In September 2015, the United Nation’s member states agreed on the Sustainable Development Goals (SDGs) as part of the 2030 Agenda for Sustainable Development, a resolution adopted by the General Assembly on its 70th session. Building on the achievement of the Millenium Development Goals and seeking to address emerging challenges, the SDGs are a set of comprehensive and ambitious development goals for the next 15 years and a universal call to end poverty, protect the planet and ensure all people enjoy peace and prosperity. The 17 SDGs and 169 targets are integrated, inter-connected and balance the three dimensions (economic, social and environment) of sustainable development. The implementation of 17 integrated goals and 169 targets requires whole-of-government approaches, enhanced coordination among divergent actors. The SDG target 17.14 specifically calls on all countries to “enhance policy coherence for sustainable development (PCSD)” as an integral part of the means of implementation. In the context of SDGs, it is emphasized to capitalize on synergies between goals, targets and different sectoral polices. The PCSD is highlighted as a policy tool to manage inconsistencies among policy areas such as aid, trade and climate change and subsequently enhance development effectiveness and enable the environment for sustainable development.
  Under the circumstances, it is important for donor countries to understand the potential impact of “beyond-aid” schemes in trade and climate change, in particular. While it is widely agreed that trade is crucial for economic growth and sustainable development, a large number of low income countries, the Least Developed Countries in particular, remain marginalized in global trade. Tariff and non-tariff barriers to developing countries create negative spill-over effects on the livelihood of poor farmers in developing countries. Another policy area of particular importance is climate change. The Paris Agreement at COP21 marks a decisive turning point in the global response to climate change. In the new climate regime, it is imperative for donor countries to help developing countries strengthen their climate resilience and adaptive capacity while attempting to reduce greenhouse gas emissions. 
  South Korea, as an emerging donor, has made a continuous effort to enhance its aid effectiveness by improving the linkage between technical and financial cooperation and engaging the private sector in development in priority countries. Nevertheless, there has been a lack of policy coherence in terms of aid, trade and climate change polices, which can have a significant potential synergy and sometimes negative effects on the developing countries.
  In this context, the study attempts to explore possible ways to enhance development effectiveness and policy coherence in the area of aid, trade and climate change from the perspective of the Republic of Korea. The study begins by briefly introducing the SDGs and moves on to analyze the goals, targets and indicators that are specifically related to trade and market access as well as climate change. This is followed by an illustration of changes in the concept of policy coherence in the context of MDGs and then the SDGs. The Commitment to Development Index by the Center for Global Development is depicted as a tool to measure and compare the performance of 27 rich countries in policy coherence in the areas of aid, trade, finance, migration, environment, security and technology. The transition from PCD to PCSD (Policy Coherence for Sustainable Development) is discussed, followed by an overview of the PCSD analytical framework proposed by the OECD.
  The next chapter attempts to reveal the joint effect of aid and Generalized Scheme of Preferences (GSP) on the export from recipient countries. The results of a gravity model show that the joint effects of aid and GSP on exports vary according to the income level of the recipient country and the industry. Especially, it was found that aid and GSP have positive joint effects on the agricultural export of low income countries. The result is consistent with former literatures indicating that GSP does not work alone but has a positive effect on trade when provided together with aid. This paper conducted a scenario analysis for Korea’s introduction of the GSP. The results of a partial equilibrium analysis indicate that the introduction of Korea’s GSP will increase imports in agriculture, textiles and mineral products. However, damage to the domestic industry would be limited since the volume of increased import from developing countries is relatively small. There are also provision tools such as rule of origins and import restriction that are widely adopted by other donor countries to protect their domestic industries.  
  The following chapter analyzes the key issues in the Paris Agreement adopted in the same year as the SDGs and identifies five priority areas to pay particular attention in order to achieve the SDGs, as follows: first, increase the volume of climate-related aid; second, mobilize private resources with public resources and public sector intervention using various financial instruments; third, mainstream climate change into decision-making processes; fourth, promote climate-related technology transfer; fifth, prepare for international carbon pricing scheme and way of cooperate with developing countries. 
  Finally, the paper concludes by suggesting policy recommendations for the Korean government to enhance policy coherence for sustainable development, specifically in the areas of aid, trade  and climate change policy. Firstly, it is argued that the government needs to enhance policy coherence by aligning its national strategies with the SDGs and applying integrated policy approaches. Since the adoption of the SDGs, an increasing number of countries have made efforts to “nationalize” the 2030 agenda and acclimate it to their national context and priorities. In order to promote policy coherence for sustainable development, the government needs to set up an institutional setting and co-ordination mechanism for SDG implementation. However in South Korea, there is an absence of an oversight unit for SDG implementation, which is crucial to ensure a whole-of-government approach and coordinated planning. The recently adopted Mid-term ODA Policy for 2016-2020 briefly mentions the importance of policy coherence in the SDG context without providing a detailed implementation plan. There should be clearly stated high-level commitment to PCSD supported by time-bound action plans with shared objectives across the whole government. There must also be clear mandates for relevant ministries and agencies to balance and coordinate divergent and sometimes conflicting policy interests. Most of all, the policy coherence across policy areas such as aid, trade and climate change must be integrated into the national legal framework, namely the Sustainable Development Act and the Framework Act on International Development Cooperation, to ensure the compliance of the relevant actors. To implement the PCSD agenda, the inter-linkages and potential trade-offs between various policies, goals and targets should be analyzed and identified through whole-of government approaches. Based on the analysis, the common area for action must be determined and implemented by an inter-ministerial committee.
  In order to track progress on PCSD, a set of indicators aligned with Korea’s national context must be developed by modifying standard PCSD indicators by the OECD into a form that can incorporate the expertise of government think tanks and the civil society. Using the existing mechanism, the Sub-Committee for Evaluation under the Committee for International Development Cooperation could play a key role in developing and coordinating the PCSD monitoring and reporting system. Furthermore, in order to promote an integrated approach to mainstream SDGs in various policy areas, the government could consider setting up an inter- ministerial committee responsible for the implementation of SDGs.
  Secondly, the study argues that the introduction of GSP should be considered to enhance development effectiveness. As was revealed in the empirical analysis, aid and GSP have a positive joint effect on the exports from developing countries. In addition, GSP could be considered as another supporting mechanism along with aid to expand trade and investment with developing countries. As we reviewed in this study, other donors have been diversifying their support tools for developing countries. Along with aid, FDI and GSP strengthen the local production and export facilities in developing countries. Given the constraints of the aid budget in Korea, GSP could be effective for the expansion of trade and investment with developing countries by improving the local production facilities. Such measures would help to enhance the investment and employment in developing countries, and ultimately will contribute to enhancing the development effectiveness and mutual growth with developing countries. The expected damage resulting from the introduction of the GSP to the Korean domestic industry will be limited according to our scenario analysis. If any, provision tools such as rule of origins and import restriction could be established together with the GSP to protect domestic industries. Also, the recent increase of reciprocal trade agreements with developing countries, such as the Korea-ASEAN FTA, is expected to curb any damages from the GSP to domestic industries.
  Thirdly, the linkage between climate change policies and aid policies must be enhanced. In the context of a paradigm shift toward low-carbon societies, climate change must be mainstreamed throughout the decision-making process of development policy and at the implementation level. Finally, all development activities need to help developing countries to prepare a low-emission and climate-resilient development path while meeting the needs and priorities of domestic actors.
 

 

 

  Corruption in Latin America is not a transient issue but a chronic social problem, which has been the major obstacle to the development of the region as well as a keyword to understand Latin American society. Therefore, understanding the structure of Latin American corruption and exploring the possibility of developing countermeasures against it is an important task for the public as well the private sector of Korea which seek to strengthen economic relations between Latin America and Korea.
  However, the existing literature on Latin American corruption in Korea did not include comprehensive comparative analyses of corruption in Latin America by solely focusing on case studies of individual country. Furthermore, it lacks analysis on anti-corruption measures recently implemented in various Latin American countries.
  In order to overcome limitations of existing literature on corruption in Latin America, this study explores corruption in six Latin American counties: Mexico, Brazil, Argentina, Peru, Chile and Costa Rica. After looking into individual case in terms of its corruption and anti-corruption measures, we engaged in a comparative study of the six cases to achieve more thorough understanding of characteristics of Latin American corruption as well as possible implications for Korean society.
  In case of Mexico, this study reveals that corruption is deeply rooted in its political system, especially corporatist system which caused clientelistic relations between the state and the society. Such political system spreads into private sector where private companies opt to give political donation in exchange to right to participate in governmental projects. Ironically such political corruption worsened with the weakening of the state with neoliberalism in 1990s because of the emergence of new corruption network among government, drug cartel and private companies.
  The most important reason behind the corruption in Brazil is its election system where multiple parties compete and collaborate in order to obtain its political as well as economic goals. However, the Brazilian political system, which is heavily based on negotiations and cooperations, could foment an environment where political parties buy supports from others. In addition, relatively light punishment for politicians resulted in chronic corruption.
  Argentine case shows the weak political system which consists of overly strong presidentialism and weak judicial as well legislative system could cause the structure of corruption. Such concentration of power on presidential system brings about clientelism which politicians utilize public resources to pursue their private interest. Meanwhile, in Peru, inefficient as well as excessive governmental intervention and bureaucratic system create generally weak institutions in the public sector, which foments a favorable condition for corruption.
  FNIAlly, this study looks into Costa Rica and Chile, which represent relatively less corrupt cases in Latin America. By analyzing the two countries, this study makes known the fact that institutionalized democracy as well as well-implemented anti-corruption measures are key to achieve a transparent society.
  According to this study, various Latin American countries implemented anti-corruption measures, which were introduced as an effort to comply to international treaty or a countermeasure to political scandals. Despite of detailed measures against corruption, most cases show that the intensity of anti-corruption measures does nos necessarily reduces corruption.
  This study offers several policy implications for Korea-Latin America relations. First of all, it offers detailed information of corruption in Latin America and its impact on business environment. In addition, this study recommends three types of governmental policies to enhance Korea-Latin America relations in terms of corruption. First, Korean government can actively engage in anti-corruption measures in Latin America by participating in international institutions and their treaties against corruption. Also Korean government could offer technological support such as e-Government to Latin American countries which try to reduce its corruption. FNIAlly, Korean government could support Latin American civil society which work hard to introduce more transparency in Latin American society by providing international development cooperation.
  By analyzing the corruption in Latin America, this study shed lights on the fact that tough anti-corruption measures do not automatically reduce corruption. Rather the democratic political system should exist as the basis to make anti-corruption measures work.
 

 

  Adopted at the UNFCCC COP21, the Paris Agreement is recognized as the most significant international environmental agreement since the United Nations Framework Convention on Climate Change in 1992. Laying the foundation for the post-2020 climate regime, the Paris Agreement emphasizes GHG mitigation efforts by all parties, including developed and developing countries. Korea decided to cut the national greenhouse gas emission by 37% in 2030 compared to the business-as-usual emission estimate and included the statement in its Intended Nationally Determined Contribution. In achieving the target, Korea stated that 11.3%p of greenhouse gas reduction will be achieved through international carbon market mechanism while the remaining 25.7% will come from domestic source.
  Nevertheless, the international community is in the process of developing consensus around the details of trans-boundary carbon market mechanism that is environmentally sound and sustainable enough to be recognized under the Paris Agreement. In this regard, the study aims to present ways for Korea to properly respond to the issue by observing the progress in the climate discussions and analyzing major carbon programs. Particularly since the Korean government is considering the use of cross-border carbon offset programs, the study comprehensively reviews a number of international carbon offset programs and thus seeks to provide implication for Korea. The study considers key principles highlighted in the international community and develops a Mitigation Cooperation Index (MCI), applicable to identifying prospective regions and fields for carbon offset programs. The study also looked at constraints to private participation in implementing international carbon projects and suggests ideas to increase private participation.
  In order to identify potential carbon partner countries for Korea, the study devised a set of index, namely ‘Mitigation Cooperation Index.’ The study deemed the following elements as essential: GHG emission level and intent for international carbon transfer, economic ties with Korea, and national development potential. By sub-categorizing and indexing the above-mentioned elements (emission level index, economic exchange index, and national capacity index) and varying the weight among the elements, the study induced values between 0 and 1, with 0 being less prospective and 1 being more prospective.
  When placing most weight on emission environment, India, Iran, Kazakhstan, Mongolia, and Vietnam were analyzed as the most potential partners. Nine out of thirty most potential partners were Asian countries. In terms of economic exchange, Vietnam, Indonesia, the Philippines, Bangladesh, Cambodia, Myanmar and several other Asian countries were included in the more prospective group. In regards to national development capacity, countries with higher income levels while classified as developing countries in the UNFCCC (i.e. Singapore, Israel, Chile, Qatar, etc.), were in the top tier. However, through a MCI analysis, we were able to conclude that it is most effective when national capacity support is provided along with cooperation in carbon reduction in a number of Asian countries.
  On the Korean side, while private companies are willing to participate in overseas reduction projects, many of them lack local network and capacity. Therefore, it is necessary to enhance private sector competitiveness through adequate institutional and policy design. In terms of finance, Korea must seek a linkage between ODA resources and international carbon reduction programs. Given the financial constraints of low-carbon projects, ODA resources can be linked to lowering entry barriers and inducing private capital inflows. Also, active participation in international carbon finance initiatives by multilateral banks and organizations should be considered.
  In conclusion, the study suggests the followings to facilitate Korea’s participation in international GHG reduction. First, the government should set up and implement a mid- to long-term plan to assist the private sector participation in climate change mitigation. There is a need for a powerful inter-agency control tower beyond the current level to perform and coordinate relevant action plans established by each ministries.
  Secondly, active support from the government is needed to promote private participation in climate change projects overseas. For example, establishing a one-stop support organization for Korean companies to successfully launch business in overseas green industry sector, building a system for companies to transfer overseas carbon credits to domestic reduction, and supporting private sector competency and experience through domestic institution building.
  In addition, resource mobilization must be considered. In this respect, Korea may consider supporting GHG mitigation projects in connection with ODA, multilateral funds, and various other financial instruments. Particularly, enhanced efforts to access the Green Climate Fund is necessary. Access to the Fund can be highly potential through a well-devised project plan.
  Finally, efforts are needed for Korea to engage and collaborate in various international carbon partnership programs. Through participation in the discussions with major international organizations, donors and recipients, Korea will be able to access first-hand information and also cultivate climate capabilities while engaging in actual business. Engagement in such activities will also increase business opportunities and partnership with interested parties.
 

 

  Recently, there has been growing interest in the use of production networks in the ASEAN region, which has emerged as a new production base and consumer market for Korea. If Korean firms establish regional production networks with intra-regional enterprises, they can improve production efficiency by heightening the possibility of local survival and international market competitiveness. Meanwhile, given the fact that Korea has gained a trade surplus of about $ 30 billion in 2015 from the ASEAN region, Korean firms should seek further cooperation with local ASEAN firms. If the new protectionism that has been spreading across the world contaminates ASEAN member states (AMS), AMS may complain about the trade imbalance.
  ASEAN member states have recently demonstrated their willingness to support the participation of SMEs in global production networks. If firms in AMS successfully participate in a global production network and upgrade their competitiveness, they can become competitors to Korean firms working in the ASEAN region. The utilization of local firms can be considered a countermeasure against the growth of ASEAN firms. Based on the above needs, it will be necessary to establish regional production networks (RPN) in the ASEAN region, as a new strategy for increasing both the sustainability and efficiency of Korean firms in ASEAN. In addition, this will lead to the expansion of exports. Therefore, the purpose of this study is to establish strategies for regional production networks in the ASEAN region.
  The level at which Korean firms have established regional production networks with local ASEAN firms is still relatively low compared to Japanese firms. Therefore, we benchmark the Japan case and see how we can utilize local ASEAN firms. First, we explored how Japanese firms have formed production networks in ASEAN region. Next, through a survey, we analyzed the capability of Korean firms and local companies to participate in regional production networks and the needs of Korean firms. Finally, we presented strategies and plans for the RPN construction of Korean firms and governments in the ASEAN region.
  In Chapter 2, we analyze the business environment of local firms and the current business situation drawing from previous research and various data. According to the World Economic Forum (WEF) Global Competitiveness Index (GCI) and the World Bank's Ease of Doing Business Index, the competitiveness of ASEAN countries has clearly improved since 2010. However, we do not believe that the improvement of these indicators necessarily coincide with the sentiment of Korean firms. Although indicators relating to the labor market, foreign investment, investment incentives and fair competition have improved, Korean firms are still unsatisfied. Nonetheless, it is meaningful that the improvement of the ‘format,’ such as the improvement of the indicator, is the starting point of ‘substantial’ progress. Fortunately, business conditions in Vietnam and Indonesia, which are subjects of the study, have significantly improved compared to Cambodia, Lao, and Myanmar (CLM).
  FDI inflows into the ASEAN region have grown rapidly in line with improvements in the business environment. The volume has been larger than that flowing into China, since 2013. To meet the growing investment in the region, Korean firms have adjusted their investment strategies. Even up until the mid-2000s, SME-centered single investment was the mainstream channel. Since 2010, large corporations have been led by SMEs. Such joint movement of large, medium and small enterprises into the ASEAN region is attributed to the fact that ASEAN-affiliated firms cannot participate in the production activities of Korean firms.
  Meanwhile, in Chapter 2, we surveyed the difficulties of management for Korean SMEs operating in the ASEAN region. There was hardly any difference from the difficulties identified by Kwak et al. (2014, p. 156-160). However, one problem that did differ from Kwak et al. (2014) was raised by Korean SMEs and large corporations that entered the ASEAN market together. Such joint entry into a new market improved the stability of Korean SMEs, due to the reduction of risk. However, it also secured a structure dependent on large firms, which weakened the bargaining power of SMEs against large corporations. Less bargaining power leads to a decline in product prices, causing problems in profit structure. In addition, the management status of SMEs would also be determined by that of large enterprises, their main customers. To avoid these problems, SMEs must diversify their production networks. In other words, Korean SMEs can consider diversifying the sources and buyers of parts and materials procurement as a strategy for sharing entry risk. Such efforts are also expected to be effective in responding to ASEAN's strategy of involving its own SMEs in global production networks. For example, Indonesia’s domestic component requirement (TKDN: Tingkat Komponen Dalam Negeri) policy can be overcome.
  In Chapter 3, we analyze how Korea will build a local production network through the experiences and cases of Japan, which has the best production network in the ASEAN region. Japan first employed the strategy of establishing its base in ASEAN countries, centering on electricity, electronics, machinery and automobiles. By connecting these bases to the network, they shared information, knowledge, experience, know-how and managed risk. In addition, Japan standardized the production process to establish division of labor in the ASEAN region, in order to maximize production efficiency. Moreover, local ASEAN firms were involved in the production activities of Japanese firms that had entered the market, so that Japan understood the needs and preferences of the consumers in the host countries. By applying the identified needs and preferences to the design, function, and characteristics of the product, Japan effectively targeted domestic markets. In addition, Japan created a system which produced and procured parts and components locally, so as to deploy them in production processes in a timely manner. Meanwhile, Japan managed to increase price competitiveness by including products of ASEAN countries that utilize cheap labor into the production process.
  For this reason, Japanese firms have steadily strengthened its ASEAN regional production networks over the past decade (2006-2015). Japanese firms in the ASEAN region have increased the proportion of raw materials and parts procurement for production from both ASEAN local firms and Japanese firms located in the ASEAN region. In particular, Singapore, Malaysia and Indonesia are among the countries in which Japanese firms have swiftly raised the percentage of procurement from local firms. This is because these countries are strongly advocating the use of domestic products for the production of Japanese firms. In addition, the extent to which local firms are utilized differs by industry. The local procurement portion was high for industries such as transportation machinery and equipment, where parts and raw materials logistics costs are high. However, the local procurement shares of electronic components and parts are relatively low, due to the short product cycles and relatively low logistics costs. It seems that Japan clearly distinguishes local procurement items from domestically procured items. It will be necessary to benchmark Japan when Korean firms in ASEAN seek to expand local procurement. For light parts and components requiring high quality and high technology, Korean firms have to be supplied from Korea. On the other hand, parts and components that have low value added or high transportation costs should be supplied locally. To this end, the domestic parts and materials industry in Korea should be further fostered.
  Meanwhile, a survey was conducted on 90 firms in order to identify the regional production networks of Korean firms located in ASEAN. Korean firms operating in the ASEAN region mainly procured raw materials and components from Korea and China. In particular, the reason Korean firms in Vietnam have a high procurement ratio from their home country is that most of them are engaged in electricity and electronics. Also, since large corporations and Korean SMEs entered Vietnam together, the proportion of local procurement in Vietnam is high. Currently, production networks in which only Korean firms participate are subject to complaints from ASEAN local firms.
  Korean firms have not yet established regional production networks in the ASEAN region in comparison to Japanese firms. Japan's regional production networks are strategically linked to Japanese firms located in Japan, Japanese firms located in the region, and Japanese firms producing parts and materials which are also located in the region, Chinese firms and ASEAN local firms. However, Korean firms’ production networks have yet to complete such a picture. ASEAN regional production networks formed by Korean firms, compared with networks built by Japanese firms, are characterized by a low utilization rate when it comes to local ASEAN firms. The history of the entry of Korean firms into ASEAN is relatively shorter than that of Japanese firms. For this reason, in order to overtake Japan in the region and establish a production network in the short term, it is necessary for a strategy in which large corporations and SMEs enter the ASEAN region together.
  Chapter 4 explores the functions of SMEs in production activities and explores why local SMEs in ASEAN should be included in the Korean production network. In addition, we present the results of in-depth interviews and surveys with ASEAN local firms regarding participation in production networks. The outcomes, we believe, can be used as a basis for Korean firms to establish strategies when working with ASEAN SMEs.
 The most representative function of SMEs is to enable smooth connection between production stages. However, SMEs, which are the foundation of the parts and materials industry, are failing to perform this function because they are not growing properly in the ASEAN region. Despite this situation, AMS insist that foreign-invested firms exclude ASEAN local firms from production. This difference can be attributed to the reduction of the incentives provided by ASEAN member states to foreign-invested firms or to the strengthening of regulations. Given the fact that Indonesia is already required to certify its TKDN, other countries among AMS may soon implement similar regulations. Therefore, a preemptive response is required to include ASEAN local firms in the Korean production network and have them operate as advocates of Korean firms. Considering that the purpose of Korean firms’ entry into the ASEAN region has shifted from “manufacturing goods that utilize cheap labor and exporting them“to”entering local markets,” it is necessary to respond quickly to changes in the demands of local ASEAN consumers by utilizing local SMEs in ASEAN.
  We found from the surveys that ASEAN firms have already recognized that their governments are already working to improve business environments for them. Also, more than 50 percent of respondents said that their business performance, financial conditions, employment and business areas either improved or expanded. In addition, ASEAN firms themselves, to succeed in global value chains (GVCs), have recognized that it is necessary to develop internal competencies such as product and quality specialization, innovation and design, and entrepreneurial spirit.
  Moreover, ASEAN firms with experience in participating in GVCs were aware that their relationships with other firms were a very important factor in determining business performance. Although Korean firms are reluctant to admit it, ASEAN firms are growing fast enough to threaten the position of Korean firms in the world market. It is necessary to prepare countermeasures against the growth of ASEAN firms. For example, Korean companies should internalize SMEs with high potential for development, and seek ways for Korean companies to enjoy the fruits of ASEAN SMEs. Furthermore, ASEAN SMEs strongly want to cooperate with Korean firms for technology development.
  Based on the results of this study, this study presents strategy for establishing the direction and goal of regional production networks (RPN). Given the heterogeneity of ASEAN, composed of 10 countries, Korea has to select strategic bases for regional production networks. Then the next step is to gradually widen and connect them. Currently, Korea has established a production base by concentrating investment in Vietnam. In order to gradually expand the base and increase the number of bases, it is necessary to build a master plan which includes a large framework that manages the ASEAN regional production network; a possible title could be the “Vietnam plus One” strategy. Exit and support strategies for Korean firms that have entered Vietnam in anticipation of the TPP could also be established within this framework.
  The long-term goal of the strategy for establishing an ASEAN RPN is to improve the local sustainability of Korean firms in ASEAN. Considering that the primary goal of Korean firms operating in ASEAN is to enter local markets, we can increase the sustainability of Korean firms by working together with local ASEAN firms, because they have more information on their local markets. In particular, the incorporation of local ASEAN firms into Korean firms through mergers and acquisitions (M&A) will provide the advantage of existing business facilities and distribution networks.
  Two mid-term goals have been set. One is to improve the competitiveness and profitability of Korean firms entering ASEAN. Another is to expand the entry of young people into ASEAN by establishing start-ups. As we have seen, building a regional production network improves the management efficiency and profitability of local firms. In addition, we can encourage our technical standards to be applied to the production process in ASEAN, by dispatching our young personnel when we engage ASEAN firms in the Korean production network. Also, if young people establishing their own business in the ASEAN region support the activities of Korean firms in the region, this will contribute to strengthening the Korean production network. In order to achieve these mid- and long-term goals, this study presents measures that should be implemented by the government and corporations, as follows.
  The government should focus on laying the foundation for building regional production networks. First, as seen in the outcomes of the surveys from Chapters 3 and 4, we confirmed that there is a difference between local ASEAN firms and Korean firms in their purpose for participating in the production network. Therefore, it is necessary to activate a cooperation forum between local firms and Korean firms, so as to fill the gap between them. Second, we need to enhance technology exchanges, because we found from the surveys that local ASEAN firms have such needs. We may consider the expansion of the TASK (Technology Assistance and Solutions from Korea) project led by Korea's Ministry of Trade, Industry and Energy. Third, we should encourage AMS to adopt Korean standards, with an emphasis on the need for the unification of technical standards to form and strengthen production networks between the two economies.
  Finally, since the enterprises are the ones that establish local production networks, we propose three methods the entrepreneur can employ to form regional production networks in the ASEAN region. First, Korean firms in ASEAN should strive to reinforce their collaborative relationship with each other and secure various clients. As shown in the case of Japan in Chapter 3, the parts and components that electric and electronic firms utilize for production have a short life cycle, as well as high value added. Japanese firms producing in ASEAN import these parts and components from Japan, rather than ASEAN countries. This should be used as an opportunity for Korean SMEs operating in the ASEAN region. Second, Korean firms must strive to advance into the ASEAN region's local markets by utilizing the distribution network of local ASEAN firms. For example, Korean firms can use M&A to expand the involvement of ASEAN local firms in Korean production networks. Third, Korean firms should prepare plans to utilize the supporting industry promotion policies of ASEAN member states (AMS). As we saw in Chapter 2, AMS governments are implementing various policies to foster their own supporting industries. Thus, we should carefully monitor policy changes related to the fostering of supporting industries and utilize them as opportunities for Korean firms.
 

 

 

 

  More than 20 years have passed since Japan entered a recession in the mid-1990s, with the bubble burst and changes in the population structure-low birth rate and aging population-acting as catalysts. It is true that Abenomics did manage to stimulate some growth in the Japanese economy, which had continued on a downward trend especially after the 2008 global financial crisis and the 2011 Tohoku earthquake; however, Japan’s nominal GDP in 2015 is still a meager 500 trillion yen, significantly lower than its GDP of 521 trillion yen in 1997, demonstrating the necessity for large-scale structural reform. Japan’s potential growth rate also illustrates something along the same line. Japan’s potential growth rate reached 4.9% in the late 1980s, and then plummeted to around 2% in 1992 after the bubble burst. In 1994, the figure halved to around 1%, and in 1997, to around 0%. In 2015, it was a mere 0.3%, showing that indeed something more than the hitherto practiced expansive fiscal policy and quantitative easing (QE) is required.
  Thus, this research presumes that the Abenomics growth strategy will accompany structural reform, using legalization as the tool. We first present a general overview of the Abe administration’s growth strategy, then examine its results and challenges, focusing on the four policy issues of business restructuring, corporate governance reform, the 4th industrial revolution, and employment/labor market reform. This research’s final aim is to present policy implications for the Korean government, considering the policy agendas the Korean government is currently facing, such as expanding the private investment, labor market reform, structural reform, the 4th industrial revolution, etc.
  Chapter 2, titled “The Framework of Abenomics Growth Strategy,” covers the background and goal of the Abe administration’s growth strategy. Here we emphasize that Abe’s growth strategy ultimately aims at solving the so-called “three excessives” of the Japanese economy?excessively little investment, excessive regulations, and excessive competition?and fostering new industries. This research divides the Abenomics growth strategy into two stages: the first stage, which consists of the four growth strategies up to the year 2015, focused on promoting the metabolism of industries through regulatory reforms, strategic markets creation, business restructuring, and corporate governance reforms; on the other hand, the second stage, consisting of the 2016 growth strategy, focuses on the fourth industrial revolution and the reform of working patterns.
  Chapter 3, “Business Restructuring under Abenomics,” deals with Japan’s business restructuring under the framework of the Act on Strengthening Industrial Competitiveness (the Industrial Competitiveness Act) that was enacted in 2013. Although the Japanese government’s restructuring policy shifted to a more market-friendly direction in the 1990s, government still does play a role in business restructuring, as is apparent in its expanding and reorganizing of the 1999 Industrial Revitalization Act in 2009 and in 2013, into the Industrial Competitiveness Act. This research also notes that the active business restructuring in the 2000s, such as M&A, was a result of the government’s various efforts at improving the legal and the regulatory environment.
  Chapter 4, “Corporate Governance Reform under Abenomics,” examines the significance of corporate governance reform from Japan’s traditional main bank system, and observes how the Japanese government is approaching the reform. We analyze the government’s efforts to strengthen the internal governance mechanisms, through measures such as strengthening internal audit systems or requesting the appointment of outside directors, and to strengthen institutional investors’ governing function.
  In Chapter 5, “Nurturing the New Industries in Abenomics,” this research looks into the Japanese government’s policy actions to increase productivity and create markets with high growth potential. Internally, Japan faces structural constraints to growth due to its decreasing population, while externally, Western countries including the US and Germany are actively promoting the 4th industrial revolution as a new growth model. Facing such challenges, Japan has been promoting strategies to create new industries, but following the 2011 earthquake and inauguration of the Abe administration in 2012, the focus is being placed on robots, Internet of Things (IoT), AI, etc.?the technological pillars of the 4th industrial revolution.
  Chapter 6, “Abenomics labor market reform,” covers Japan’s policy measures to reform the labor market and examines whether or not they are effective. We focus on the fact that the Abe administration has come to the realization that Japan’s employment customs?which include long-term (or lifetime) employment, seniority wage system, etc.?can no longer properly respond to Japan’s decreasing labor productivity and labor supply. This chapter divides labor reforms under Abenomics into two categories: policies to improve labor market flexibility, such as relaxing the dismissal standards of regular workers, and policies to increase labor supply by utilizing the labor powers of hitherto neglected sectors of the population, such as women, foreigners, and the elderly.
  Finally, in Chapter 7, “Policy Implications,” the outcomes and challenges of the Abenomics growth strategy are compared with Korea’s policy situations. It must be noted that although Korea has not announced a holistic “growth strategy” under such a name, it is promoting a series of policies that are comparable to each section of the Abenomics growth strategy.
  First, key agendas that are being promoted under Abenomics, which include regulatory reform, labor market reform, strategic markets creation, business restructuring, corporate governance reform, and new industries creation, are all critical to a country like Japan with its decreasing population.
  Second, although there is no denying that some government support is necessary to assist companies’ preemptive restructuring, it may be preferable to place more of an emphasis on modifying related laws and regulations.
  Third, in promoting corporate governance reform, Korea could very well refer to Japan’s case, and especially how it secured momentum of its corporate governance reform by amending the Companies Act in June 2014 and introducing the Corporate Governance Code in June 2015.
  Fourth, Korea, like Japan, needs to establish a government-wide national strategy with public-private cooperation, and promote regulatory reforms to foster new industries under the 4th industrial revolution. Fifth, in relations to the labor market reform, both Korea and Japan are failing to show progress in improving labor market flexibility. In this situation, it will be beneficial to try some measures that essentially are preconditions for labor market flexibility, and which are showing some positive results in Japan. Policies to improve labor conditions for irregular workers and allowing various forms of working are examples of this.
 

Executive Summary

Contributors

1. Introduction

2. Trade in Intermediate Goods and Pro-cyclical Productivity
2-1. The Model with Domestic and Imported Intermediate Goods
2-2. Empirical Results

3. Trade in Intermediate Goods, Misallocation and Productivity Loss in Korea
3-1. Model of Misallocation and Multiplier Effects in Input-Output Framework
3-2. Productivity Growth and Efficiency Changes in Industry-Panel Data

4. Conclusion

Appendix

References 

There have been voluminous contributions such as Daudin et al. (2011), Johnson and Noguera (2012), Koopmans et al. (2010), and Trefler and Zhu (2010) in measuring value added trade based on input-output tables as generalizations of the vertical specialization measures following Hummels et al. (2001). These studies focused on trade in intermediate goods as a key feature of recent global trade. In the case of Korea, about 50% of total exports and 70% of its total imports are intermediate goods trade. This paper contributes to the discussion about the trade in intermediate goods and productivity by revisiting Basu (1995), Jones (2011), and Lee and Pyo (2007) to examine implications of trade in intermediate goods for macroeconomic business cycles and productivity and welfare at the current stage of Korean development. The major revision of the Basu (1995) model is attempted by decomposing intermediate goods into domestically produced intermediate inputs and imported intermediate inputs to investigate implications of the model in a small open economy. The major finding is that the procyclicality of the intermediate goods usage relative to labor usage and TFP changes in both value added and gross-output regressions are significantly weaker in a small open economy like Korea than the large economy of the United States. We also investigate the effects of misallocation and multiplier effects due to intermediate goods on industrial productivity and efficiency following the model of Jones (2011). Since the effects of misallocation can be intensified through the industrial input-output structure of the economy, we calculate the intermediate goods multiplier by Korea's 29 manufacturing industries. We find technical changes and the degree of inefficiency are related with the magnitude of multipliers, but we leave a fundamental identification problem to future research.

 

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  The aim of the research is to suggest economic cooperation framework between Korea and the Middle East in the times of lower oil prices. A rapid decline of oil prices since the second half of 2014 has negatively impacted on economy of the GCC(Gulf Cooperation Council) countries which heavily depend on oil and gas sector. GCC countries are facing economic recession with the worsening of the financial situation, lack of liquidity and decrease of investment. The sharp drop in oil revenues due to lower oil prices caused government fiscal distress and made the GCC countries use accumulated foreign exchange reserves and sovereign wealth fund. They also prioritize projects focusing on social infrastructure including education and public services, leading to decrease of number of project contracts awarded in the GCC region.
  In response to the economic slowdown and fiscal burden, GCC countries have strengthened policy measures for economic diversification. They have promoted various supporting policies to nurture their strategic industries - most notably the renewable energy sector - and competitive small and medium-sized enterprises in the region. In order to regain fiscal soundness, GCC countries have been trying to cut their energy subsidies and revise the tax system, expanding government loans and privatization of their state-owned companies than the past. Moreover, they are making more efforts to increase foreign direct investment inflows with improvement of business environment and PPP(Public-Private Partnership) procedures.
  The economic difficulties facing the GCC countries due to lower oil prices is causing a significant concern over dwindling economic cooperation between Korea and the GCC countries. In response to this, a new cooperation framework is needed to strengthen bilateral ties for shared growth. Four fields of cooperation can be identified as follows. First, industrial cooperation should be reinforced to expand economic diversification and job creation in the GCC countries. Second, energy cooperation should be broadened into the fields of renewable energy development and energy efficiency technology other than energy trade. Third, investment cooperation need to be strengthened to facilitate joint investment in the region including joint ventures. Fourth, institutional cooperation between governments is needed to share Korean institutional reforms in the fields of tax, subsidy, privatization, FDI and so on, deepening mutual understanding of economic partners for co-development.
 

 

   Uncertainties in the global economic environment are increasing due to prolonged low oil prices, China’s low economic growth, the possibilities of strengthened protectionist trade policies after the U.S. presidential election, and the emergence of neo-isolationism due to Brexit. In this situation, the Central Asian governments are developing and pursuing individual economic strategies which reflect their own socio-economic characteristics and core policy goals.
  Kazakhstan is shifting its policy direction from maximizing exports of raw materials to qualitative economic development. The country has pursued an open foreign policy and trade liberalization to overcome its geographical limitations as a small landlocked country. The open economy originally focused on exporting energy resources and attracting foreign capital, but with some control by the government in energy resources management. However, as the structural changes in the external economic environment occurred after the global financial crisis in 2008, the government started to focus on improving the structure of the economy, which remained dependent on energy resources. The key tasks for Kazakhstan were to upgrade its competitiveness, improve the investment climate, build infrastructure, diversify its industries through technological innovation, expand the role of private sectors, improve the efficiency of national asset management and develop human resources. Accordingly, the government adopted the State Program of Industrial-Innovative Development for 2015-2019 and announced the Nurly Zhol plan for promoting infrastructure development in 2014, followed by the ”100 Concrete Steps to Implement Five Institutional Reforms“ in 2015. This was a strategic attempt to build a foundation for sustainable economic growth by responding to changes in the external economic sector, through securing new growth engines in the economic sector, promoting industrial diversification and implementing structural reform.
  Uzbekistan has been pursuing an import substitution policy while maintaining a closed economy since independence. Uzbekistan’s government-led closed-economy essentially followed policy goals which prioritized the protection of its domestic market and economic stability from external volatility. Thereby, the country concentrated its efforts in developing domestic industries among the five Central Asian countries. Thanks to this, the country has been able to accomplish considerable achievements in the manufacturing sector, but still has many limitations in cultivating its export competitiveness, asits main export items are weighted towards raw materials (cotton, gold, gas, etc.) and its manufacturing sector is mostly composed of labor-intensive industries. Recently, the Uzbek government is putting the highest emphasis on enhancing competitiveness and efficiency in import substitution while promoting export-oriented industrialization. Through these efforts it aims to pursue stable economic growth based on strategic cultivation of the export industry and to drive a shift from labor-intensive industries to technology-intensive business. The government set key initiatives in reducing excessive governmental involvement in the economic sector, expanding the role of the private sector, deregulating trade activities and exchange rates, etc. In this context, the government formulated a comprehensive global financial crisis recovery plan in 2009, and such initiatives as the “Priorities for Economic Policy” and the “Short-term and Long-term Action Plan of the Uzbekistan Cabinet” were presented in 2015. At present, the government is preparing long-term programs for economic development up to 2030, which are expected to include more details on improving the nation’s industrial structure, such as the development of raw materials processing and high value-added industries.
  Turkmenistan’s government-led closed-economy has its key policy objective focused on natural gas exports, based on strong national control over its energy resources and the financial sector. However, such obstacles as excessive dependence on exports of raw materials, strong governmental control over the economy, and inefficiencies in the economic system have hampered sustainable economic growth. In response, the government adopted the “National Program of Socio-Economic Development of Turkmenistan for 2011-2030” in 2010, identifying sustainable economic development as a major goal of its national strategy. Modernization of the energy sector, industry diversification through cultivation of non-energy sectors were selected as priority goals. Currently, the government is aligning its efforts with the “Socio-economic Development Program 2012-2016,” while formulating the next “Socio-economic Development Program 2017-2021.” In particular, in 2016, President Verdi Muhammedov presented the ”2017 Socio-economic Policy Direction,“ and selected three major projects: attracting active investment, fostering companies with international competitiveness, and developing the private sector. According to this agenda, future projects such as the construction of a mineral processing complex, production of petrochemical products, and construction of industrial infrastructure will be carried out.
  As mentioned above, amidst the uncertainty in the global economic environment, Central Asian countries are devoting all their energies to prepare plans for sustainable economic growth. Their aim is to reform their economic structure centered on exports of resources and pursue industrial diversification. In this situation, our government should establish plans to expand economic cooperation with these countries. In this context, this paper presents plans to promote economic cooperation specialized for each country.
  With Kazakhstan, it is necessary to formulate plans for economic cooperation in areas that contribute to Kazakhstan’s economic modernization, industrial diversification and infrastructure development. Regarding industrial diversification, the six major manufacturing industries (nonferrous metals, chemicals, petrochemicals, machinery, building materials, groceries), agricultural modernization, four major innovation sectors (mobile multimedia technology, aerospace and nanotechnology, robotics and genetic engineering, future energy), tourism cluster creation and energy efficiency are promising areas. For infrastructure development, promoting cooperation in the areas of transportation and logistics, and industrial and energy-related infrastructure can be considered. In addition, technology cooperation in high-tech industries such as medicine, biotechnology, information and communication, as well as knowhow sharing in national land development and renewable energy industries are also promising directions to be considered.
  In the case of Uzbekistan, cooperation measures should be prepared in the fields of industrial diversification and localization, and infrastructure development. Regarding industrial diversification and localization, it is most desirable to seek economic cooperation in the ten priority industries (electric power, oil and gas chemistry, chemicals, machinery, textile and leather, electronics, building materials, pharmaceuticals, groceries, and minerals), the seven most promising industries for localization (agricultural products, minerals, chemical and related industrial products, textile materials, building materials, metal products, machinery and equipment), and the agricultural sector. Regarding infrastructure development, we can cooperate in areas of transportation, and industrial and energy sectors. In addition, the healthcare industry, construction of a joint industrial complex, eco-friendly green technology, tourism industry are also desirable areas for bilateral cooperation.
  For Turkmenistan, it is necessary to prepare cooperation plans linked with industrial diversification, localization and infrastructure development, which is quite the same with Uzbekistan’s case. However, the details within each sector are different. In the industrial diversification and localization sector, we should focus on industrial modernization (oil and gas, chemicals, light industry, food processing, building materials, machinery, textile, agricultural products), localization (building materials, chemicals, household appliances, grocery products), and export promotion industries (chemicals, agriculture, pharmaceuticals, light industry, grocery products). Regarding infrastructure development, the development of tourism-related infrastructure connected with transportation infrastructure (north-south and east-west corridors, complex transportation and logistics hub, and tourism cluster), and infrastructure related to the information communication and agricultural sectors (processing facilities for dairy products, fruits, vegetables, fish) are promising areas of economic cooperation. In addition, further cooperation measures should be explored in the tourism sector, which has recently been designated as one of the priority industries in the non-energy sector.
  Overall, approaches for expanding economic cooperation between Central Asian countries and the Republic of Korea can be summarized as follows.
  Firstly, based on the holding of regular high-level talks, our government should continue strengthening relations with key Central Asian figures, especially through summit diplomacy with key nations in the region. In addition, we should upgrade the Korea-Central Asia Cooperation Forum, which has been held at the vice-ministerial level, to a summit-level meeting. Through this, we can pioneer the ”3.0 era of cooperation between Central Asia and Korea” while further strengthening the responsibilities and performances of cooperation.
  Secondly, deciding on the main actor of economic cooperation between Central Asia and Korea is highly essential. An organization to formulate short- to mid- and long-term strategies for major Central Asian countries is needed in order to promote deeper economic cooperation. To this end, a Korea-Central Asia economic cooperation committee should be established, under the Korea-Central Asia Cooperation Forum, to coordinate Korea’s economic cooperation with major nations in the region. In principle, the committee should be composed of 1.5 tracks, in which all public organizations and representatives of private enterprises in every country participate. In this way, efforts to establish systematic supportive measures and cooperation policies targeting domestic SMEs can also be made.
  Thirdly, we should seriously consider establishing a fund for industrial cooperation between Korea and Central Asia to promote industrial cooperation between countries. It is highly important to reduce investment and cooperation risks for private companies which have limited financial resources. Funds can be sought by national banks in each country and be reviewed to see if our Official Development Assistance (ODA) fund can also be made available to support infrastructure development.
  Finally, since the future development of the Central Asian countries will depend on human resources, a systematic supporting system that includes professional technical training, industrial specialists training, academic and technical exchanges, should be provided by establishing a ”Korea-Central Asia Future Generation Promotion Committee“ under the Korea-Central Asia Cooperation Forum. For example, we should prospectively consider establishing vocational training schools and operating technical education programs in Central Asia, as well as supporting international students from Central Asia through various special programs.