Since 2015, the Chinese government has been strongly promoting its “Made in China 2025” initiative, which aims to accelerate the transformation of China from a “big manufacturing country” into a “world manufacturing power” by boosting manufacturing competitiveness through innovation and nurturing high-tech manufacturing industries. China’s “Made in China 2025” strategy is both a threat and opportunity for Korea. This study aims to analyze the development status of Chinese manufacturing industries and the policy of “Made in China 2025,” and to provide implications and countermeasures.
  As a threat, first, “Made in China 2025” could hurt existing manufacturing powers such as Korea, an economy heavily dependent on Chinese exports, by promoting import substitution in the manufacturing industry and increasing global market share. Second, the preferential benefits and financial support provided by “Made in China 2025” to local companies could be used to fund overseas technology and acquisitions, which could lead to difficulties in protecting domestic companies. Third, if “Made in China 2025” leads to excessive investment and redundant investment in specific technologies and industries, it could cause problems such as overproduction, overcapacity, and price collapses around the world. Fourth, if China adopts a policy to prevent foreign companies from entering the domestic market and nurture high-tech new industries through “Made in China 2025,” new trade disputes could increase and pose obstacles for foreign companies.
  As an opportunity, first, “Made in China 2025” can create demand for software and equipment in a vast ICT field centering on the new growth high-tech industries: next-generation information technologies, new energy vehicles, high-performance machine tools and robots. Second, the expansion of open-door policy in “Made in China 2025” – such as negative list type foreign investment; safe, transparent and predictable management environment; trade facilitation; industrial adjustment of the steel, chemical, ship sectors through opening up; and support for overseas expansion of the high-speed railway, electric power equipment, and construction equipment sectors – could increase new business opportunities for foreign companies. Third, each region in China is promoting “Made in China 2025” and this could lead to international cooperation in several sectors based on regional differences in the level of manufacturing development, the industries each region specializes in due to their comparative advantage, and the core industries of “Made in China 2025” by region.
  In addition, this study analyzes the Chinese manufacturing industry’s development status in terms of industrial structure and trade structure, using indicators related to China’s manufacturing industry, import and export data, and indicators of localization. First, the results of our industrial structure analysis show that the Chinese manufacturing industry has been actively developing under the Chinese government’s aggressive policy of promoting and investing in the high-tech manufacturing industry. The mid-high technology and high technology sectors’ sales ratio has increased over the past 10 years and R&D investment expenditure on high-technology has increased as well. Second, our analysis of the trade structure shows that the export comparative advantage of China has generally increased regardless of the technology level, but the high-tech sector has been stagnating recently. In addition, import substitution has been progressing at a rapid pace due to the expansion of production and procurement of general intermediate products in China. These results provide the following implications. First, the development status of China’s manufacturing industry and “Made in China 2025” show that the mid-high and high tech industries and new industries related to the 4th industrial revolution are developing remarkably. Therefore, Korea can expect to be fully exposed to competition with China in these areas. Second, from the perspective of technology levels, China’s recent advancement in high-tech and medium-to-low technology industries is remarkable, but high-tech sectors are showing signs of being stalled or delayed. It is unclear whether China will be able to achieve the goal of developing its own technologies and product competitiveness in these sectors as rapidly as planned.
  In addition, this study analyzes the effect that the recent development in China’s manufacturing sector has had on Chinese global value chains (GVC), employing a GVC analysis based on WIOD and ADB data. As a result of the analysis, the proportion of intermediate goods in the Chinese domestic market has increased significantly in the areas of textile manufacturing, clothing and leather manufacturing, computers, electronics, and optical product manufacturing (by industry), and in mid-high manufacturing (by technology). The proportion of gross exports’ overseas value-added has declined gradually and dependency on foreign countries has decreased. We also confirmed that China has been shifting from a rear to front position in the GVCs, as its GVC participation based on vertical specialization has decreased. Also an analysis of China’s exports to Korea － mainly in the manufacturing of electrical and optical components, chemical and chemical products, and primary metal and metal processing industries, which account for a large trade volume between Korea and China － shows that China’s GVC participation rate decreased while Korea’s position in GVCs has relatively increased as the overseas value-added portion of its intermediate goods declined. The increase in intermediate goods imports due to China’s economic growth was greater than the import substitution of intermediate goods, which had no negative impact on Korea’s intermediate exports to China.
  This study also confirms changes in the status of China’s global value chains by analyzing the intra-Asia trade network using the international trade data of major industries. The results indicate a Chinese “centrality,” in which most intra-regional trade relations were linked through export or imports from China, in the textile and apparel and mobile phone intra-regional trade networks. In other words, our results confirm that the scope of China’s intra-regional specialization structure is gradually expanding upstream of the value chain. Meanwhile, in the automotive industry, China still has not become a leading player in GVCs. And the centrality of China weakened in 2007-2015 as other Asian countries formed new intra-regional trade relations that did not go through China. The implications of the analysis are as follows. First, there is a clear distinction between industries in the intra-regional trade network structure, and these inter-industry differences provide the implication that differentiated strategies for each industry will be needed to respond to the emergence of China. Second, the expansion of China’s centrality and role in the value chain is being led by foreign capital firms. Third, the emergence of the new intra-regional trade network is the result of a reorganization in the intra-regional specialization structure, as the Korea-China-Japan-based specialization structure centered on Northeast Asia expands to other regions in Asia such as Southeast Asia and South Asia.
  This study seeks the countermeasures of Korea in response to the above opportunity and threat factors. The countermeasures against the opportunity factor of “Made in China 2025” are as follow. First, we should pay attention to the huge demand that China will create by fostering new-growth industries in the “Made in China 2025” initiative. The Korean government should selectively support the technology development of small- and medium-sized companies that possess global competitiveness in the parts, materials and equipment sectors, and strive to secure their sales network in China. Second, it is necessary to actively seek Korean companies’ entry into China by utilizing the internationalization of “Made in China 2025” and further opening up of the Chinese capital market. Innovative ICT venture entrepreneurs can increase their chances of success by cooperating with rich funding partners and the broad market in China. We can also consider entering into the Chinese market through preemptive mergers and acquisitions (M&A), equity investments, and joint ventures with promising Chinese companies in new growth industries. Third, Korea should select “key cooperation areas and fields” in each region of China and seek for entry through selection and concentration. In particular, it is necessary to seek strategic entry into regions with high demand for economic cooperation with Korea but with little competition between domestic and foreign companies.
  The countermeasures against the threat factors of “Made in China 2025” are as follows. First, China’s import substitution and expansion of global market share are inevitable developments, but China still imports core parts and technology from overseas. Therefore, we need to steadily develop high technology, high quality and high value- added products and identify opportunities within China’s fostering of new growth industries and expansion into the global market. Second, there is a possibility of domestic technology and company leakage due to China’s aggressive M&A strategies, but M&A can also be one of the ways for Korean companies to enter the Chinese market. Third, there is the possibility of global overproduction due to the concentration of resources in specific industries and technologies in “Made in China 2025.” Therefore, when the Korean government and industry establish their market supply forecast, facility investment plan, and future strategy, they should take into account the future supply of major industries supported and nurtured under “Made in China 2025” and study the impact on future global markets. Fourth, as the preferential benefits, financial support, and trade barriers provided to local companies under “Made in China 2025” could have a market distorting and deteriorating effect on the competitiveness of foreign capital companies, we will have to continue monitoring the various subsidies for local enterprises and other support measures by China to seek appropriate response measures.
  There is also a need for countermeasures against changes in China’s industrial and trade structure. First, China’s manufacturing industry has a wide development gap by industry and technology. Therefore, Korea should design differentiated responses by industry, product, and technology levels. Second, the Chinese manufacturing industry has reached a certain limit in its global market share, especially in the high-technology sector. And this suggests that we need to understand the status of global market share and future market share forecasts for the Chinese manufacturing industry and seek the detailed countermeasures. Third, although import substitution is proceeding in line with China’s expansion of intermediate production and procurement, it should be noted that this trend is also large in terms of industry and product variances, and a countermeasure strategy should be prepared in light of this. In addition, as China’s core components and technologies are still highly dependent on foreign companies, it is necessary to maintain the mass exports of intermediate goods through the development of high-technology, high-quality and high value-added products.
  The countermeasures against the GVC phase change in Chinese manufacturing can also be considered as follows. First, we must develop new industries and new products through sustainable innovation, protect core technologies and technicians who possess competitiveness while maintaining differentiated technologies, and make China’s rising in GVC an opportunity for us. Second, regional manufacturing GVCs are likely to be led by China, but the centrality levels of China show big differences depending on the characteristics of each industry and product. Therefore, we should study how GVCs centering on China will form in the new-growth industries of “Made in China 2025” and how Korea will participate in these industries. Third, the expansion of China’s role in the GVC does not necessarily indicate a central role being played by Chinese local companies or a shift to high value-added areas; the role played by foreign companies is still important. Thus companies should position themselves to utilize and benefit from China’s expansion. Fourth, with the Korea-China-Japan-based specialization structure being expanded to other regions in Asia, such as Southeast Asia and South Asia, and the intra-regional specialization structure undergoing a reorganization process, a new intra-regional trade network has emerged that does not have China as its main axis. We should actively seek out third countries as our future production base and consumer market.
  Government policy to respond to development in the Chinese manufacturing sector is important. However, the policy-making must be designed from the initial stage to be bottom-up, sector-specific, in which industry and industry experts participate. In addition, the government should prepare policies to foster long-term new growth industries for the next 30 years and cope with “Made in China 2025” and the 4th industrial revolution. It will be essential to establish a neutral and independent control tower that will consistently promote industrial policy, regardless of political changes. Related government departments, research institutes, and industry associations should participate in the project to act as a control tower where information is shared on China’s development status, policy changes, and future prospects, and appropriate countermeasures are taken. 

  The purpose of this study is to construct a model that can analyze growth effects to explain the impact that economic integration between North and South Korea will have on both economies. The first chapter explains the background and purpose of this study and how it differs from previous studies in terms of methodology. While inter-Korean economic cooperation projects have been regarded as new economic growth opportunities by every past administration, only a handful of studies have been conducted to estimate the resulting economic effects. The purpose of this study is to estimate the economic growth effects of inter- Korean economic cooperation on both sides of North and South Korea and to identify implications for inter-Korean economic cooperation to maximize the interests of both economies. Methodologically, these points that the Solow growth model is used, the economic growth effect is estimated by taking into account various economic cooperation projects and policy variables, and the dynamic effect of the period is analyzed are evaluated as a distinction from previous research.
  In Chapter 2, the inter-Korean economic integration is divided into short-term inter-Korean economic cooperation projects and mid- to long-term progressive unification, and a model is developed to quantify it and a method to evaluate the growth effect of economic integration is suggested. The basic economic model of inter-Korean economic cooperation assumed the Cobb-Douglas production function in the form of a Solow growth model. The difference between the North and South models is that infrastructure development is separated from capital and constructed as a variable independently, and that North Korea's productivity growth rate changes according to the labor and capital exchanges arising from the process of inter-Korean economic cooperation are internalized by functions in the model.
  The gradual unification scenario was composed by reflecting five major issues in the basic model. A declining growth rate due to excessive government debt, increase in the cost of disruption in South Korean society due to the movement of North Koreans to the Southern region during the unification process, increase in the working population due to the reduction of military forces in North Korea, and support provided by the South Korean government for social security costs in North Korea are applied at different stages depending on the stage of gradual unification. On the other hand, the growth effect of the inter-Korean economic integration is calculated by summing up the difference between a scenario where economic integration is pursued and one where it is not.
  Chapter 3 examines short-term and long-term economic integration scenarios. First, the seven major economic cooperation projects – the Kumgang Mountains project, Kaesong industrial complex project, light water reactor project, South-North railway and road connection project, Han River estuary joint use project, shipbuilding cooperative development project, and the Dancheon area underground resource development project – were selected for closer examination. Labor, capital investment, and infrastructure development proceed differently depending on economic cooperation, with the Kaesong industrial complex project, South-North railway and road connection projects corresponding to labor-intensive economic cooperation projects, and the light water reactor project and South-North railway and road connection projects, which account for more than 80% of infrastructure development during the capital investment stage, were found to be infrastructure-intensive economic cooperation projects. In terms of business duration, projects such as the Kumgang Mountains project and Kaesong industrial complex project are planned for continuous expansion over 30 years according to the development plan. On the other hand, projects such as the infrastructure-intensive economic cooperation projects will show a great reduction in the business scale once the initial construction stage has been completed.
  Meanwhile, the progressive unification scenario was designed as a mid- to long-term scenario conducted in three stages over a total of 30 years. The first stage is assumed to be the simultaneous implementation of the seven major economic cooperation projects, while the 2nd and 3rd stages are assumed as a simultaneous expansion of these projects at a two-fold and three-fold scale, respectively. At the same time, considering the five issues listed above, it is assumed that the growth of South Korea's GDP will be reduced by the increased burden of government debt in the first stage. In the second stage, it is assumed that a decrease in gross domestic product will occur due to the increase of North Korea’s government debt, the increase in the North Korean working population due to the decline of its army, and the North Korean regional wage subsidies. In the last third stage, it is assumed that all five factors are applied, including the cost of disorder in South Korean society due to the migration of North Koreans to the South Korean region, and the cost of welfare expenses in the North.
  Chapter 4 measures the economic growth effects of short- and long-term economic integration scenarios. According to the results of short-term scenario analyses, economic cooperation projects with the highest growth potential for South Korea were the Kaesong industrial complex project (159.2 trillion won), Kumgang Mountains project (4.12 trillion won) and the Dancheon area underground resource development project (4.08 trillion won). In the case of North Korea, the South-North railway and road connection projects (92.6 trillion won), Kaesong industrial complex project (51.3 trillion won), and Dancheon area underground resource development project (34.3 trillion won) showed the highest growth potential. The combined effect of growth for the two Koreas came in the following order: the Kaesong industrial complex project (210.6 trillion won), North-South railway and road connection project (94.2 trillion won), and the Dancheon area underground resource development project (38.5 trillion won). In sum, in South Korea, labor-intensive businesses have a large economic growth effect, and North Korea's economic growth effect is significantly influenced by productivity growth.
  According to the results of mid- and long-term scenarios, South Korea will gain 346.6 trillion won (annual average 14.2 trillion won) in growth effects, North Korea 416.9 trillion won (annual average 27.6 trillion won), and North and South Korea will gain a collective total of 763.5 trillion won (annual average 41.7 trillion won) in growth effects. Compared with a scenario where economic integration is not implemented, the gross production gap between North and South Korea decreased from 51.0 times to 19.8 times and the productivity gap decreased from 11.1 to 7.4 times by the year 2047. Meanwhile, if the effects caused by the five issues are examined separately, the effects in South Korea are not significant, while the North Korean case shows that the total production of North Korea increased by more than 50 trillion won, from 146.6 trillion won to 196.6 trillion won.
  In Chapter 5, based on the results of the research, the implications, performance and limitations were examined. The first implication for the economic cooperation is that it is necessary to plan the project in a more long-term and comprehensive manner, considering the fact that the economic growth effect varies greatly depending on the business aspects of the economic cooperation between two Koreas. The second implication is that, considering the growth effect of South Korea is relatively low in some economic cooperation projects, it is necessary for North Korea to establish a business plan to utilize the labor force of North Korea. And the last implication is that it will be wise for North Korea to effect a change in the form of its economic cooperation projects by directly participating and obtaining the resulting products of economic cooperation, rather than simply supplying its labor force.
  The main results of this study are as follows: first, by constructing the analysis model for economic integration on North and South Korea, the effects of economic integration on North and South Korea were estimated simultaneously, and economic cooperation and unification estimated with the same model; second, the effect of inter-Korean economic cooperation on North Korean productivity was internalized within the model; third, the main variables for evaluation of the North Korean economy were provided; and fourth, through these analyses we propose the economic cooperation projects most likely to maximize the economic growth of the two Koreas.
  Meanwhile, further research will be necessary to supplement the data used for the variables in the growth model, to improve the function we use and to provide further evidence, this being an initial study to internalize productivity. Further considerations will have to be made for the foreign economic relations of North Korea, such as trade and foreign direct investment, and incorporated in the model, and further economic cooperation projects must be developed and analyzed in addition to the seven major economic cooperation projects. 

  Labor intensive industry-oriented export strategy (beginning in the 1970s), which once led to successful industrialization and economic growth, seems to have lost its effect in a situation where export expansion does not lead to job creation. The fact that exports do not create sufficient jobs is a problem faced by the Korea as a manufacturing-based export-driven economy. In Korea, which is highly dependent on exports, it is important to look into the main reasons why the virtuous circle between exports and employment has weakened considerably.
  This study begins with the question of what is the main reason why export growth does not lead to sufficient job creation, and examines the relationship between exports and employment from various perspectives. In Chapter 2, we applied the growth accounting method to decompose the changes in employment induced by exports into the scale and composition effects on employment, so that it captures the employment effect caused by the changes in the composition of export products. From this analysis, it can be seen that the reduction in the employment effect of exports is highly correlated with the changes in the composition of the export products toward less labor-intensive.
  From the empirical analysis using industry-level data (Chapter 3, section 1), it is confirmed that the higher the capital intensity, the lower the export elasticity of employment. Another interesting founding is that the export elasticity of employment is higher when the export proportion of SMEs (or final consumption goods) is larger. This indicates that, other things being equal, the exports of final consumption products by SMEs is effective in creating jobs. This is the result of emphasizing the role of government policies to encourage the participation and promotion of exports led by SMEs. In section 2, the main founding is that the higher the service industry’s upstreamness index, the higher the employment of the service industry from the manufacturing exports. This result emphasizes the role of service industry as a manufacturing intermediate inputs in shaping a relationship between manufacturing exports and service employment. It means that the service-employment effect of manufacturing exports is high in service industries with high upstreamness index (i.e., non-financial intangible asset services, financial related services, IT related services, employment and business support services).
  In the preceding industry-level analysis, we have seen that the employment effect of exports has weakened as the comparative advantage industry shifts from labor-intensive to labor-saving. It should be noted that there is necessary to recognize that there is a limit to the implementation of industry-level policies in that the weakening of the virtuous circle between exports and employment is the results of the efficient allocation of resources among industries. In this context, we looked into, in Chapter 4, the firm-level data by paying attention to allocation of resources among firms within the industry: (1) employment effect of exports, (2) employment effect of domestic firms' export participation, and (3) employment effects of exports by firms’ characteristics.
  The results of Chapter 4 are summarized as follows: First, there is a positive association between exports and the employment of permanent workers. Second, the employment effect of exports to non-affiliates was found to be more effective than those exported to related firms(i.e., foreign affiliates). Third, the empirical analysis including firms’ characteristics shows that the higher the R&D intensity, the higher the employment effect of exports. Fourth, a positive association between the export participation of domestic firms and the employment for permanent workers is statistically significant until two years after the export participation. Interestingly, the export participation of domestic firms with a higher R&D intensity is more likely to increase jobs for temporary workers relative to permanent workers. It means that uncertainty about commercialization of R&D (e.g., creation of added value through commercialization) may increase the demand of temporary workers. And also, it is highly likely that short-term employment benefits will return to temporary workers due to the nature of R&D investments to secure long-term competitiveness.
  In this study, the overall effect of exports on employment has been analyzed using both industry- and firm-level data. Focusing on the efficiency of resource allocation among industries, the industry-level analysis has emphasized the role of industry-level capital intensity in determining relationship between exports and employment. Based on the results of industry-level analysis, we have emphasized the importance of i) participation and expansion of exports by SMEs and ii) strengthening linkages between manufacturing and service industries. Based on the results of the employment effects of exports using firm-level data, we have emphasized the importance of the government's medium- to long-term corporate policies (i.e., fair trade, R&D investment, large and small business cooperation policies, market protection for SMEs, etc.). In addition, it has emphasized that it is important to make a corporate environment that is favorable to SMEs, so that SMEs can be utilized as a driving force of sustainable growth through enhancement of competitiveness. 

  As global liberalization has progressed over the past few decades, the income gap between countries has declined gradually but income distribution within the country has continued to deteriorate. As income inequality became a social issue, external causes such as free trade, immigration, and international capital movements began to attract attention. Although Korea is a significant beneficiary country of free trade, public support for free trade has weakened.
  The official statistics on income inequality in Korea are known as underestimated, the actual level of Korea is lower than that of the United States, but somewhat higher than those of Europe and Japan. Although their differences in the level of income inequality, government survey data show the same trends; inequality has risen since the mid 1990s, but it has been declining or stagnating since the beginning of 2010.
  The reasons for the changes in the income inequality in Korea include ① changes in the structure of the exporting industry, ② slowing of employment, ③ skill-biased technological change, ③ slowing of personal income growth, ④ proliferation of performance-based pay system, ⑤ population aging and changes in household composition.
  The labor income share fell after the financial crisis in 1997, and then continued to fluctuate. In 2016, it reached 72.2% which is the level before the global financial crisis of 2008. As a result of the decomposition of Gini coefficient by income source, distribution structure of Korea is turned out to be determined mainly by labor income. Income inequality of service workers and unskilled labors increased, and Gini coefficient increased in most industries. The estimates of three parameters (alpha, beta, gamma) representing the income distribution in Korea show that inequality in the low income group has gotten worse rapidly and polarization has progressed
  According to the country level panel analysis, trade liberalization improves income distribution, while investment liberalization and technological progress deteriorate inequality. Capital liberalization increases high income share, but its effect on overall income inequality is not significant.
  Estimation results of industry level analysis are as follows. Export in manufacturing increases labor income share, but foreign investment increases capital return. Also exports have positive effects on the low-income group. The more the competitiveness of a sector improved, the more positive effect was on the low-income group. Foreign investment in the manufacturing industry has negative effects on both the high-income and low-income groups, while FDI in the service industry increase income of the low-income group. The increase in R&D investment was negative for the high-income earners and positive for the low-income earners. 

  Importance of energy becomes more pronounced as an economy progresses. Energy is essential for firms with running capital and for households with durable consumption. Oil prices plummeted around 2014; resource-rich countries, such as Russia and Brazil, faced challenges amidst gradual recovery from the global financial crisis; traditional oil exporting countries such as Saudi Arabia and Venezuela which have expanded their welfare program with revenues ended up with deteriorating fiscal soundness. From the both side of supply and demand the impact of energy on an economy is immense, and therefore, it is important for a policy maker to understand turmoils in related markets and to make timely and relevant responses. A series of empirical researches including Kilian(2009) point out that oil price shocks are originated from multiple sources and that macroeconomic impact can vary according to the source of a shock. As a consequence, decomposition of oil price shock and relevant policy response based on correctly identified source are sought after.
  Korea, often called an energy island, entirely depends its energy supply to external sectors, and a foremost goal of energy policy has been to secure stable energy suppliers. Another characteristic of Korea related to energy sector is to have a large portion of refinery and petrochemical industry. In this regard, impacts through these industries should also be counted when analyzing macroeconomic effects, largely on exports and imports, of oil price shocks.
  Still another important changes in international energy market is focused on renewable energy. Fossil fuels, such as coals and oil, are considered responsible for greenhouse gases whose control has been materialized as the Paris agreement in 2015. The nuclear power is once considered a clean and cheap alternative, but the stability and safety is questioned after the 2011 Tohoku earthquake in Japan. More attention is now paid on the efficient use of renewable energy, and technological advances in related sectors take places. Policy considerations are requested to offer proper incentives for renewable energy suppliers.
  This research aims to grasp the changes in international energy market and their impact on the Korean economy, especially on external secters inclucing exports and imports. Chapter 2 reviews international and domestic oil markets and renewable energy markets. It investigates factors that affect demand and supply of energy, and also introduces policy efforts of major economies for enhancing renewable energy supply.
  Chapter 3 applies Kilian(2009)’s approach to the Korean economy focusing on the external sector. The source of oil shocks are decomposed into three factors: oil supply shock, aggregate demand shock, and oil-specific demand shock. The result shows a similar pattern can be found with the Korean time-series data.
  In Chapter 4 an open economy DSGE model is developed, which extends Huynh(2016) with an augmentation with upstream and downstream sector in energy industry. While the upstream sector like crude oil extraction does not reconcile with the current situation of Korean industrial structure, the downstream sector including refinery and petrochemial industry plays important role in the Korean economy, specially exports and imports. The model replicate the empirical results in Chapter 3 and it can be further used for policy simulations.
  Chapter 5 introduces the renewable portfolio system (RPS) of Korea, which requires a minimum proportion of electricity generation for a large operator to be delivered from renewable sources. The requirement can be fulfilled by the renewable energy certificates (RECs) purchasable from small and independent renewable energy providers. Expected cost under a current policy goal is calculated. However, a macroeconomic impact under the DSGE model is not presented due to the limitation of the model and further study is needed.
  Chapter 6 presents policy implications and concludes. 

Foreword

1.Perspectives and Coping Mechanism of the Kenyan Economy from the Changes in Political and Economic Environment of the USA and UK
∙Christopher Hugh Onyango (Policy Analyst, Kenya Institute for Public Policy Research and Analysis)

2. How India Faces Trade Protections? An Analysis of Trade Barriers
∙Prabir De (Professor, Research and Information System for Developing Countries)∙Mohammad Masudur Rahman (Researcher, Waikato University)

3. Mexico’s Proposal to Rising Protectionism: Assessing the Scope of an Industrial Policy in Facilitating Trade Diversification
∙Gerardo Castillo Ramos (Economics Research Manager, Centro de Estudios Económicos del Sector Privado)

4. Trump, Protectionism, and Middle East Trade Policy
∙Joseph A. Kéchichian (Senior Fellow, King Faisal Center for Research and Islamic Studies)

5. The Era of New Protectionism and China’s Strategies 
∙Tu Xinquan (Professor, University of International Business and Economics)
∙Yingxin Du (Assistant Professor, University of International Business and Economics)

6. Russia Amid the Battle of Sanctions: Implications for Russia-ROK Cooperation
∙Evgeny Kanaev (Professor, School of International Affairs, Faculty of World Economy and International Affairs, National Research University Higher School of Economics)

7. The Rise of New Protectionism: How Will It Impact Vietnam and How Should the Country Respond?
∙Le Quoc Phuong (Deputy Director-General (former), Vietnam Industry and Trade Information Center) 

  ‘The Studies in Comprehensive Regional Strategies Collected Papers (International Edition)’ contains seven comprehensive and in-depth research papers for better understanding about emerging economies such as Africa, India-South Asia, Latin America, Middle East, Northeast Asia, Russia-Eurasia, and South East Asia. 

  In recent years, there has been two contesting paradigms, ‘wage-led or income-led growth’ and ‘profit-led growth’ proposed in academic circles in Korea. However, there has been also a search for alternative distribution-growth model because the Southern European countries such as Portugal, Italy, Greece and Spain and some Latin American countries such as Brazil and Venezuela have failed from income-led growth policies adopted during 1990s and early 2000s under their socialist democratic regimes. The so-called ‘income-led growth policy’ adopted by the new Korean government established in May 2017 became a coined word by ILO (2010) in the literature of distribution-growth. It tries to trace the origin of worldwide stagnation after the global financial crisis of 2007 and finds its cause in the inequality of income from wage differential. It argues that since the rate of growth in wages is lower than the growth rate of GDP and therefore, domestic demand is lagging behind recovery. It proposes for increasing wages so that a virtuous circle of household income increase, consumption increase and domestic demand increase could be established. But there has been a criticism on income-led growth policy since it does not fit to the reality of the Korean economy as an export-oriented small open economy. They argue that the stagnation in the Korean economy is not due to low wage level but is due to stagnant investment and therefore, investment-led growth policy rather than income-led growth policy is more desirable to be adopted. They also argue that it is desirable to increase growth rate through investment and innovation and therefore, the government policy needs to be reoriented from income-enhancing policy to economic revitalization through structural reforms and promotion of corporate investment. It seems that it is difficult to link income-led growth policy to a significant consumption increase because of the high level of household debt and their precautionary consumption restraint for uncertain future.
  Theoretical background of wage-led or income-led growth theories can be traced back to Bhaduri and Marglin (1990), UNCTAD (2010), Stockhammer (2011), Storm and Naatepad (2011), Stockhammer and Onaran (2012) andLavoie and Stockhammer (2012). The empirical results on wage-led or income-led growth policy are mixed and inconclusive. Onaran and Galanis (2012) reports that an increase in wage income share will increase aggregate demand in US, Euro area, Japan and Korea but will decrease aggregate demand in China, India, Australia, South Africa, Argentina and Mexico which is in contradiction to the post-Kaleckian theoretical proposition that resource-rich large countries will benefit more from a wage-led growth policy. Onaran and Stockhammer (2005) has built a post-Keynesian open economy model of distribution, accumulation and employment and estimated the effect of lowering the wage share in a structural vector autoregression (SVAR) framework. They found that decreasing the wage share does not stimulate accumulation, growth and employment in both Turkey and South Korea. They have noted that the relation between wage share, investment, growth, and employment is similar in both Turkey and South Korea; however the former experienced low and the latter high growth rates due to different export-oriented growth strategies with a conclusion that the explanation for this difference is found in the field of institutions, power structure, and state policies.
  There are a few empirical studies using Korea-specific dataset. Hong (2014a) has estimated a demand-led growth model modifying Bhaduri and Marglin (1990) model. He finds that the increase in labor income share had stimulated consumption and investment in the period (1981- 1997) before the financial crisis in 1998 in Korea but since the propensity to consume out of labor income was weak, the wage-led effect on domestic aggregate demand was not strong. However, he finds that after the financial crisis the propensity to consume became stronger than before and the subsequent reduction in labor income share due to the financial crisis had weakened consumption considerably. During the post-crisis period, while the increase in capital income share did not contribute to the increase in investment and net exports, the wage-led effect on aggregate demand has strengthened. In another related paper, Hong (2014b) estimates a demand-led growth model combining demand system with productivity system following Storm and Naastepad (2011). He finds that during the post-crisis period (1999-2012) the increase in real income by 1 percentage point will increase real growth rate of GDP by 0.68-1.09 percentage point and labor productivity by 0.45-0.50 percentage point. Based on these estimates, he argues that treating labor income as cost elements only is one-sided analysis and that an income-led policy by increasing labor income will stimulate aggregate demand and productivity and will contribute to establish a virtuous circle of distribution and growth.
  On the other hand, Kim (2013) has found that aggregate demand system in Korea is profit-led structure in the sense that the increase in capital income share stimulates aggregate demand. Pyo, Chun and Rhee (2017) have estimated the growth rate of economy-wide nominal wage rate (3.69%), real wage rate (1.66%) and per-capita labor productivity (1.58%) respectively during the post global financial crisis period of 2009-2016. During the same period, the corresponding growth rates in manufacturing were nominal wage rate (4.34%), real wage rate (2.29%) and per-capita labor productivity (1.58%). It implies that the Korean economy during last 8 years after the global financial crisis in 2008 has experienced both nominal and real wage inflation surpassing the growth rate of per-capita labor productivity. During the same period (2009-2016), the real GDP and private consumption expenditure increased at the rate of 3.1% and 2.2% respectively. From this perspective, we can argue that the Korean economy has already experienced an income-led growth during the period after the global financial crisis in 2008 but its policy impact on private consumption expenditure was very small and insignificant.
  The investment-led growth policy proposed as an alternative for income-led growth policy has the following theoretical implications. If an economy’s demand–led growth is supported by a debt-financed consumption-led system, it may confront difficulty by the reduction in the economy’s potential growth rate as we had experienced in the global financial crisis in 2008. Such a consumption-based demand-led growth can provoke inflation and invite worsening balance of payments. On the contrary, if the economy’s demand-led growth is either investment-led or export-led, then the economy has a sufficient momentum to raise natural rate of economic growth. In other words, since the investment was productive, it reduces the supply bottlenecks. And if export earnings can finance imports necessary for faster economic growth, imports can be used for a more productive use than domestic resources.
  We have also estimated ex-post rates of return by industries in the Korean economy. During the period of 1981- 1990, the economy- wide average ex-post rate of return was very high (41%) as Harberger (1988) and Pyo and Nam (1999) termed it as ‘outlier’. But the rate of return started to fall to the level of 14.8% during 1991-2000, 6.6% during 2001-2010 and 2.5% during 2011-2014. The average ex-post rate of return in manufacturing is estimated to be only 1.69% even lower than the average ex-post rate of return in economy-wide level, which has affected sluggish investment in manufacturing during the period. We have also estimated an accelerator investment model with double-Koyck type expectation hypothesis to find that when we used both real investment and real output as variables, the estimated coefficient of ex-post rate of return was negative (-) and statistically significant. In case of Korea, the continued downfall of ex-post rate of return must have been a cause of investment stagnation during the period after the financial crisis in 1997.
  The case study on the country-specific investment-led policies can be summarized as follows. Dolinskaya (2002) provides us with the case of Russia in transition period (1991-1997) in which a reverse investment-led growth rather than investment-led growth was made. During the transition period, even the minimum investment for maintenance and replacement without mentioning new investments were not adequately made. As consequence, he estimates the growth accounting result of the transition period: Real GDP growth rate (-8.0%), labor input growth (-2.0%), Capital input growth (-1.7%) and TFP growth rate (-4.3%). According to Bosworth and Collins (2008), the growth rates of per capita real GDP during 1978-2004 are estimated as China (7.3%), India (3.3%) and East Asia except China and India (3.7% during 1980-2003). The growth rates of physical capital were China (3.2%), India (1.3%) and East Asia except China and India (0.9%). This result indicates for example, in case of China, the investment-led policy centered on physical capital input has promoted total factor productivity and as a result, it contributed significantly to enhancing output-income. Robertson (2010) argues that the total factor productivity growth rate in India (1.6%) is less than half the rate in China (3.6%) and therefore, unless India’s investment-led growth is lined to productivity growth, it may experience the falling rate of return from its excessive over-investment. India’s Investment/GDP ratio reached 35% level during 2000-2010. In Latin America, ‘economic populism’ was the core of its Keynesian policies. According to Isakkson, Ng and Robyn (2005), Brazil had fulfilled reforms on regulation in the public sector and had induced private capital in social infrastructure sectors. However, the existence of large unofficial labor market had inhibited private investment and productivity growth. It provides us with a lesson that any investment-led policy cannot be successful in maintaining a sustainable growth through productivity improvement unless its labor market operates normally. Argentina’s aggressive privatization policy in the 1990s had improves profit rate and operational efficiency in the privatized corporate sectors. But it could not be followed by and backed-up by institutional reforms and therefore had failed ultimately in late 1990s. OECD (2016) has analyzed the labor reform in Spain (2013-2015), Estonia (2009) and Slovania (2013) and recommended that labor reforms are key factors for the investment-led growth to be successful. OECD (2016) recommends a flexible labor market policy with reduced lay-off costs and lowering the income differential between full-time workers and party-time workers and between large enterprises and small and medium enterprises. OECD (2016) also recommends a voluntary and flexible labor relations system based on individual corporate practices rather than industry-wide centralized labor relations system.
  We have noted in this report that the income inequality status of Korea at the present time is in the mid-level among OECD countries and there is no significant sign of declining labor income. As pointed out in Pyo (2016b), the growth rate of real income by the middle class has been relatively falling behind that by the lower income class. The wag-led policy advocated by post-Keynesians and ILO (2011)) has been replaced by income-led policy encompassing non-wage income. However, the income-led policy has the following shortcomings and limitations. First, the economy with higher weight of external sector may face profit squeeze, increase in production costs and investment reduction rather than positive effects of wage and income increase. Second, the income-led policy can have a temporary expansionary effect only when the economy is in a deep depression or long-term recession. Third, as pointed out by Bowles and Boyer (1988), an income-led policy can be applied to advanced economies as a temporary recovery policy when they are equipped with social institutional infrastructure to manage wage restraints accompanied by labor reforms. Fourth, if a certain demand-led system is a kind of debt-financed consumption-led system, it can reduce future potential growth rate of the economy as many nations experienced in the global financial crisis. Such a debt-financed consumption-led system can invite inflation and worsening balance of payments as pointed out by Dray and Thirwall (2011). On the other hand, if the demand-led system is investment-led or export-led type, the economy may have enough room for lifting up natural growth rate. In other words, their investment will be productive so that it can reduce supply bottlenecks. If export earnings can finance imports necessary for faster economic growth, then imports can be used more productively than domestic resources. It will be desirable for government to switch from populist consumption-led system to investment-led and export-led demand system.
  Based on both theoretical and empirical analysis with country- specific case studies, we recommend the following policy prescriptions.
  (1)It is desirable for government to switch its policy from income-led growth policy to investment –led policy. The critical feature of income-led policy lies in its populist nature of zero-sum game-type income redistribution policy rather than stimulating income creation. The minimum wage policy, the arbitrary and forced labor policy to switch jobs from part-time to full-time, artificial job creation and increasing labor regulations can create irrecoverable high-cost production system due to the downward wage rigidity.
  (2)The switch from employment-biased policy to productivity- based policy is needed. The sectors and companies with higher productivity should be encouraged to create more jobs and on the contrary, the sectors and companies with lower productivity need to reduce jobs through labor reform. In this regard, the government needs to focus on corporate restructuring in non-competitive declining industries.
  (3)The movement for ‘doubling-productivity campaign’ by both public and private enterprises can be promoted. The means of doubling productivity are intra-industry restructuring and inter-industry restructuring. The intra-industry restructuring can be supported by both financial support and tax incentives for promoting M&A between lower-productivity enterprises and higher- productivity enterprises. The inter-industry restructuring can also be supported by both financial support and tax incentives to promote mobility among land, capital and labor.
  (4)It is necessary to promote innovation and human capital enhancement by the mainstream enterprises and companies. In order to prepare for the fourth industrial revolution, it is necessary to avoid too much regulatory educational policies and regulatory labor policies.
  (5)As pointed out by Piketty (2014), ‘the only exit’ for an industrialized capitalist economy, which faces ageing population and low fertility rate to survive and maintain a sustainable growth path is to increase productivity. The world-wide market trend is moving to the direction of mainstream economic theories such as new growth theory and endogenous growth theory. It is moving in the direction of “too-big-to-fail” phenomenon in which super-large nations such as Uniteds States, China, India and Japan play dominant roles and exert externality effects from cumulated social capital and R&D. Since the Korean economy is weaker in terms of cumulated physical, human and social capital, it needs to complement these weak points by strengthening external sectors. Income-led growth policies can repeat the failed inward-looking policies adopted once by India and Pakistan. Korea needs to re-orient its growth strategy toward outward-looking investment-led growth policy. 

  This study analyzes the impact of the new US administration’s China trade policy to the Korean economy as change in policy direction between two biggest trading partners of Korea was expected since the inauguration of President Trump. He was expected to be a hardliner against China’s trade practices since his presidential campaign. Trump administration has not put the pledges of President Trump that he had made during his presidential campaign directly into effect, such as 45% tariff and currency manipulator designation. Yet, it is still notable to keep an eye on the US administration’s policies toward China as ongoing conflict between two countries, is expected to affect Korea.
  Chapter two reviews the past US-China economic relationship and overall trade policy direction of the US administration. Chapter three covers the China trade policy of the Trump administration and key economic and trade issues between two countries. No real action has been implemented under Trump administration against China except for the traditional trade remedies such as anti-dumping and countervailing duties. Yet, the US administration is currently under the process of investigating its trade status with major trading countries under the section 201, section 232, and section 301 of US trade laws that the possibility of implementation of additional trade remedies still exists. Such investigations are not all targeted directly at China, but it is quite evident that China is relevant to most of them since it is the biggest exporter to the US.
  Several scenarios of the influences from the hard-line US trade policy toward China to Korean economy are introduced in Chapter four. First, reflected benefit is expected in Korean exports of electronic devices and appliances to the US from more strict trade policies to China as competition level in such products between Korea and China is quite high in the US market. Secondly, Korean export to China would decrease along with contraction of China’s export to the US and industrial production. Such analysis comes from the fact that Korea exports significant amount of intermediary goods to China, which are further processed as final goods, then exported to the US. Last scenario is derived from the possibility of China’s retaliation against US vigorous stance. Deepening conflict between two biggest economies may lead to the recession of global trade, which would damage Korean economy.
  As the number of the trade remedies implemented is expected to increase under the current US administration, Chapter five analyzes the impact of the US anti-dumping duties against the Chinese goods on the other countries’ exports to the US, i.e. trade deflection effect. The result is shown under three cases, which is categorized in three groups including 1) all countries other than China 2) OECD countries 3) all emerging market countries minus China and OECD. The trade deflection effect is maximized after one year after the implementation of anti-dumping duties for the group one and two, and is maximized after one and half years for the group three. Moreover, increase amount of the US imports from the emerging market economies exceeds that of the US imports from the advanced economies. However, no empirical result was found that the US anti-dumping duties would affect the amount of US imports from Korea.
  Chapter six analyzes the expected effect of the Chinese yuan appreciation from the US designation of China as a currency manipulator using Vector autoregression(VAR) model. The result shows that the appreciation of Chinese yuan would help the US to reduce its trade deficits with China. Yet, such effect faded out when the period was set from 2001, the year of China’s accession to the WTO. In addition, Chinese yuan appreciation would have negative influence not only on the China’s GDP but also on the US industrial production, which would negatively affect Korea’s economy due to decrease in exports. 

  Previously discussions about Africa focused on its resources. However, recent interests are shifting towards Africa’s growth potential as a consumer market. The combination of a billion people, impressive economic growth, a growing middle class, urbanization and increase of purchasing power has transformed Africa into a rising consumer market. Many recent reports by various business consulting firms emphasize that the most strategic investment opportunity in the long run lies in pursuing Africa’s middle income class and not in resource development. Although the overall majority of Africans yet live in absolute poverty, the consumer market is growing as the urban population who have sufficient purchasing power continues to expand. A growing number of large-scale shopping malls and supermarkets are moving into Africa’s major cities and they are being stockpiled with processed agricultural products, household goods, computers, household electronics and many kinds of manufactured products. However, for Korea, the market remains difficult to access because Africa is not only geographically distant but also because poor physical and institutional trade infrastructure in Africa limits traditional export means.

  Keeping mind of such problems, this research explores potential means of accessing Africa’s consumer market through industrial zones. The major contents discussed in each chapter are as follows. 

  Chapter 2 reviews contributing factors to Africa’s consumer market growth from economic and demographic perspectives while also outlining current consumption patterns, trends and development of distribution channels. Although the middle income group who have sufficient purchasing capacities remains small in size, it is growing at a fast pace around urban areas. Consequently, around two thirds of African households are prospected to have certain discretionary income by 2025. 

  Chapter 3 looks at the key characteristics of the African consumer market from a supply and demand logic. Various media outlets and reports have highlighted the growing size of the African consumer market. However, looking at the size alone is a convenient and arbitrary way of viewing the African continent as a single market, which is far from the truth. In this chapter, we analyze the African market through an objective and empirical method. One main feature of the African consumer market is fragmentation where poor traffic networks limit the trade of goods, services and labor. Borders that surround landlocked countries also hinder trade with regional and international markets. The lack of infrastructure in general hampers labor movement beyond a 10km radius. Another feature of the African consumer market is the accelerating market penetration of Chinese goods. Cheap Chinese products can be found not only in urban areas but also rural areas. The range of products cover a wide spectrum, including clothing, shoes, socks, plastics, agricultural machinery, household electronics, mobile phone, construction materials, stationery and others. Moreover, due to the underdevelopment of manufacturing infrastructure, Africa depends heavily on imports of processed goods. Import dependency is over 30% for food and beverages while surpassing 60% for technology intensive goods such as cars and chemical products. 

  Furthermore, this research estimated the national and regional population for different consumer classes. Results indicate that the potential consumer class for main durable goods in sub-Saharan Africa will expand by around 40% until 2025. The consumer class that is able to purchase a certain amount of durable goods will increase by over 4% every year. This growth will be led by eastern Africa (approx. 7.1-7.6%) and western Africa (approx. 3.5-3.7%). 

  To be more specific, the national and regional potential consumer class size for 48 countries in Africa were estimated using the CANBACK C-GIDD and resources on the size of consumer classes that possess vehicles (IRF) and cellphones (ITU), two typical durable goods that Korea exports. 

  First, the research constructed a functional relation between per capita income and vehicle or mobile phone ownership rate globally. With this function, a demand curve was calculated for vehicles and mobile phones in relation to the income level. Using the Lorentz curve estimated using the CANBACK C-GIDD resource, calculated the potential consumer class size for vehicles and mobile phones for each country in Africa was calculated. 

  Around a billion people will have enough income to purchase vehicles in 2025, with this number rising to 6.8 billion for mobile phones. On a regional scale, western Africa, with the largest population, and eastern Africa, with the highest economic growth rate, will surpass southern Africa (including South Africa) soon in terms of market size. 

  This research takes a step further from established research on the African middle income class, which generated the initial boom of interest on the rising consumer class of Africa, and estimates the consumer class size of those able to purchase vehicles and mobile phones, the main export items of Korea. It sought to define the consumer class as those able to purchase specific items, rather than the general 'middle income' group, i.e. people who earn income between ad-hoc upper and lower income cutoffs. While previous studies review only a few countries with sufficient data or rely on qualitative analysis, the contribution of this research lies in the utilization of all available data amidst the lack of data on Africa in evaluating purchasing powers and constructing the potential consumer class size. However, one must take into consideration that this research method assumes African consumers to have the same preference for goods as global average consumers and that the final results estimate the population size of those with purchasing power above a certain income level, not the size of those who have actually purchased or are willing to purchase vehicles or mobile phones. 

  Chapter 4 explains the necessities and reasons for utilizing industrial zones as a means to engage with the African consumer market. Developing or utilizing industrial zones as a means to enter the African consumer market is important in that it enables the production and sales of products that fit the needs and tastes of local markets. The African consumer market differs greatly from other developing countries in terms of purchasing power, consuming culture and various other aspects. One of the expected positive outcomes of utilizing industrial zones is the access of regional markets through various economic unions. Direct investment in Africa through industrial zones can lower the high entry barrier as African economic blocs have formed FTAs and customs unions that demand high tariffs from overseas imports. Another expected outcome is the ability to access advanced countries by utilizing preferential trade agreements arranged between Africa and the US or EU. 

  The highlight of this research unfolds in chapter 5 where strategic measures for using industrial zones as an effective means of entering the African consumer market is described. The process used to determine specific countries of engagement was based on a quantitative analysis using numerous evaluation standards and indexes that reflected the evaluation. The opinions of an advisory group were also taken into consideration. The outputs of this qualitative method were graded and combined with the quantitative research outcomes in determining priority countries or suitable countries. One major feature of the outcome showed that eastern African countries such as Ethiopia and Kenya were located in the high ranking category. Reasons for this outcome include the relative political stability, relocation of the economic growth axis from western African to eastern Africa, favorable investment conditions, and status of economic cooperation with Korea. Another reason would be the level of trade within the region. Amongst all regional economic blocs in Africa, the East African Community (EAC) shows the highest level of intra-trade. The total volume of intra-trade grew by almost five times, from 500 million USD in 2000 to 2.3 billion USD in 2015. On an individual country basis, results indicated Ethiopia as the most suitable location for entry through industrial zones. Although Ethiopia remains as one of the least developed countries in Africa, its economic development has been most outstanding. Ethiopia has sustained its economic growth rate at over 10% for the past 10 years. It also has the second largest population in Africa and has completed a railroad connection between Addis Ababa (its capital city) and Djibouti (the logistics hub of the Mediterranean). According to some evaluations Addis Ababa, the capital of Ethiopia, resembles Shanghai in the year 1987. Ethiopia’s low wages are an advantage. The wage levels of unskilled labor in the manufacturing (light industry) sector is a fifth of China, a third of Vietnam, and 30% lower than that of Tanzania. Wage levels are of great significance when considering investment in Africa. 

  To determine promising sectors that could be produced in the industrial zones, the study applied Product Space Analysis, a quantitative analysis tool introduced by R. Hausmann and used by other development economists to diagnose the national economy or industrial structure. Product Space Analysis views each product as an aggregation of production knowledge. The method assigns a numerical value to each country as the level of scarcity of knowledge that the country has to produce or export goods, which is called 'economic complexity'. Likewise, it also quantifies the 'product complexity' for each industry and sector with the economic complexity of the country that produces and the product complexity of relevant industries. With the two indexes, one can formulate an effective strategy that maximizes the economic complexity most relevant to the economic growth of developing countries and thus determine strategic industries or sectors. While the Revealed Comparative Advantage (RCA) analysis, frequently used in literatures, and other trade indicator analyses approach trade patterns in a static manner, Product Space Analysis differs in that it seeks to complement the static limitations with each country’s sectoral potential by using statistical probabilities. 

  Short-term strategic items and long-term strategic items were selected for each country using the 2014 BACI trade data for 14 countries in sub-Saharan Africa including Ethiopia, South Africa, Tanzania, Kenya and Senegal. In particular, strategic items were selected according to the ranking outcomes of products based on the short-term strategic index and long-term strategic index. The indexes were calculated as weighted sums of the opportunity gains, the technical distance between a country and item, and the product complexity index for each item. To identify items where Korean companies have competitiveness amongst the strategic items, we selected items that Korea has revealed comparative advantages in.

  As the economic complexity indexes were low for most of the countries analyzed in the research, indicating similar opportunity gains from each product, the long-term strategic items were similar for the countries. Machinery, chemical products, metal products were amongst the top ranking items, and Korea has a competitive advantage in most items. 

  Low-level manufacturing products related to agricultural and mineral goods were commonly found in the top ranks for short-term items. On the other hand, textile and clothing items appeared in the high rank for eastern African countries such as Ethiopia, Kenya and Madagascar. However, Korean companies rarely exported the most short-term strategic items directly, and thus the export competitiveness for Korea at this point in time was low. 

  The selection of potential items that could utilize industrial zones through the Product Space Analysis is meaningful in that it considers local consumption demands, the national or regional economic development strategies and the competitiveness of Korean firms in a complex manner. However, as this research deals with a vast number of countries and areas, potential local consumption demands such as regional market conditions and overseas market expansion conditions must be reflected for specific items to be able to identify more detailed potential items for each country or region. 

  Although this research suggests utilizing industrial zones as a strategic means of approaching the African consumer market, it is regrettable that the policy recommendations are theoretical. However, this research is a pioneer work in examining engagement with the African consumer market through industrial zones and we look forward to further research on this topic. 

  The Central & Eastern European (CEE) countries, including Romania, have the highest growth potentials in the EU. Reflecting this situation, Korea has been expanding its efforts on economic cooperation issues, such as trade and investment, with these countries. After the Korea-EU FTA came into effect in July 2011, Korea’s exports to EU have been underperforming due to economic recession throughout the EU. However, Korea’s trade with the CEE countries has remained stable and Korea has continued to maintain a trade surplus with these countries. Most of the CEE countries, who joined the EU in 2004, served as a dynamic growth engine for the EU, showing rapid economic growth, increase in income, expansion in trade and FDI growth, until the global financial crisis in 2008. Romania, who joined the EU in 2007 and experienced the global financial crisis together, did not hitherto have a proper opportunity to realize its economic growth. Therefore, possibilities are high for Romania to serve as the growth engine of the EU in the near future. As the EU market has the world’s greatest purchasing power, Korean companies and the government are looking forward to expanding economic cooperation with the CEE countries to gain further access into the EU market. Yet, information on Romania remains relatively scarce compared to other countries.
  This study has selected two Romanian industries with high growth potentials to strengthen Korea-Romania industrial cooperation and to suggest effective entry into the Romanian market, with the aim of enhancing Korea-CEE economic cooperation to overcome contracted market access in the EU following the European sovereign debt crisis. This study has analyzed the potentials of the Romanian economy as a growth engine of the EU, and the possibilities of industrial cooperation with Korea. More specifically, we have selected the information communication & technology (ICT) sector and infrastructure sector as our main industries in focus to analyze the risk factors, potentials, cooperation possibilities of each sector, through which we will seek strategic means to invigorate market entry.
  This study has collected a variety of related statistical data and references both from Romanian and international sources. And in order to analyse the competitiveness of the industrial sector, we have looked into the statistical trade analysis of manufacturing industry. Along with qualitative and quantitative analyses, we have interviewed Romanian and Korean experts to ensure a high level of objectivity.
  Among the CEE countries, Romania has the second largest population after Poland. Coming into the 2000s, Romania showed strong economic growth based on the inflow of FDI and growth in exports the nation saw after its accession to the EU. Romania has one of the highest economic growth potentials among EU member states, and is generating the most favorable economic results in recent days. Romania has maintained a relatively low level of commodity price, stable level of wage increase, decrease in value-added tax, and rise of purchasing power for individuals, thus leading to private consumption-led growth. In 2017, Romania is expected to achieve a 5.8% GDP growth rate, which is the highest among EU members. This trend of economic boosting is linked with improvement in investment sentiments from the 2nd quarter of 2017, and extended to develop production capacity and infrastructure, improvement in production levels, and so on, to increase expectations for the Romanian economy to converge to the average level of the EU.
  ICT is an industry sector that both the Romanian government and EU are keen to develop. The Digital Agenda of Europe was suggested in line with EU’s growth strategy “Europe 2020” to establish a European digital single market by 2020. In order to reach this target, it will be necessary to narrow the gap of digital technology within the EU region. Therefore, it is necessary to develop the Romanian ICT sector, and indeed the Romanian government is intent to do so. Despite the fact that internet and mobile coverage are relatively high, Romanian ICT infrastructure has shown the lowest level of development compared to other EU member states. Romania is ranked the 58th in the world according to the ITU’s 2017 ICT development index, indicating that Romanian ICT infrastructure remains insufficient. However, in terms of ICT services, Romania is highly competitive compared to any other EU member state, especially thanks to the relatively low wage level of its skilled IT labor force. Therefore, numerous global IT companies are operating in Romania in the form of outsourcing, near-shoring, etc.
  Romania is the largest recipient of EU funds for regional development. Most of these funds allocated for Romania are planned for infrastructure development. In February 2015, the Romanian government announced a revised version of its transportation master plan to develop roads, railways, air transport, naval and intermodal transport by 2030. Based on this vision, CNAIR and other related institutions are carrying on numerous projects utilising EU funds. According to BMI, the value of road and bridge infrastructure in Romania is expected to grow beyond 15 billion Romanian lei.
  When assessing the external and internal aspects of entering into the Romanian market, the core competence of Korean companies was slightly lower than the average of their competitors in Romania but they showed an average level of coping with opportunity or threat factors. Regarding this assessment using SWOT analysis, here we will suggest strategies for Korean companies when entering into the Romanian market.
  As a Strength-Opportunity combined strategy (S-O strategy), we suggest considering the establishment of an EU production base in Romania, an EU member state with high growth potential. To achieve this, the companies can make use of their competitiveness in high technology, such as in the IT sector, and comparative advantage in steel, automobile, electrical electronics, machinery, etc. It would be a realistic approach to establish a production base in the ICT sector in Romania, which is a fast-growing sector that hosts a number of foreign companies. This strategy is to utilize the opportunity factors available, such as the favorable market access allowed by the relatively open and well-developed infrastructure of the EU. It is in line with Korean companies’ establishing electronic and automobile parts producing factories in the North-western region of Romania near the Hungarian border.
  EU’s government procurement market, which is the largest in the world, is focusing on the infrastructure development projects as part of regional development policy in the new member states including Romania. Therefore, recently Romanian public procurement has been continuously expanding. Among the €454 billion mid-term budget of the 2014-2020 EU fund, €30.84 billion will be allocated to eight different countries and regional programmes. The total budget of the EU fund for Romanian job creation and expand employment, environmental protection, support on social engagement, and so on, is €36.47 billion, among which Romania should independently fund €5.63 billion. As a second S-O strategy to exploit the opportunities of market growth potential and favorable market access in the EU’s emerging market Romania, it would be promising to promote participation in the Romanian government procurement market.
  The third S-O strategy is to consider establishing a base in Romania to enter the emerging Eastern European market while minimizing threat factors. Macroeconomic performance, such as GDP growth, commodity price, exchange rate, etc., in Romania is stable and the nation has rich growth potentials as such a dynamic emerging market. If Korean companies establish an entry access point at the emerging Eastern European market in Romania, with their competitiveness and willingness to develop a market, the companies may expect increase in export to the nearby Balkan countries, Russia and other promising CIS countries.
  We can suggest the following three strategies as Weakness- Opportunity strategies (W-O factor combination strategies). The first is to overcome the actual and psychological gap in the European market and focusing the European business base in Romania to establish an EU market entry base aiming for the world’s largest purchasing power. Considering the personnel expenses and geographical conditions, the gap can be overcome somewhat though establishing the general base in Romania, where excellent language skills and abundant IT manpower would allow the organic integration of each country.
  The second is to participate in the Romanian government procurement market by collaborating with local companies. This would enable the Korean companies to overcome their weakness factor of having insufficient information on Romania, discrepancies in company culture, and lack of understanding and exchange in European culture. While the necessary legislation regarding public- private partnerships is yet to be ratified by the Parliament, the Romanian government expects to pass this in 2018 to invigorate public projects struggling with financial supply problems. Here the Korean companies, including SMEs with proper technologies, can collaborate with the local companies to participate in EU-funded government procurement projects. It is a prerequisite to establish a cooperative relationship with major Romanian companies.
  The third is to enhance understanding of Romanian culture through cultural exchange. This would be a mid- to long-term strategy to overcome the typical weaknesses of the Korean companies when entering the Romanian market. Normally, since cultural exchange should be carried out continuously as a long-term project the Korean government should actively support the projects. To succeed in the previous three S-O strategies, this strategy should serve as an important support policy simultaneously implemented by the government.
  The first Strength-Threat factors combined strategy (S-T strategy) is to launch an entry base for the internal market in the CEE countries based on price competitiveness. By utilizing the absolute or comparatively advantaged competitiveness of the Korean companies, such as in high-technology, and the companies’ willingness to exploit the market, this strategy aims to overcome the rising competition in the EU market and the technical barriers as well as to mark the domestic market of the CEE countries.
  The second S-T strategy is to increase export by considering the market characteristics of the EU internal market by market and product differentiation. This is a strategy to make use of the price competitiveness of the Korean products, willingness to develop a new market, and marketing abilities. Each EU member states have different comparative advantages. Considering that Western European countries and the new member states, including Romania, have different market characteristics, it is necessary to break down the market to apply differentiated product strategies according to the characteristics of each market. This strategy would make it possible to minimize the threat factor of the EU market facing economic recession and limitation on market growth. Moreover, since economic performance and structure are different within the EU, market differentiation by area will be an effective strategy.
  The third S-T strategy is to increase competitiveness in the EU market by securing an R&D base in Romania. This strategy would aim to overcome intensified competition and technical barriers in the EU market and maximize Korean companies’ competitiveness. Particularly, R&D cooperation between Korean companies and the promising ICT sector in Romania is a highly promising win-win strategy for both countries.
  The first Weakness-Threat factor combined strategy (W-T strategy) is to nurture market experts of the CEE countries, including Romania. It is necessary to train Romanian market experts to solve problems such as the lack of information on Romania and discrepancies with Korean business culture. Specifically considering the competitiveness in the environmental sector, lack of awareness, and various technical barriers, it is difficult to get access to the market without expertise in the local market. Besides, any company entering the Romanian market merely wishing to utilize its abundant and low-cost labor force, without perceiving the high wage increase in certain sectors and rising trend in production cost, will likely end up as a case of failure to enter the market.
  Another W-T strategy would be to improve product image through the promotion of Korean popular culture. Efforts to promote Korean culture, such as K-pop, movies, and dramas, are expected to supplement the weakness factor revealed from lack of cultural exchange. This strategy would contribute by minimizing the negative effect of the weakness factors, such as intensified competition in the EU market and overall economic recession in the EU, by increasing the positive image of Korean products. The companies can make use of the increasing demand in CEE countries of the so-called “Korean wave” of K-pop culture products.
  The final W-T strategy is to strengthen high-level intergovernmental diplomacy and economic cooperation. Enhancing economic cooperation through high-level diplomacy may serve as an important momentum to overcome the weakness factors of business culture discrepancies and lack of cultural exchange between Korea and Romania. The Korea-Romania Industry Cooperation Committee, which held its 9th session in Bucharest in April 2016, could consider elevating its participation to ministerial level or higher. The most recent summit- level diplomatic meetings were held in 2006 and 2012.