked out their business difficulties on their own or through help from private institutions and only 16.7% of the companies have utilized the Korean government’s support programs. In addition, Korean companies’ awareness and satisfaction of the Korean government’s policies to support overseas companies were not that high. Regarding policy demand, Korean companies in the Middle East wish for an easing in trade finance/insurance support requirements, increasing funding for overseas investment, and the provision of more detailed and reliable information on local investment conditions and the sponsorship system.
   Chapter 5 suggests three basic policy schemes based on the research results in the previous chapters. First, financial assistance is necessary to increase joint ventures and M&A in the region. Second, systems to share information with businesses operating in the region should be strengthened. Toward this, a Korean team network between embassies, public institutions and companies could be established to share information on business opportunities and cases of dispute. Third, intergovernmental programs should be expanded to establish a cooperation partnership and network between Korean and Middle Eastern governments. These programs could be divided into human exchange programs and institutional improvement programs. 

   During the global financial crisis, the US monetary authority (Fed) reduced the benchmark interest rate to 0% and provided massive liquidity through three quantitative easing measures. As a result, the US Fed balance sheet expanded five times ($ 4.5 trillion) from September 2008 ($ 0.9 trillion). Much of the increased global liquidity flowed into emerging economies. The influx of capital contributed to the growth of emerging economies, leading to new credit increases such as bank loans. Emerging markets, which supported 63% of global GDP, served as an engine of the global economy at a time when the growth in the US and Europe were subdued.
   While capital inflows have a supporting role in contributing to economic growth, they have also been a potential prompting factors to systemic risk in emerging countries and Korea. Emerging economies actively responded to systemic risks from foreign capital inflows. With the introduction of macro-prudential policy measures, emerging economies have been striving to maintain an external balance by responding to the surge in domestic credit and restraining excessive capital inflows. In order for emerging countries to adopt measures to curb inflows of capital, persuasiveness and legitimacy are secured only if external influences are triggered by external factors.
   Most previous studies have shown that push factors have had a greater impact on capital outflows in emerging economies than in pull factors. Raghuram Rajan, former central bank governor of India, has pointed out that the monetary policy impact of the US Fed and the developed country central bank is a major external factor (push factor). Meanwhile, in May 2018, the US Federal Reserve Chairman Jerome Powell addressed the controversy over capital movements to emerging economies after the global financial crisis. Powell said the inflows of capital into emerging economies is unlikely to have been caused by the Fed’s interest rate policy.
   According to the study, the US Fed’s quantitative easing has had the effect of lowering the Fed base rate by a further 4%. This means that normalization of the quantitative easing policy will lead to a policy rate hike of 4 percentage points. This is the reason why the normalization of US monetary policy will have a negative impact on the global economy. At the same time, the squeezing on capital outflows in emerging economies is increasing.
   Powell’s speech contains “implied” warnings that the US monetary policy is not a triggering force of a capital outflow in emerging economies. That’s why Powell’s speech is adding to the difficulty of policy responses in emerging countries. This suggests that it is necessary to check the determinants of global capital flows. In addition, the impact of US monetary policy on Korea's financial markets and capital outflows needs to be analyzed in depth.
   In this context, Chapter 2 introduced the progress of normalization of US monetary policy and recent issues. In Chapter 3, the discussion of push vs. pull factors in cross-country capital flows were examined using panel data of 47 countries including emerging and developed countries. Empirical results show that the external/ internal factors determining capital flows in developed and emerging countries is different.
   In developed countries, both internal and external factors play an important role in determining capital inflows and outflows. However, in emerging economies, external factors were found to be a major determinant. We also found that the patterns of capital flows among the four sub-groups in emerging countries are quite different.
   For emerging Asian economies, both internal and external factors are main determinants. However, external factors in Eastern Europe and internal factors in emerging Latin America are key determinants. In addition, capital inflows into emerging economies increased from the next quarter after US interest rates were cut first. This suggests that Powell’s argument (“Large capital inflows into emerging economies begins before the Fed’s rate cuts”) need to be reevaluated.
   Chapter 4 analyzes the impact of the normalization of US monetary policy on the domestic financial market and foreign exchange market by using the TVP-VAR model. In TVP-VAR model, the volatility of the economic structure and shock varies with time. Analysis shows that US credit spread shock, which is an indicator of uncertainty in international financial markets, has had a negative impact on domestic financial markets and capital inflows. On the other hand, the impact of the US policy rate hike after 2015 was limited.
   This study also practiced a simulation based on the assumption that the US policy rate, term-premium, credit spread are all rise at the same time. The shock caused domestic long-term interest rates, credit spreads, and won/dollar exchange rates to rise. However, residents’ overseas investment funds were returned while the foreigners’ investment funds flowed out. Chapter 5 summarizes the cases of macro-prudential policy measures of major countries that responded to the capital outflow situation.
   Based on the analysis of this report, Chapter 6 presents the five policy implications. First, it is necessary to respond appropriately to an ‘externality’ such as capital outflow caused by normalization of monetary policy in developed countries. Through the G20 platform, the Government could put international institutions like IMF, OECD, BIS in doing an objective analysis of the adverse effects of capital flows between “source countries” and “recipient counties”.
   Second, when operating domestic monetary policy, Bank of Korea is necessary to consider a pattern of capital flows that have changed from the past. In the meantime, there was a concern that the expanded gap between the domestic and US interest rates would lead to capital outflows. However, the capital outflows risks from the interest rate gap is expected diminished from the two reasons. ① The capital flow pattern of 「residents’overseas investment > foreigners domestic investment」 is settled down after 2014. ② Residents’ overseas investment could return in the crisis time.
   Third, the establishment of a virtuous cycle structure of 「current account surplus ⇆ residents’overseas investment」 is key to the balance in the external sector. If current account surplus does not stay in Korea but leads to overseas investment of Korean investors, the income generated in the form of dividend income etc. will be linked to next round current account surplus and will ease the pressure on the Korean Won appreciation.
   Fourth, there is a need to increase the foreign currency deposits of residents which act as ‘the second’ foreign exchange reserves securing foreign currency liquidity. Fifth, it is time for Bank of Korea to double its efforts to communicate with the financial markets on the policy rate path. It is a good case in point for the Fed to persuade market sentiment by strengthening its communication efforts through ‘forward guidance’ vehicle, which announced the path ahead of the expected rate hike. 

Executive Summary

1. Introduction

2. Empirical Approach
2.1. Measure of Korean Manufacturing Exposure to Chinese Imports
2.2. Measure of Korean Manufacturing Exposure to Export to China
2.3. Direct Employment Effects of Korean Manufacturing Exposure to Imports from/Exports to China
2.4. Indirect Employment Effects of Korean Manufacturing Exposure to Imports from/Exports to China

3. Data Description

4. Empirical Results
4.1. Direct Effects
4.2. Indirect Effects
4.3. Counter-factual Calculations

5. Concluding Remarks

References

Appendix 

   Over the last three decades, the world has experienced a substantial in-crease in Chinese import penetration due to the rapid improvement in Chi-na’s supply productivity, which is often called the “China shock” or “China syndrome.” The existing literature have shown that the increase in imports from China due to the China shock adversely affected the manufacturing employment of a number of advanced countries such as the U.S., Norway, Denmark, and Spain. Unlike those advanced countries, South Korea has shown a pronounced increase in exports to China as well as imports from China since the 1990s. Over the same time, furthermore, Korea’s manufactur-ing employment has shown a stagnated downward trend compared to other advanced economies and even rebounded since the mid-2000s. Given these motivations, this study investigates both import and export channels to ex-plore how the China trade shocks affected the exceptional trend in Korea’s manufacturing employment from 1993 through 2015.
   To capture the overall employment effects of the China shocks, specifically, we consider not only how a Korean manufacturing industry employment is affected by the change in its direct exposure to China trade shocks (direct effects), but also how other industries’ changes in exposure to China trade shocks affect the industry through domestic industrial linkages (indirect ef-fects), largely following the empirical approach employed by Acemoglu et al. (2016). Mainly using firm-level data for almost all Korean manufacturing firms with more than four employees and the 2SLS estimation method, we find that during the period 1993-2015 the increase in Chinese import expo-sure had statistically insignificant direct effects on Korea’s manufacturing em-ployment on average, while 1% point increase in Chinese export exposure directly caused 0.18% increase in employment across Korean manufacturing industries. For the indirect effects of China shocks, in contrast, 1% point in-crease in Chinese import exposures of downstream industries (intermediate goods buyers) led to 3.00% decrease in employment of upstream industries (intermediate goods sellers) on average, while 1% point increase in Chinese export exposures of downstream industries brought 1.70% increase in em-ployment of upstream industries on average. The relatively moderate direct effects compared to the indirect ones are partly explained by two factors: First, Korea has gone through a substantial change in the structure of its trade with China since 2000s, so that within-industry supply chains between China and Korea have become more intertwined for some industries. Second, the Korean industries whose main downstream industries were substantially exposed to the Chinese imports (exports) tended to have a relatively low di-rect Chinese import (export) exposure during the period 1993-2015.
   Based on the 2SLS estimates above, the increased Chinese import expo-sure turns out to have decreased Korea manufacturing employment by 1,210,000 during the period 1993-2015, mainly through the indirect channel. In contrast, the increased Chinese export exposure appears to have increased Korea manufacturing employment by 1,090,000 during the same period, through the direct channel (210,000) and indirect channel (880,000). In the case of Korea’s manufacturing industry, therefore, most of the job reduction attributable to the China shocks has been also offset by job creation caused by the China shocks. Such a considerable increase in manufacturing jobs due to the rise of China, which has not been reported yet in other advanced economies, appear to have played an important role in generating the re-bounding trend in Korea’s manufacturing employment.

Keywords: Trade Shocks, Globalization, Labor-Market Adjustment
JEL Classification: E24, F13, F14, F16, L60, P33 

   In July 2018, President Moon Jae-in announced the new target of achieving $50 billion in trade between India and Korea by 2030 following a summit meeting with Narendra Modi, the Prime Minister of India. Despite the Korean government naming India as a key partner in line with its New Southern Policy, trade between the two countries has remained stagnant since reaching the $20 billion mark in 2011. As such, this is a timely opportunity for research that can contribute toward attaining the trade target. This study mainly focuses on Korea’s export to India, identifying the factors contributing to export stagnation, and going on to present policy suggestions to enhance Korea’s export competitiveness in the Indian market.
   Chapter 1 introduces the factors that determine stagnation of trade examined in previous studies, which can be classified into internal and external factors. The former category refers to factors that determine intra-company competitiveness, while the latter factors are those beyond the control of individual companies and which can also be explained as cyclical or structural factors. Based on these factors, the following chapters analyze the main factors that are affecting the stagnation of Korea’s export towards India from various perspectives.
   Chapter 2 identifies three noticeable factors behind export downturns based on the changes in the structures of Indian imports and Korea’s exports to India. The first factor is an expansion of local production and non-tariff barriers in India. The government of India is promoting local production by utilizing the “Make in India” campaign and has been implementing various non-tariff barriers which have contributed to a slowdown in Indian imports. Another factor is the massive expansion of China’s export to India. China’s share in the Indian import market has been increasing rapidly, especially in major categories such as electronic devices, machinery, organic chemicals, steel, plastic and automobile parts. Lastly, Korea’s lack of export capacity also seems to have contributed to export stagnation. There are some items in which Korea’s exports are unable to fully meet India’s import demand, including various plastic polymers, synthetic rubber products, some kinds of machinery, electronic devices, and automobile parts. These products are being replaced by goods from other countries, mostly China, and considering that these represent some of Korea’s main export items, the situation is highly critical.
   Chapter 3 examines changes in the export competitiveness of major items that Korea exports to India. Our results indicate that many of the items that show a deterioration in competitiveness within the Indian market bear relation to the decline in global competitiveness of Korean products. Some other items showed a rise in competitiveness in the global market but declined in the Indian market, which largely seems to be due to lower price competitiveness compared to Chinese products. Meanwhile, changes caused by localization, the India-Japan Comprehensive Economic Partnership Agreement (CEPA), and non-tariff measures also seem to have had a negative impact on the competitiveness of Korean goods. For example, the expansion of localization in India has led to a decline in the export competitiveness of Korean automobile parts, and the concession ratio of the Korea-India CEPA, set at a less favorable level to the India-Japan CEPA, has had a negative impact on the competitiveness of Korean plastic goods. Moreover, India’s non-tariff measures partially affected the declining competitiveness in Korean exports of organic chemicals, rubber, and steel.
   Chapter 4 examines the internal and external factors of stagnation in Korean exports to India based on the results of a questionnaire survey conducted on 300 exporting companies. The external factors reported as the most influential were excessive competition in the Indian market and decline of Korean companies’ competitive advantages. On the other hand, the lack of competence in locating the local market and securing distribution and sales networks, the decline in productivity and competitiveness of individual enterprises, and the decline in export due to localization were the major internal factors identified. In addition, the low awareness and utilization of the Korea-India CEPA is also likely to have contributed to Korea’s sluggish export to India.
   Based on the above analyses, Chapter 5 examines the factors of export stagnation for individual items by structuring them into a matrix, and presents policy directions and tasks to enhance export competitiveness for the individual factors. In terms of enhancing competitiveness against internal factors, the results suggest that implementing active response measures to changes in India’s industry and demand structure, establishing active partnerships with local companies, and reinforcing intra-company export capabilities through the utilization of the existing CEPA would be beneficial. Against the external factors, the study emphasizes the necessity of strengthening inter-governmental cooperation to build a long-term, stable trade network. Reducing non-tariff barriers, advancing negotiations for the improvement of the CEPA, and establishing a virtuous cycle of trade through localization and the global value chain (GVC) are also recommended.
   This study confirms that the stagnation of Korea’s export to India is not a temporary phenomenon or limited to specific items, and could become prolonged or even permanent. In this regard, Korean companies and the government need to find new breakthroughs to enhance export competitiveness in the Indian market. To this end, it is imperative to build a virtuous cycle between export and investment that can enhance the scope and quality of trade by increasing investment or localization, and constructing bilateral cooperation projects. In order to develop more specific cooperation plans, the government should promote joint research on Korea-India trade, expand business-matching programs, establish a cooperation fund to support collaborative projects between the two nations, and develop a Korean-style manufacturing city within India to promote localization and GVCs. 

   This study empirically investigates whether monetary policy of small open economy that does not have international currency and monetary policy of small open economy that has international currency have a different effect on exchange rate. This is because general economic theory explains that the same effect will occur in all countries without explicit distinction between these distinctions.
   Chapter 2 defines the meaning of the international currency and details its exchange rate characteristics. This allowed us to see the importance of distinguishing between international currency and non-international currency. Next, the relative volatility of exchange rates was measured by dividing the period into the Asian financial crisis, the global financial crisis, and the stabilization period. As a result, the relative volatility of the crisis period was higher in the non-international currency than in the international currency. We then looked at the statistical characteristics of the difference between the two groups’ covered interest differentials. In the international currency, the average of the covered interest differentials was close to zero and the variability was relatively lower.
   In Chapter 3, the effect of monetary policy on exchange rates was analyzed using structural vector autoregression (VAR) models with sign restrictions. The target countries are the international currency countries (British, Canada, Switzerland) and Asian non-international currency countries (Korea, Thailand, the Philippines, Indonesia, Malaysia) among small open economies, and we investigate the inflation targeting periods.
   The responses of exchange rates to the impact of monetary policy in international currency of Britain, Canada and Switzerland was not much different from predictions of theories in general. As most theories predict, interest rate hikes have significantly lowered the exchange rate. It was also shown that exchange rates were overshooting, as predicted by Dornbusch (1976). On the other hand, the effect of monetary policy on exchange rates in most non-international currency countries has been considerably different from that of theory. In Thailand and Indonesia, ‘exchange rate puzzles’ appeared.  In the Philippines, the currency exchange rates were not significant. Malaysia’s exchange rate decline tends to stay too long. Exceptionally for Korea, the impact of interest rate hikes on the currency exchange rate was relatively less significant, but the rate fell, the exchange rate was overshooted and the maximum effect was in the second month after the impact.
   On the other hand, the responses of the accumulated risk premium  was also found to be significantly different from zero. However, it was not clearly different between the international and non- international currencies. 
   Chapter 4 used event studies to identify the excess rate of return from monetary policy impacts and its statistical significance. Four cases were selected, which consisted of three incidents of interest rate changes in Korea under the freeze of U.S. interest rates, and another one wanted to pick a similar time to the current situation to get suggestions for future situations.
   The study found that the Korean exchange rate fluctuates more significantly on the basis of the dollar index than on the emerging countries index. The outcome of the case study was that one of the four events changed the exchange rate in the opposite direction to the theory, while the other three events showed that the exchange rate changed in line with the theory. But the impact of the incident did not last long.  And there was only one statistically significant event. Therefore, Korea’s monetary policy was limited to changing the exchange rate in the direction presented in the theory. In case of an incident similar to the recent situation, the exchange rate has been shown to fall even if Korea and the United States raise interest rates to the same level. The reason for this is that the U.S. rate increase has reduced its marginal influence on the Korean currency and it could last longer than the U.S.  However, this event does not have any statistical significance.
   The following are policy implications that can be derived from the results of this study:
   First, we need to internationalize Korea won. The reason why Korea’s monetary policy has limited predictions about how it affects the exchange rate is that the won has not been globalized. Therefore, efforts to improve the transparency of the market and the effectiveness of monetary policy should be made to internationalize the won.
   Second, Korea needs to consider the U.S. monetary policy and the fluctuations in interest rates between the two countries in its monetary policy decisions because of the economic characteristics of the small opening. Because the U.S. monetary policy has more influence than Korea’s, it is highly likely that the effect of the policy will be weakened if the two countries implement it in a different direction.
   Third, it is necessary to expand the operational instruments of monetary policy. Until now, Korea’s monetary policy has focused on adjusting the benchmark interest rate. However, it is necessary to develop various operational instruments that can change not only nominal interest rates but also real interest rates.
   Fourth, since monetary policy has limited external effects, the development of various indirect policy means is necessary in case exchange rate policy is necessary. Of course, the role explicitly given to the central bank is inflation and financial stability. However, the role of the central bank should be interpreted more comprehensively, as the exchange rate and other macroeconomic indicators are closely linked to financial stability.
   Fifth, it is possible that the impact of South Korea’s monetary policy on the won/dollar exchange rate will increase. As interest rates have reversed and the exchange rate has continued to rise, the U.S. rate hike has lowered its marginal impact on the dollar. It is also because there is more room for future interest rate hikes in Korea. 

  This study aims to prepare the way for Korean infrastructure construction companies to enter the ASEAN infrastructure market which is growing in line with the rise of the ASEAN economy. To this end, the study examines the characteristics of ASEAN infrastructure markets and each countries’ development plans and efforts to improve ASEAN connectivity taking place in the background. In addition, it provides implications for Korea by comparing the support strategies of Korea with those of Japan and China for entering the ASEAN infrastructure markets. The study also identified difficulties by surveying the management practices of Korean construction companies operating in the ASEAN infrastructure markets. The lessons learned from the companies’ inroad into the business were summarized and government’s support policies were also analyzed based on them. Finally, based on these analyses, we provide policy suggestions for the Korean government.
  In Chapter 2, the growth of the ASEAN construction infrastructure market can be seen through various indexes. ASEAN countries are growing fast but cannot maintain their economies under current levels of infrastructure, meaning they are likely to actively develop infrastructure for sustainable growth. As Figure 2-4 shows, the share of the construction industry in GDP is increasing in all ASEAN countries. The survey results reported in Chapter 3 also gave a positive outlook on growth in the ASEAN infrastructure market (see Figure 3-21). Comparing infrastructure indexes of each country, a larger demand for development is expected in Vietnam, Indonesia, the Philippines and Cambodia than in the rest of ASEAN countries.
  As ASEAN pushed for economic integration, it focused on reducing the development gap. The Initiative for ASEAN Integration (IAI) work plan III also recognizes that economic integration cannot be achieved successfully without reducing the development gap. Therefore, it is likely that the project will be actively promoted throughout ASEAN to improve physical connectivity, including the construction of infrastructure, and business related to ports, roads, and railways. This is also evident in the MPAC 2025. Table 2-8 shows that infrastructure investment needs in major countries may differ in terms of the areas they are needed even though this might result from the gap in their respective economy scales. In other words, as demands vary from market to market, approaches should also be different. Indonesia has a large demand for transportation infrastructure while the Philippines has a high demand for power infrastructure. Vietnam has much greater demand for power and communication infrastructure than other areas. Accordingly, each country has different policies depending on their demands.
  Chapter 3 analyzed major countries’ strategies for entering ASEAN infrastructure markets. Japan’s support strategy is summarized into four major categories. First, it strengthened its capability to win contracts through an expansion of public funds and improvement of systems. Public finance was increased by expanding support from JICA, cooperation with ADB, and the supply of sunk costs by the Japan Bank for International Cooperation (JBIC), Nippon Export and Investment Insurance (NEXI). In 2017, NEXI was converted into a specialized company for government investors and has actively responded to issues such as the creation of dollarized trade insurance, extension of investment insurance periods, and local governments and corporations lacking government guarantee. Second, it has been working to develop conditions to strengthen the global competitiveness of its infrastructure companies. This study illustrates cases that can serve as a benchmark for the Korean government, taken from the examples of Japan and China, which are considered the biggest competitors of Korean companies in the ASEAN region. Japan formerly entered the ASEAN market, emphasizing high-quality infrastructure partnership. In the long term, Japan is implementing policies for international standardization of infrastructure development (see Table 3-4). In other words, it is implementing a strategy to create a market where it is difficult for other competitors to operate in, strengthening its standards and certification basis in the ASEAN infrastructure market. It is known that Japan is trying to make this a key agenda at the G20 Summit in 2018. China, on the other hand, is placing more of an emphasis on quantitative approaches in the region. If Japan leads the way and forms the international standard and certification basis for the development of the ASEAN infrastructure, Korean companies may face difficulties in following those standards. While closely examining Japan’s strategy, Korea should also open a way to participate in the standardization process jointly with Japan or in consultation with ASEAN. Third, Japan is focusing on cross-sectional development by establishing packaged strategies for developing infrastructures overseas. This strategy consists of strengthening the international competitiveness of related industries, strengthening public fund support, strengthening cooperation and strategic matching in the upper-class sectors, strengthening packaging and top sales, responding to international norms, and strengthening the government’s promotion system. To that end, the Japan Overseas Infrastructure Corporation for Transport & Urban Development (JOIN) was established in 2014. Benchmarking JOIN, Korea also established the Korea Overseas Infrastructure & Urban Development Corporation (KIND) in 2018. It is too early to assess KIND’s performance, but its operations seem to be proceeding in an appropriate direction. Fourth, Japan is participating in infrastructure projects through the “All Japan” initiative, which is based on the nationwide public-private cooperation system. The association held 37 strategic meetings until July 2018. Japan’s top sales diplomacy is achieving good results under the initiative. One of the major achievements is the Thilawa special economic zone in Myanmar.
  China’s strategy to help Chinese companies enter the infrastructure markets is similar to that of Japan, albeit less concerned with quality. China is also expanding its participation in the ASEAN infrastructure market through the expansion and utilization of public finance mechanisms such as the Silk Road Fund, including the AIIB, and the China-ASEAN Infrastructure Fund along with strategic approaches like the BRI. China is entering the ASEAN market under disadvantages as a latecomer. Faced with worries over the so-called “China threat,” the nation is strengthening its management system, discouraging rash winning of contracts, and reducing the overseas posting of Chinese workers.
  In order to compete with China and Japan in the ASEAN infrastructure market, Korea will first need to substantially expand its public finances. Working with significantly less public finances than China and Japan will limit the development of Korean businesses. Japanese companies have an advantage in terms of loans, international credit, information sharing, experiences, techniques, evaluation of risks, and their dominant position in advanced countries, while Chinese companies have an advantage in terms of the size of loans they can secure, government support, decision-making skills, risk burden, and their dominant position in emerging countries. This means Korea must develop strategies to target ASEAN infrastructure markets by discovering strengths that both Japan and China do not have. In order to achieve this, Korean companies must prepare to compete with Japanese firms.
  Chapter 4 analyzed Korea’s participation in the ASEAN infrastructure market using data from the International Constructors Association of Korea and conducted a survey on Korean companies who have entered the ASEAN market. The ASEAN market is different from the Middle East market, in which Korean construction infrastructure companies are posting the biggest orders (see Figure 4-4). The ASEAN market had orders in various fields such as civil engineering, industrial facilities, electricity, telecommunications, services and architecture, whereas the Middle East had a very high concentration on plants. Orders in the ASEAN market are concentrated in Vietnam, Thailand and Singapore, with the distribution weighted towards a few countries. Our results also showed that the value added per order varies from region to region. Vietnam, Indonesia and the Philippines had a lower value added per order, while the construction sector in Singapore had a higher value added per order (see Figures 4-5, 4-6). While most Korean construction companies in recent years have mainly focused on simple subcontracting, they should transition into high-value-added investment development projects. It is expected that KIND, which was launched this year, will play an important role. However, as construction orders tend to be concentrated in specific fields, competition among domestic companies is becoming fiercer. Korea must come up with a method to ease competition among its companies.
  Korean infrastructure construction companies that have entered the ASEAN market have a relatively high level of competitiveness. However, they assess themselves as slightly less competitive in the areas of purchasing and procurement capability, maintenance and construction capability. The companies appeared to be well aware of their problems in that they saw the importance of strengthening their marketing capabilities and competitiveness in property, plant and equipment to enhance their competitiveness (see Figure 4-14, 4-15). According to our survey on what is important in assessing marketability by country, entry barriers and attractiveness of target markets against competitive markets were important to countries like Myanmar, Vietnam and Indonesia, while all factors such as barriers to entry, level of competition, and attractiveness of target markets were important in evaluating marketability in advanced countries such as Singapore. In order for Korean infrastructure construction companies to enter a developing economy, efforts to resolve entry barriers through intergovernmental negotiations are required. The government should establish an organization that can systematically collect barriers to entry that Korean companies experience when entering the market and provide a window that can be reflected in inter-government negotiations.
  Moreover, small and medium-sized enterprises (SMEs) and large enterprises had different factors that had sensitive effects on the decision of business orders (see Figure 4-19). The international situation had a more acute effect on large companies than on SMEs, which were more affected by factors such as the exchange rate and situations in the construction sector than their larger counterparts. As the factors that come into play are different depending on the size of businesses, policies should be differentiated as well. Currently, the government needs to classify the policies of supporting companies entering construction infrastructures into those for large companies and SMEs, and develop policies that meet the different demands they have. In addition, 66.6 percent of SMEs responded they do not have countermeasures to respond to risks, while 64 percent of large companies replied they had such countermeasures. Because there is a clear difference in the capacity of risk response between large and small businesses, it is necessary to strengthen risk mitigation plans for SMEs that have entered the ASEAN market.
  Fifty-five percent of Korean construction companies said they had never heard of the New Southern Policy. The number of SMEs which have not heard of the New Southern Policy was higher than that of large companies. On the other hand, the Korean companies predicted that the policy would have be advantageous for future business. The largest reason for this they stated was that the Policy would enable them to utilize government investment funds with a high level of public confidence to stabilize their business (58.1 percent of businesses who were aware of the New Southern Policy). Responses varied by the size of the businesses surveyed. The perception that the New Southern policy would help them to win more contracts was more widespread among larger companies than smaller companies. As these perceptions of the New Southern policy differ by the size of the business, the Korean government should make more of an effort to publicize the New Southern Policy to companies. When Korean companies try to win orders based on the New Southern Policy, the Korean government should create conditions that do not cause excessive competition among Korean companies. The New Southern policy was not expected to help improve their profitability in the short-term, but was expected to help ensure a long-term increase in the profitability of businesses (see Figure 4-21). Thus, Korean construction companies that have entered the ASEAN infrastructure market need to understand the implementation direction of New Southern Policy and reflect it in their long-term development plans when preparing entry strategies. As the ASEAN Economic Community (AEC) has been launched, Korean construction companies should focus on efforts to link the New Southern Policy with the AEC.
  Only 23 percent of the companies were aware of the Master Plan on ASEAN Connectivity (MPAC) which ASEAN has promoted since 2010. It seems that Korean companies are finding it more difficult to obtain detail information on the changes in the ASEAN community than on changes in each country’s economic policies. On the other hand, 62 percent of companies knew about the launch of the AEC in late 2015 and many Korean companies were aware the fact that it was advantageous to enter the third country as a local company.
  Korean construction companies that entered the ASEAN market expected the business environment of ASEAN will improve in the future (see Figure 4-23). Sixty-seven percent of Korean companies believed the infrastructure construction market would expand and many of them were local competitors. According to a survey on difficulties of construction companies entering the ASEAN market, the most difficult element was found to be the high level of competition in the sector (see Figure 4-24). There is no wonder that competition is becoming fiercer as the ASEAN market’s attractiveness increases, necessitating active efforts on the part of the companies to survive. Aside from this competition, the Korean government needs to concentrate on creating an environment in which Korean companies are more comfortable to operate when the government promotes the New Southern Policy. As it is difficult to improve the business environment by itself, the Korean government should maintain favorable relations with the local government and support Korean companies by bringing the agenda to the negotiating table. Meanwhile, difficulties faced by Korean companies that entered the ASEAN infrastructure market differed by the size of companies and by major construction types (see Figure 4-24, 4-25). Therefore, the government needs to reflect the difficulties that companies feel differently depending on the type of construction or the size of the company when it comes to developing policies to support overseas construction companies. In addition, the requirements of Korean construction companies differed depending on the size of the companies, so it is necessary to develop customized strategies to their requirements (see Figure 4-26, 4-27). Moreover, when considering how infrastructure indices differ by region, as shown in Chapter 2, the government should consider providing supporting policies that reflect differences in regional demand.
  In addition, we listed current policies to support Korean companies entering the foreign infrastructure market, and how companies who had participated in the survey felt about these policies. While the companies were relatively satisfied with the government’s efforts to explore overseas markets, conduct feasibility studies, and provide support for overseas project orders, they were negative about the level of overseas field training being provided and support measures such as one-stop packages to venture abroad. As 70 percent of the companies surveyed were SMEs, these opinions were more representative of SMES rather than large companies. SMEs found it difficult to compete in terms of the quality of their manpower. Requests for the government were also different by the size of the companies surveyed. Therefore, it is necessary to consider both the size of the companies and the type of construction when establishing policies.
  Appendix 3 outlines the implications for Korean companies through analyzing the cases of construction and operation projects of power plant “C” in Cirebon, Indonesia and the company “P” major highway construction project in Vietnam. First of all, the Indonesian case showed how Japan’s project financing capability and Korea’s knowhow on operation and maintenance of power plant can be combined together when advancing into a third country, meaning that Korea, Japan and China are not necessarily competitors but also partners. Of course, the capabilities of Korea must be supported in order to form such a business structure. The case of company P in Vietnam was valuable as it shows how a large-scale corporation can utilize the self-enrichment system it has established over the years through its experience as a large company. The 20 years and more of experience in Vietnam allowed the company to enjoy a distinct advantage when entering other countries and to manage its risks. The self-enrichment system shown in this case would also be helpful for companies entering the market if it could be deployed by Korean public institutions. Creating and maintaining a long-term store of these experiences can reduce the risk burden for companies entering new markets. Therefore, it is necessary to create a storage system for companies to accumulate and share their experiences. Of course, it would also be necessary for the government to provide incentives to encourage companies to share their experiences for such a system to be operated in a sustainable manner. 

   Following the global financial crisis, some advanced countries recognized that the manufacturing sectors play an important role in mitigating the negative effects of the economic crisis. Also, as there has been some indication of firms bringing back manufacturing activities back to their home countries in recent years, reshoring has received broad attention by policy makers in advanced coutnries such as U.S. and Europe. Firms once offshored are relocating production back to the home country as production costs have significantly increased in emerging countries, and as they encounter a variety of difficulties such as low quality of products and low flexibility in production processes.
   The Korean government announced reshoring policies which provide reshoring firms with tax or subsidy incentives in December 2013. However, the policies appeared to be ineffective because only a very limited number of firms chose to reverse their previous offshoring decisions, leading to the concern that only a small number of firms are realizing the benefit of the reshoring policies. Therefore, this study aims to analyze the background of reshoring and effectiveness of reshoring policies from various angles. First of all, this study examines the definition of reshoring used in the literature and compares this with the concept of reshoring used in the media or policies. In addition, we infer the possibility of reshoring based on Korean firm data and develop a model to study the effectiveness of the reshoring policies. Lastly, we study reshoring trends and policies for Korea, U.S., Europe, and Taiwan to provide policy implications.
   First of all, this study examines the definition of reshoring broadly used in the literature, finding that it covers more patterns than those used in the media and policy. The act of reshoring, as perceived by the media and policy, only includes cases where firms move back to their home country by investing in new production facilities. Reshoring in academic literature, on the other hand, also includes cases in which production moves back to the home country through outsourcing increasing domestic production. Reshoring is motivated by an increase in the production cost in emerging countries, improvement of the product quality and proximity to the customers. In addition, it is encouraged by policies which aim to strengthen the manufacturing sector, create new jobs, and complement inward foreign direct investment. For example, the U.S. Europe, and Korea implement reshoring policies by providing a variety of tax exemption and subsidy measures for firms which reverse their previous offshoring decision.
   Next, we use data on the sourcing of Korean firms to measure the possibility of reshoring. The data presents that the portion of intermediate goods procured abroad decreases in 10 sectors among 24 sectors in recent years, implying that the sectors have relatively high probability of moving production facilities back to their home country. In particular, the reduction in foreign sourcing is pronounced in the manufacturing of other transportation equipment and manufacture of leather, luggage, and footwear. Also, most of the reshoring is incurred by moving their foreign outsourcing to domestic outsourcing. The relationship between sourcing patterns and productivity shows that the firms which procure intermediate goods from foreign affiliates or foreign in-sourcing have the highest productivity, implying that strong economic incentives are needed to reverse their offshoring decisions.
   Chapter 4 extends Grossman and Rossi-Hansberg (2008) and Wright (2014) to investigate firms’ offshoring and reshoring decisions and evaluate the impact of reshoring policies on employment and production. The firms choose offshoring when foreign production cost is less than domestic production cost. However, when they establish foreign affiliates, they may encounter unexpected costs from low quality of products or difficulties in management and so on, incurring additional costs related to foreign production and resulting in a reversal of their offshoring decision. In addition, if the government provides subsidies for reshoring, more firms are encouraged to move their production facilities back to their home country. On the other hand, as the reshoring policies lower the expected cost of offshoring, it also has the effect of encouraging the offshoring of firms. To summarize, reshoring policies expand offshoring as well as reshoring, and as such they do not guarantee additional job creation and an increase of production.
   Chapter 5 investigates reshoring trends and policies in Korea, U.S., Europe, and Taiwan. Korea implemented reshoring policies in 2013 to support firms which cut back foreign production and return to their home country by proving them with tax exemption and subsidy. As a result, 44 firms decide to reverse their foreign production as of Feb. 2018, mainly in industries of electronics and jewellery. Some papers conducted a survey targeting domestic reshoring firms and they show that reshoring policies are negatively assessed, and high labor cost, unavailability of skilled workers, troubles in closing production facilities abroad are pointed out as the difficulties associated with reshoring.
   Reshoring in the U.S. is reported in the “Reshoring Initiative Report,” which includes all types of reshoring introduced in Chapter 2. According to the report, there are about 700 cases of reshoring between 2010 and 2014. About 60% of firms came back from China as labor cost in China has rapidly risen in recent years. However, experts say that reshoring is not a main trend and does not substitute for offshoring. The U.S. government tries to attract domestic multinational firms by providing favorable conditions for investment through tax reduction, low energy cost, and construction of infrastructure.
   The EU encourages multinational firms to come back to their home country to achieve 20% of value added in the manufacturing sector until 2020. In particular, the reshoring policy is conducted in relation to the innovation strategy, such as Industry 4.0. Reshoring is most often observed in Sweden and Ireland, and is concentrated in high-tech sectors or the fashion industry to explore cutting-edge technology and high-skilled workers and to improve the proximity to the customers and response to rapidly changing trends. Also, the main reasons for reshoring in EU are low-quality of products and low flexibility in the production process. However, EU experts and policy makers still see that reshoring is a limited trend and a natural decision of the firms following offshoring.
   The Taiwanese government conducted a comprehensive survey for offshoring firms, asking whether they would be willing to return home, going on to provide subsidies for land and labor, and tax exemption for firms which were willing to come back to Taiwan. In particular, the government supports R&D operations to attract firms which possess advanced technology and materials. As a result, 255 firms returned to Taiwan between September 2006 and March 2009, followed by 85 more firms moving their production facilities to Taiwan in 2015 and 2016, achieving the target of the government. 
   Lastly, Chapter 6 discusses policy implications based on the data analysis, model development and case studies above. First of all, the goal of reshoring policies should be revised to improve industrial competitiveness rather than to create jobs. Specifically, the government needs to survey offshoring firms to understand their demand for reshoring and provide what they need to move production facilities back to their respective home countries. The government should apply a broad definition of reshoring to include reshoring from foreign outsourcing to domestic outsourcing because these forms of reshoring also contribute to an increase in production and employment. Also, the government should provide appropriate reshoring policies for high-tech sectors and the fashion industry in which reshoring is mostly observed, by providing pricing information or supply-chain information. Above all, it is important to provide favorable conditions for firms to increase their investment, which would have the effect of increasing both reshoring and inward foreign direct investment even without implementing reshoring policies. Lastly, differentiated incentive systems for different types of investment must be revised to prepare the basis for transparent investment policies.