Financial market integration has contributed to risk-sharing through portfolio diversification and has provided a positive effect on economic growth by supplying funds to countries that lack capital. At the same time, however, it has caused the negative spillovers of financial shocks through the integrated financial markets. A typical example is the 2008 global financial crisis. As the uncertainties in the global financial market increase significantly during the crisis period, financial variables (asset price, leverage, credit growth, capital flows, etc.) in developed and emerging economies are not controlled by their own monetary policies, but are more sensitive to global financial market sentiments. In the end, it has greatly restricted monetary policies in many countries. In this study, we investigate on how much monetary policies have been restricted by constructing a monetary policy independence index, and try to understand monetary policy independence by trilemma, which is a main implication from the Mundell-Fleming model.
  According to trilemma, a country cannot achieve three policy goals simultaneously, i.e., one policy goal must be abandoned to achieve two. The three policy goals are exchange rate stability, capital account openness, and monetary policy independence. If trilemma holds, monetary policy independence can be secured by abandoning the stable exchange rate through adoption of floating exchange rate system in the open capital market. In order to see whether such monetary policy independence is indeed consistent with what trilemma predicts, we constructed the trilemma Index using data from 2002 to 2013 that covers 45 countries including Korea. The trilemma indexes consist of monetary policy independence index, capital account openness index, and exchange rate stability index. short-term interest rate independence index, which reflects the tendency of short-term interest rate desynchronization, is constructed to evaluate monetary policy independence.
  The monetary policy independence means the autonomy of short- term policy rate decision in narrow definition, but broadly it means the capacity to pursue domestic policy goals. In order to evaluate various aspects of monetary policy independence in this paper, we use not only short-term policy rate used in the construction of the short-term interest rate independence index, but also the long-term interest rate that plays an important role in the monetary transmission mechanism. In the transmission mechanism, short-term policy rate decisions lead to changes in various interest rate variables, particularly long-term interest rates that in turn affect the economic performance such as investment and output. However, if the short-term policy rate does not affect long-term interest rate, the effect of monetary policy independence on the real sector is reduced. In order to take this possibility into consideration, we will construct a long-term interest rate independence index (LRI) reflecting the tendency to long-term interest rate desynchronization, and analyze the economic implications of this new index.
  The results of the analysis show that we have found trade-offs among three trilemma indexes and this supports that trilemma holds. However, when we consider for the long-term interest rate independence index instead of short-term interest rate independence index to evaluate the monetary policy independence broadly, it could be seen that not trilemma but, dilemma holds. This is particularly noticeable during periods when the correlation between the two indexes has weakened since the global financial crisis. Given the stylized fact we found that the long-term interest rate independence index is a very important explanatory variable in explaining the international business cycle especially after the global financial crisis, we need to closely monitor the long-term interest rate independence index.
  In the Block-Exogenous vector autoregression (VAR) model, we examine the impact of the US short-term interest rate shock on the short- and long-term interest rates in 10 emerging market economies. The empirical results show that there is a short-term interest rate synchronization, but no long-term interest rate synchronization before the global financial crisis. Since the global financial crisis, however, there is only long-term interest rate synchronization even without short-term interest rate synchronization. This is consistent with the results of the analysis using the long-term interest rate independence index. In the empirical result of the extended VAR analysis in which high and low capital account openness country group are separately considered, we found that the long-term interest rate synchronization is more pronounced in the country with high capital account openness, which implies that the capital control or the macroprudential policy can be useful policy measures to manage the long-term interest rate synchronization.
  In the case of Korea, capital account openness index increased significantly after the global financial crisis, while vulnerability remained high in terms of exchange rate stability index. Although the short-term interest rate independence index was highly evaluated, the long-term interest rate independence index fell sharply after the global financial crisis. The impact of the US short-term interest rate shocks on short- and long-term interest rates in Korea was similar to the impulse response function of the above 10 emerging market economies. It is necessary to pay attention to the results of empirical analysis using high and low capital account openness country group. This suggests a new perspective on the role of capital control or macrprudential policy measures in relation to monetary policy independence. These policy tools have been so far mainly discussed in the context of capital flow management, but our empirical results show that these policy tools can be also useful to secure monetary policy independence for emerging market economies. 

Executive Summary

1. Introduction
1.1 China-Africa Relations

2. Methodology and Data
2.1 Methodology
2.2 Data

3. Findings and Results
3.1 Scenarios for the MBRI in Africa

4. Summary and Conclusion

References

Appendix 

  Recent development economic literatures theorize that South-South trade and foreign investment may have a larger impact on economic growth in devel-oping economies than North-South trade and investment, since investors from the South are more familiar with local developing markets and business practices, which increases their productivity spillovers (Aykut and Goldstein 2007). Amighini and Sanfilippo (2014) provided evidence that South-South trade and investments stimulate product diversification in light manufacturing industries such as agro-processing, plastic, textile and leather production.
  The Belt and Road Initiative (BRI) launched in 2013, aims to create economic opportunities as well as improve and establish new trading routes between China and connected regions. This paper attempts to evaluate the degree of trade relations between China and selected African countries along the Mari-time Silk Route (MSR) and further appraise the trade potentials and gains in-herent for African economies through the initiative. To achieve our objective, we apply quantitative techniques in trade evaluation to enable us explore and estimate the degree and intensity of trade engagements amongst selected Si-no-African silk route countries, identify the trade opportunities and potentials, which are critical for increased trade engagements between both parties along the route and to explore some of the channels through which the maritime route can impact on investment, trade and economic growth in Africa.
  Findings from the analysis indicate that while the degree of trade integration is unbalanced and favourable to China relative to Africa, the trade pattern and structure are observed to be more complementary than competitive, and this provides Africa with ample opportunity to engage in product upgrading and diversification, critical for structural transformation.

Keywords: Maritime Silk Route, Belt and Road, Africa, Trade Complemen-tarity, Trade Competitiveness
JEL Classification: F15, F17, F18, 024 

  The recent rise of air pollution, represented by an increase in particulate matters, has grown into an important economic, social and diplomatic issue in Korea amidst growing concerns over a significant proportion of domestic air pollutants coming from neighboring countries. Transboundary air pollution, which causes adverse effects in areas under the jurisdiction of other countries, has become a serious matter that requires the joint response of surrounding countries, not the problem of an individual country. The objective of this study is to propose policy implications to cope with the rise of air pollution in Northeast Asia by analyzing policies and cases of international cooperation in the global society.
  Policies and regulatory measures introduced by major countries to improve air quality can be summarized as possessing the following characteristics. The European Union (EU), China and the United States (U.S.) have all established and supplemented domestic environmental laws, policies and regulations. In accordance with improved legal and institutional frameworks, they have being taking practical measures including setting national air quality standards, controlling air pollutant emissions and strengthening monitoring systems. As a result, they have achieved a certain level of air pollutant emission reductions, in particular improvements centered on pollutants for which emission ceilings or standards have been arranged. In the case of China, it has been strengthening its supervision authority, regulatory measures and management standards for severely polluted areas such as Jing-Jin-Ji (Beijing, Tianjin and Hebei province) since 2010. However, emission levels of PM10 and PM2.5 are still in need of improvement, as their annual means exceeded both national and international standards in 2016.
  At the international level, bilateral or multilateral cooperative regimes have been established with the aim of solving transboundary air pollution problems. In Europe, North America and Southeast Asia, official agreements concerning air pollution across countries have been concluded, together with the establishment of relevant organizations and monitoring systems under these agreements. The Convention on Long-Range Transboundary Air Pollution (CLRTAP) in Europe, the U.S.-Canada Air Quality Agreement (AQA) and the U.S.-Mexico La Paz Agreement in North America, as well as the ASEAN Agreement on Transboundary Haze Pollution (AATHP) in Southeast Asia, were all signed with the goal of establishing joint response mechanisms for preventing and reducing air pollution in their regions. Above all, these agreements provided important opportunities for member countries to seek solutions based on scientific evidence or data gathered through collaborative research projects, and to strengthen environmental cooperation. Since then, they have been adopting protocols, annexes, roadmaps and others for supplementing insufficient contents within these agreements or resolving new environmental matters.
  The CLRTAP, adopted in 1979, has established a multilateral cooperation mechanism in Europe with a total of 51 parties, and is recognized as the most successful case with the largest scale and longest history among the four agreements reviewed. The AATHP in Southeast Asia is an agreement concluded to solve haze pollution caused by fires originating mainly in Indonesia. Both regions share the characteristic that they have been able to effectively utilize their organizations and systems, i.e. the EU and ASEAN, in implementing the agreements. Meanwhile, the agreements in North America have focused on solving environmental pollution problems in the border areas, including acid rain, and have contributed to the development of U.S.-Canada and U.S.-Mexico bilateral cooperative relationships.
  Agreements between Southeast Asian countries on transboundary air pollution have mainly focused on presenting principles and guidelines for addressing haze pollution, as opposed to setting emission ceilings and regulatory standards for main pollutants, which were the focus of agreements in Europe and North America. Therefore, although the AATHP has achieved several accomplishments through cooperation, such as sharing data collection and enhancing joint monitoring systems on certain areas (mainly peatland) and periods (dry season, etc.) that are most affected by haze pollution, it still lacks legally binding measures to limit air pollutant emissions, unlike other agreements. However, the AATHP is meaningful in that it reflects the ASEAN principles regarding respect for national sovereignty and consensus; thus, one solution might be to induce all ASEAN members to take part in the AATHP.
  Taking into consideration the cooperative experiences of other regions as described above, our recommendation is to develop multilateral agreements aimed at addressing transboundary air pollution in Northeast Asia. The AATHP's approach in Southeast Asia and the approach of the CLRTAP in Europe encourage the idea that rather than placing regulations on air pollutant emissions, implementing a more realistic multilateral agreement to exchange information and strengthen air quality monitoring networks will induce Northeast Asian countries to participate. It is fundamentally necessary to establish regional environmental regimes for the areas or periods that are most affected by air pollution, and gradually intensify cooperation among member countries, including the adoption of further protocols or annexes in the agreement. It will also be advisable to refer to the AQA and include a clause suggesting that each country promptly notify neighboring countries in the event of policy action or projects that might cause considerable environmental damage, promote joint research to provide relevant scientific data, and ensure a periodic evaluation of progress in the implementation of the agreement.
  Based on the results of the above analysis, we suggest the following measures to reduce air pollution in Northeast Asia. First, we propose that Korea participate directly in the CLRTAP, which may encourage the participation of other Northeast Asian countries and provide the basis for multilateral cooperation in Northeast Asia in the future. Since the grace period for the value of the emission limit may be extended by up to 15 years, this will alleviate the burdens associated with emission regulations, at least in the short term. Under political conflicts like the Terminal High Altitude Area Defense (THAAD) dispute between South Korea and China, it may also be a realistic alternative to attempt to induce China to participate in a multilateral cooperation system under existing successful mechanisms such as the CLRTAP. Second, it is necessary to accumulate more objective data through consultations and the participation of experts in advanced countries and through the European Monitoring Evaluation Program (EMEP). Third, we recommend that governments support the private sector to take the lead in implementing an initiative that responds to transboundary environmental problems. Lastly, Korea, China, and Japan can explore ways to strengthen their cooperation with respect to natural gas. If Korea, China, and Japan, the world's leading importers of liquefied natural gas, jointly seek ways to increase the utilization of natural gas and develop advanced pollution abatement technology, the three countries will be able to help tackle environmental challenges in Northeast Asia. 

  The emergence of a new phenomenon widely referred to as the sharing economy has experienced rapid growth over the past few years along with the digital evolution, allowing people to share and optimize underused personal assets on a much larger scale. The fast-paced growth of the sharing economy has taken root worldwide in both the developed and developing countries. In recent years, the sharing economy has disrupted traditional markets and generated difficult legal questions and political debates in various parts of the world. The growth of the sharing economy has led to growing pains for the platforms, participants, and regulators. The problems include legal disputes, taxation, and trust mechanisms. Despite these disputes, however, the three countries have legalized or attempted to authorize the sharing economy in different tactics while trying not to disrupt innovation associated with the sharing economy.
  The objective of this paper is to identify better policy options in the sharing economy for Korea by examining different countries’ policy implications. To achieve this purpose, the structure of this paper is divided into five chapters. The first chapter of the paper develops a conceptual framework that supports to define and explain the sharing economy. The next three chapters touch upon different conflicts and policy implications of the sharing economy across the United States, Europe, and China. Finally, the paper concludes with a discussion of policy implications of the sharing economy for Korea.
  The cases of the US, Europe, and China are three examples of various levels of the sharing economy. The following are the speculated policy characteristics of the sharing economy across three different countries proposed based on the scope of this study. The sharing economy in the United States can be said to be found on the principal driven by the market-based approach. On the contrary, most European countries are subject to more restrictive rules to ensure adequate legal and social protection for all including traditional players. In the case of China, the regulation of the sharing economy is more strongly orientated towards measures for social challenges and economic benefits. The ambiguity or lack of regulations for accommodation sharing are prevalent across all three countries. Large cities in both the US and Europe have begun implementing regulations on accommodation sharing or have launched investigations with the aim of bringing the sharing economy into compliance with existing laws. On the other hand, China is in the early stage of regulation development.
  The regulation of ridesharing varies widely across three countries comparable to short-term rentals. The United States focuses on creating a fair competitive environment by allowing platforms to enter but at the same time supporting the taxi industries instead of banning ridesharing platforms. Some countries in Europe are outlawing ridesharing platforms to protect the traditional market or making platforms to comply with the similar standards as the traditional market. China has legitimized ‘online car reservation service’ as a part of taxi services, and has improved related regulations such as pre-permission for the platform and driver, and requirements for strengthening responsibility.
  A careful and detailed analysis of country-level experiences lead to the following policy implications. First, the introduction of regulation needs to be done as carefully as possible, and more flexible regulatory frameworks are needed to respond to changing market conditions. Second, it is necessary to promptly establish the legal basis for accommodation sharing by strengthening the role of the platform to deal with conflicts such as taxation and disputes generated by the sharing economy. Lastly, in the case of ridesharing, it is advisable for regulatory authorities in Korea to first deregulate much of the current restriction and lower barriers to entry rather than raising them. In the long run, however, it is recommended for the market to ensure a quality environment for all participants to compete fairly. 

Executive Summary

1. Introduction

2 Data and Statistical Description
2.1. Data
2.2. Statistical Description

3. Estimation
3.1. Constructing a Matched Dataset
3.2. Estimation

4. Results
4.1. Sales-Per-Worker and Ecommerce Activity
4.2. Wage and Ecommerce Activity

5. Conclusion

References

Appendix 

Official estimates peg global business-to-business ecommerce at 15 trillion dollars and global business-to-consumer ecommerce at 1.2 trillion dollars in 2013 (UNCTAD 2015). When we turn to official estimates for Korea, it is easy to find that Korea’s business-to-consumer ecommerce market is grow-ing at more than twenty percent per year and has emerged as the third larg-est global ecommerce market in Asia. It is not very much surprising to know the numbers for Korea since Korea is one of the world’s most ad-vanced countries in terms of information and communication technology. However, it is somewhat surprising that we know little about how ecom-merce firms or establishments are distributed in the economy of Korea. In addition, we know little about how ecommerce establishments perform relative to their counterparts of a similar age and size in the same industry.
The paper aims to characterize and test performance differences between ecommerce and non-ecommerce firms or establishments. Although the number of ecommerce establishments makes up a small fraction of the economy, ecommerce establishments have a heavier weight in sales, em-ployment, and wage. Due to endogeneity of ecommerce variable, the paper reconstructs the 2010 Korea Census dataset by using Propensity Matching Score and shows that in manufacture ecommerce establishments have, on average, larger sales-per-worker and pay higher wage whereas in services ecommerce ones have higher sales-per-worker but pay no larger wage than their counterparts of a similar age and size in the same industry. It also adds quantile estimates showing that sales-per-worker differences between ecommerce and non-ecommerce establishments in manufacture are positive and statistically significant only at lower quantiles of the distribution. In ser-vices, sales-per-worker differences between them are positive and signifi-cant at most of distribution but turns to be negative, though not significant, at above upper quantile of the distribution.

Keywords: Ecommerce, Firm Performance, Sales-per-worker, Wage
JEL Classification Numbers: F1 

Executive Summary

Ⅰ. Introduction

Ⅱ. Literature Reviews on SME Technologies

Ⅲ. SME Technological Progress in Chinese Taipei
3.1 Current Status of SMEs
3.2 Government Policies on SMEs
3.3 Promotion of SME Technologie
3.4 Technology Cooperation with Developed Countries

Ⅳ. Implications to Selected APEC Member Economies
4.1 Implications to Viet Nam
1) Current Status of SMEs
2) Government Policies on SMEs
3) Promotion of SME Technologies
4) Technology Cooperation with Developed Countries

4.2 Implications to Malaysia
1) Current Status of SMEs
2) Government Policies on SMEs
3) Promotion of SME Technologies
4) Technology Cooperation with Developed Countries

4.3 Implications to Indonesia
1) Current Status of SMEs
2) Government Policies on SMEs
3) Promotion of SME Technologies
4) Technology Cooperation with Developed Countries

4.4 Implications to the Philippines
1) Current Status of SMEs
2) Government Policies on SMEs
3) Promotion of SME Technologies
4) Technology Cooperation with Developed Countries

Ⅴ. The Role of APEC on SME Technological Progress and Cooperation
5.1 Needs for the Role of APEC
5.2 APEC Activities for Government Policies on SMEs
5.3 APEC Activities on Technology Promotion Policies
5.4 APEC Activities on SME Technology Cooperation

Ⅵ. Concluding Remarks

References 

  Chinese Taipei became one of the most successful economies in Asia after the WWII, and the country was one of the four Asian tigers together with the Republic of Korea, Chinese Hong Kong and Singapore. Their economic achievement was mainly originated from the development of SMEs which government policies were effectively implemented and brought strong im-pacts on technological progress. SMEs were able to obtain technologies through research and development, and technology transfer from developed countries with various cooperation programs. However, APEC economies notably Viet Nam, Malaysia, Indonesia and the Philippines have achieved economic development and SME technological promotion, but they are not comparable with Chinese Taipei. This paper analyses Chinese Taipei govern-ment policies on SMEs, technological progress, and technology cooperation with developed countries. These areas are compared with other four APEC economies. It brings some suggestions how APEC can enhance SME tech-nology cooperation with other countries.

Keywords: SME, technological progress, technology cooperation, Chinese Taipei,
the Philippines, Malaysia, Indonesia, Viet Nam, APEC
JEL Classification: L60, F21, O33 

Executive Summary

Ⅰ. Introduction

Ⅱ. Measurement of Market Integration

Ⅲ. A Theory of PPP

Ⅳ. Empirical Methods

Ⅴ. Summary Statistics of Consumer Prices and Exchange Rates for APEC Member Economies
 
Ⅵ. Empirical Methods
   1. Panel Unit Root Test Results
   2. Robustness

Ⅶ. Concluding Remarks

References 

This paper examines persistent behavior of deviations from purchasing power parity (PPP) constructed using consumer price indices and nominal exchange rates for APEC member economies over the period of 1981-2015. In particular, we ask if these deviations tend to converge to their long run equilibrium value. For this, we consider three different sample periods of 1981-2015, 1997-2015, and 1981-1996. We find that the panel unit root test rejects the unit root hypothesis that a deviation from PPP does not converge to its long run value for the period of 1997-2015 but does not reject it for the other two periods. We then investigate how quickly this deviation converges to its long run value and find that a half-life of a deviation from PPP is 5.7 quarters, which is much quicker than the estimates of 3 to 5 years reported by previous studies. This result is consistent with the argument that globalization and advancement in transportation and information technology significantly contribute to lowering trade barriers among APEC member economies.

Keywords: PPP, half-life, panel unit root tests, deviations from PPP, trade barriers
JEL Classification: F31, F41 

  The year 2015 marked the 20th anniversary of the establishment of the World Trade Organization (WTO). Over the past 20 years, notwithstanding certain difficulties in concluding the Doha Development Agenda (DDA) negotiations, the WTO to a certain degree has achieved one of its original missions: promoting trade liberalization through bilateral free trade agreements (FTAs) and regional or plurilateral FTAs. Since the global financial crisis in 2008, however, the growing criticism of globalization based on neo-liberalism has created the need for a new trade paradigm. In particular, Brexit and the election of Donald Trump as the 45th US President in 2016 have fueled the uncertainty hanging over the global economy and rising protectionism, which could eventually provoke trade war. Upon his inauguration, President Trump withdrew from the Trans-Pacific Partnership (TPP) and the United States introduced a new set of trade policy measures that could adversely affect world trade volume and the existing global trade system.
  Recent changes in the international trade environment have presented new challenges for policymakers, particularly for those in Korea, which is highly interconnected with the world economy through an extensive network of global value chains (GVCs). Korea has regarded itself as the most benefited member of the WTO multilateral trading system (MTS). By adopting a simultaneous and multiple FTA negotiations strategy, Korea has increased its economic expansion and grown into a global FTA hub. However, it is time for Korea to consider revising its current trade policy centered on the expansion of bilateral FTAs, which may cause a spaghetti-bowl effect where a host of bilateral FTAs increase trade costs due to the complexity and diversity of rules of origin (ROO). As such, plurilateral FTAs have emerged as a viable alternative to the multilateral trading system or bilateral FTAs.
  This study investigates the effect of rules of origin on trade costs. In particular, we examine different types of cumulative rules of origin adopted by various FTAs across the world ‒ how they are arranged and how they work. Existing literature on the effect of ROO on trade costs provides mixed results. Theoretically, allowing cumulation in FTAs should bring trade costs down. Nevertheless, some practical issues in complying with the rules of origin and certification and verification requirements may prevent companies from taking advantage of cumulative rules of origin. Research methods employed by this study include both the conventional way of indirect estimation in calculating trade costs through the trade creation effect, and direct estimation of trade costs which employs the methodology recently made available by Novy (2013). Then we use these estimated trade costs in the computable general equilibrium (CGE) model of the Global Trade Analysis Project (GTAP) to analyze the economic effects of ROO on trade costs. We apply the analysis to mega-FTAs in the Asia Pacific region such as the Regional Comprehensive Economic Partnership (RCEP) and TPP-11 (TPP without the United States), as well as a potential FTA between Korea and Mercosur. Our results show that all three different types of cumulation (bilateral, diagonal, and full) reduce trade costs with the magnitude greatest for full cumulation.
  Our empirical and policy simulation results suggest that policymakers should make efforts to simplify and harmonize various ROOs and pursue single ROO with full cumulation in FTA negotiations. In addition to simplification and harmonization of ROOs, institutional support and assistance in the areas of ROO and cumulation are essential for small and medium enterprises (SMEs) to reduce trade costs and fully entertain the benefits of FTAs. Finally it would be desirable for Korea to participate in negotiations of plurilateral FTAs rather than bilateral FTAs. 

  The exchange rate is one of the most influential factors in the economy in Korea as Korea highly depend on the external sector. In an economy that is highly dependent on the foreign countries, changes in exchange rates affect imports and exports and cause changes in growth and income. Also, it affects the price level, the competitiveness of enterprises, and the level of employment.
  In this study, we investigated the effects of exchange rate not only on macroeconomic analysis but also extended to a micro analysis by using the firm-level data. It may contribute to more accurate and efficient policy responses by combining macroeconomic policy with microeconomic analysis.
  In Chapter 2, we analysis the effect of exchange rates on macroeconomic aggregate data as in many previous studies. We also analyze the impact of exchange rates on the supply side whereas most previous researches mainly focus on the demand side. Moreover, unlike the method of analyzing the effect of specific variables, comprehensive analysis has performed considering the total effects of the related variables. The main findings from Chapter 2 are as follows: First, the appreciation of the Korean Won may have a negative impact on economic growth, consumption, investment, and exports. Second, the level of the exchange rate and the volatility of the exchange rate have substantially increased in the 2000s, and the volatility of macroeconomic variables also has increased. Third, the impact of exchange rates on the macroeconomic variables would remain shortly and become insignificant in the long-run.
  The main policy implications of these findings are as follows: First, the exchange rate changes can cause economic growth and exports to decline. Especially, positive and negative effects are different for each industry, making it difficult to use the exchange rate as a policy tool. Therefore, policy-maker should be concerned as it is not easy to achieve the policy goal and may cause conflict between economic entities if she wants to achieve the specific policy goal by influencing the exchange rate. Second, the effect of the exchange rate change on macroeconomic variables remains only in the short-run. Thus, the effectiveness of exchange rate policy as a policy tool is low. It is because the effect of changes in the real sector may be neutralized by changes in the capital market due to the financial liberalization progress. Third, considering the volatility of the foreign exchange market, changes in the level, and the different effects of each industry, the exchange rate policy should be aimed at maintaining the stability of the exchange rate rather than level. Since the policy on the level of the exchange rate is less effective and can lead an international conflict, the policy that reduces the volatility can lower the transaction cost of the economic agents and obtain the more certain policy effect. Fourth, since the exchange rate policy itself appears to have limited influence, it is desirable to enhance the efficiency of the exchange rate policy by using the so called policy mix method in which the policy is implemented in parallel with other related policies. Fifth, It is necessary to promote foreign investment and policies to boost domestic demand aggressively as the devaluation of the exchange rate may improve the current account, but have negative impacts on other macroeconomic variables such as employment and growth.
  In Chapter 3, we conduct a micro analysis by using the firm-level data. The main findings are as follows: The decline in the real effective exchange rate cause that firms that are highly dependent on exports increase their price competitiveness and increase their productivity. On the other hand, firms with low exports and high reliance on intermediate imports have little impacts on their productivity. These results are consistent with the economic theory, and this fact is confirmed in the micro data of Korean companies. In particular, most of the firms in the service sector have a low proportion or exports, so the decline in real exchange rate has a relatively large negative impact on their productivity as compared to firms in the manufacturing sector.
  In Chapter 4, we analyze the exchange exposure of the listed firms. The main findings are as follows: increase in the exchange rate has negative effects on a relatively significant portion of the firm in the short-run. It may be attributed to the fact that the Korean Won depreciation may drop the firm’s value. Also, the withdrawal of funds from foreign investors who concerned about the stock price fall in dollar terms may affect the situation. However, the share of firms, whose value is positively influenced by the increase in the exchange, is relatively increased in the medium- and long-run. In particular, we find that firms with substantial external assets, firms with few external debt, firms with high capital adequacy ratio, firms with high cash holding ratio, and companies with high profitability are positively influenced by the increase in the exchange rate.
  Chapter 5 summarizes the implications and derives policy implications as follows.
  First, the increase in the exchange rate is not necessarily positive impacts on macroeconomic variables. This fact is derived not only macroeconomic analysis using aggregate data but also in the micro-level analysis using individual firm data. In other words, unlike the conventional wisdom, depreciation of the Korean Won may have a negative impact on the Korean economy for a specified period of time. This implies that the devaluation of the exchange rate does not necessarily contribute to the expansion of exports or the economic growth.
  Second, although the effects of exchange rate fluctuations are short-term, the volatility of exchange rates has increased. Policies that aimed at lowering exchange rate volatility and strengthening stability are more likely to contribute to the economy rather than targeting the level of the exchange rate. This implies that not only is the effect of external factors on the Korean economy expanded, but also the real and financial sectors have influences mutually. Thus, those policies are desirable as the effect of the exchange can surge in the specific period.
  Third, the effects of exchange rate fluctuations vary across industries and firms. Thus a customized exchange rate policy is required. Since firms have different characteristics from those whose exposure to the exchange rate is either positive or negative, it is analyzed that the increase of exchange rate does not necessarily provide favorable conditions for all firms. The sign of effects depends on the share of exports or intermediate imports. Achieving industry-level targets only by the exchange rate policies is difficult. Thus, it is necessary to develop policies that are related to fiscal policy or employment policy to control the negative influences.
  This study examines the impact of changes in the exchange rate at the time when the overall economic conditions such as the industrial structure, demographic changes, and the capital market condition in Korea are changing. In particular, we use firm-level data to complement the previous studies mainly focus on the aggregate level. We can partly expect the macroeconomic effects by summing up the effect of micro-level analysis. However, the linkage between macroeconomic effects and microeconomic analysis is still weak and limited. In the future, more efficient research methods can be expected.
  What we emphasize in this study is that devaluation of it currency is not necessarily beneficial to the economy. Most of the debates on exchange rates are the adequacy level of the exchange rate. It is based on the assumption that depreciation of the exchange rate is beneficial to economic growth and the economy. However, this study shows that this assumption is not valid. This may vary depending on the level of exchange rate or the rate of exchange rate change. However, these issues are beyond the scope of the study. Therefore, it is necessary to further investigate the effect of exchange rate depreciation in depth by analyzing the issues related to exchange rate fluctuation in the future studies. 

  As the world is entering the new age of Industrial Revolution, advanced economies such as the United States, Germany and Japan are striving to lead the trend and are preparing to cope with new system of advanced technologies. Three countries have different strengths to achieve to promote new revolution, but they share common perspectives that the Fourth Industrial Revolution (4th IR) is the basis of the ‘Manufacturing Innovation’ or ‘Digital Manufacturing’. This study focuses on the 4th IR related policies of the three countries to make an implication for Korea to draw out its own policy for digital innovation/digital manufacturing. Even though differences exist in economic/social structure, industrial bases and technologies, it is important to analyze the 4th IR policies in three advanced countries as all their governments are striving to prepare strategies that promote economic growth in the future. Furthermore, the work focuses on the cooperating organizations of the academia, businesses and government such as Plattform Industrie 4.0.
  The second chapter “The Concept of Digital Economy and the Fourth Industrial Revolution” defines terminologies relevant to the 4th IR as the description of the 4th IR concept differs globally as there is no clear definition to it. IT revolution in the mid-90s followed by mobile platform technology led to a new ecosystem of “Digital Economy” or “Internet Economy”. Such evolvement developed the Internet of Things (IoT) technology, which is a critical component of the 4th IR, which connects mobility, home and factory to the Internet. Moreover, the national strategies of the 4th IR linked to the manufacturing, such as Germany’s Industrie 4.0 and the U.S. Industrial Internet of Things (IIoT), are outlined with organizations and consortiums that are established as means of achieving 4th IR.
  The third chapter “The Fourth Industrial Revolution in the U.S.” emphasizes that the American government and businesses identify their own roles in achieving 4th IR in market based manner. The U.S. government did not set up the long-term strategy or roadmap for the 4th IR, but it is preparing the systems for the issues that emerge from the technological revolution such as data security, autonomous driving vehicle and so forth. On the other hand, it is the American companies that create new business models in new technology fields such as big data analysis, cloud computing, augmented reality (AR) that can be adapted to manufacturing industry. In addition, multinational companies in the United States are gathering to form consortia in their interested areas to make their own system for 4th IR related activities and to cooperate at international level. Such liberal market economic movement in the United States is possible under the entrepreneurship that is rather unique in the world, which endlessly creates new companies that implement new ideas in the market. Various entrepreneurial activities from “Startup America Partnership” provides network to entrepreneurs with mentors and investors from corporate, venture capitals that lead to efficient manner to promote innovation.
  The fourth chapter “Germany’s Fourth Industrial Revolution” describes the background how Germany came with the idea of “Industrie 4.0” and policies that are in action. “Plattform Industrie 4.0 (Platform)”is the German organization that promotes Industrie 4.0 with various stakeholders in German society including governments, industrial associations, companies, academic institutions and others. This Platform acts as a mainstream organization for decision making in implementation of Industrie 4.0 policies which are supported by the working groups in various subjects such as standardization, research and innovation, data security, legal framework and labor. Furthermore, the Platform has mutual communication channel that efficiently delivers the messages and suggestions from the society level to governments and vice versa. Industrial associations takes important part as they gather and organize the suggestions from their members to convey to the government and as they act as a mediator that disseminate government policies to its stakeholders. In fact, Germany’s government and private players have analyzed their strengths to achieve the 4th IR prior to setting up Industrie 4.0 agenda as they also seek for cooperation domestically and internationally to promote their program. For example, German companies are cooperating to develop standardization model called “Reference Architecture Model Industrie 4.0 (RAMI4.0)” and are continuing to seek for opportunities to work with other countries, including government and corporate, to set it as one of international standard for digital manufacturing system. Moreover, Germany is considering small and medium enterprises (SMEs) as a final piece to achieve Industrie 4.0 that its government and business societies are concentrating on its inclusive development.
  The fifth chapter “Japan’s Fourth Industrial Revolution” reviews the Japan’s manufacturing industrial policies that are linked to the 4th IR. Through government’s growth strategies 2017, Japanese administration selected Smart Health, Smart Mobility, Smart Supply-Chain, Smart City and Infrastructure and Fintech as five main areas to promote its future economic growth. Out of five areas, this study concentrates on Japan’s policies on Smart Manufacturing.
  Japan has brought some specific strategies to support its Smart Manufacturing industry from the cooperation among academia- businesses-government such as RRI, ITAC, and IVI. Its strategies include Smart Factory pilot project, test-beds, SME support, international standardization. However, Japan needs to overcome its closed technology-innovation system. Network between large companies and middle-sized companies is strong, but the cooperation between corporate and academia/public research institutions is rather weak, which can be shown through the fact that most core technology related patents are owned by American companies. Also, Japan’s inflexible labor market is another factor that hinders its 4th IR. The 4th IR technologies such as AI is expected to substitute human labor in the future, but many experts brings up the point that the such technologies will have limited impact in Japanese market due to its inflexibility of labor market. Therefore, Japanese government needs to encourage more flexibility in its labor system for its economy to integrate IT, robot and AI technologies fully to its market.
  This paper draws out four policy implications from the analysis made in the above sections. First, Korea needs a 4th IR promoting organization that is led under the cooperation among academia-businesses- government. The necessity of national controlling system or platform in the context of the 4th IR or new industry creation is discussed in Korea, but actual system has yet to be implemented. U.S., Germany and Japan cases show that the 4th IR is not led by the governmental support, such as financing and tax credits, to certain industries or corporate, but rather the government and businesses must set up a system together that they can cooperate to develop and share technology, which is mostly known as “Open Innovation” system. Moreover, such system should be supported by the government in setting up relevant regulatory framework and in making changes of the traditional system to adjust to the new environment under the 4th IR. Secondly, regulatory reform and system alignment should be come ahead of the 4th IR. For now, enacting a bill called “Regulatory Free Zone Special Law” seems to be the regulatory movement that can be take in action imminently in Korea. The bill is related to autonomous driving vehicles and drones where twelve states and Washington D.C. in the U.S. allowed test-driving of autonomous vehicles legally since June 2011 and Japan is on the legal process of permitting various sets of autonomous vehicles and drones test-driving in their National Strategic Special Zones. The same bill in Korea will also efficiently lead to the Big Data commercialization as no action was taken after the introduction of “Guidelines for De-identification of Personal Data”. Also, it is important to take a note of Japan’s movement as its government is focusing to support promoting the Big Data market as a part of developing Smart Manufacturing. Thirdly, support to the SMEs must be followed as a part of preparing the 4th IR era. The Ministry of Trade, Industry and Energy of Korea is promoting the installation and expansion of Smart Factories as a part of “Innovation in Manufacturing 3.0 Strategy”, but Korean government needs to clear out the way for its original SME support policies simultaneously. Korea has its SME policies such as IT solution support, automation of factories along with many others, but its linkage to the 4th IR related businesses seems to be rather ambiguous at this point. German government is striving to focus all its relevant SME policies to Industrie 4.0, which can be represented through its “Mittelstand 4.0” policy. Fourthly, the key point of the 4th IR is international cooperation. Korean government has its cooperation network with the U.S. and Japan in cyber security and SME support, but its limitation is noticeable when it is compared to the cooperation system among the advanced economies. Regarding the 4th IR, it is worth to note that Germany and Japan agreed to work together on nine areas which include cyber security, international standardization, regulatory reform, SME support, R&D, academia-businesses-government organization, human capital development in digitization, automotives, ICT in March 2017. Lastly, Korean government should put effort in supporting Korean ventures in advanced market such as Silicon Valley by connecting them to the local network in venture capital or accelerators.