Trade Openness, Skill Composition and Wage Inequality in Korea

Chankwon Bae, Joo Yeon Sun, Jeong Gon Kim and Jumi Lee

This study aims to identify the impact of trade openness on skill premium and labor force composition at the national and industry levels in Korea providing a comprehensive analysis of trends in demand for skills. In particular, it focuses on specialization and knowledge spillovers as channels through which trade affects the labor market. Finally, the study emphasizes the importance of government policies to reduce inequality between skilled and unskilled workers, which results from the expansion of trade such as FTAs, and it makes some policy recommendations for the trade adjustment assistance program that is currently being run in the nation.

Chapter 2 takes a look at changes in employment and wages in the manufacturing sector, defining skilled labor as university graduates and non-production workers. It is shown that the relative demand for skilled labor across the manufacturing sector has increased between 1993 and 2010, while working conditions for unskilled workers have aggravated constantly. It seems that these changes attribute to skilled-biased technical changes for the period before the mid 2000’s and to international trade for the period after the mid 2000’s.

Chapter 3 empirically analyzes the influence of foreign technology transferred through trade on skill upgrading in the labor market, focusing on the interaction between trade and technological progress. As a result, the study finds that advanced foreign technologies embodied in imported goods increase the employment and wage shares held by skilled workers. Yet, it turns out that there is actually some time lag for this impact to be observable. In addition to the impact of foreign technology spillovers, international trade itself turns out to increase employment and wage shares of skilled labor, and especially, trade in intermediate goods turns out to have more immediate effects.

Chapter 4, which is a more in-depth analysis of Chapter 3, focuses on addressing the impact of changes in the structure of international trade. The changes in the trade structure are measured by the Trade Overlap Index and the International Outsourcing Index. The results show that as intra-industry trade increases, the shares of skilled labor increase as well. The effects of international outsourcing vary among trading partners. It is shown that outsourcing to the U.S. and Japan has replaced skilled labor, and on the other hand, intermediate goods from China and Germany have complemented skilled labor in Korea.

Chapter 5 compares the Korea’s Trade Adjustment Assistance program, which is meant to alleviate inequality between skilled and unskilled workers, with the European Globalization Adjustment Fund (EGF) and the U.S. Trade Adjustment Assistance (TAA). The EGF and TAA are centered around workers unlike the former, which is very firm-focused. They provide adjustment assistance to workers who have been adversely affected by trade, offering better benefits than other programs available to unemployed workers. Also, it is seen that the core supports have been shifting from financial aids to vocational training.

Effects of Financial Integration on the Transmission of the Global Financial Crisis

Dong-Eun Rhee, Eunjung Kang, Ju Hyun Pyun and Jiyoun An


The integration of the global financial markets has been accelerated due to rapid growing international capital movement since 2000s. This financial globalization led by advanced and emerging economies was expected to promote efficiencies in the economy and spur economic growth. However, as we observed the negative spillovers of the Global Financial Crisis (GFC, hereafter) on the world economies spreading through channels of the financial globalization, many started to question whether financial integration buffers or amplifies negative shocks during the crisis. This study examines roles of financial integration in the spread of negative shocks from the U.S. throughout other real economies during the crisis, and provides implications on the financial integration channels that could transmit financial instability in the upcoming future.

Empirical assessment has been carried out on the impacts of the GFC originated from the U.S. on the other real economies, in relation to their levels of stock market integration and bond market integration with the U.S. We employ a simultaneous equation model that considers endogeneity issues among variables using the sample of 63 countries during 2001-2011. To measure the degree of real economic spillovers of the crisis initiated from the U.S. to other countries, we use real business cycle synchronization index between the U.S. and other countries. We argue if a country’s real economic growth worsens along with the U.S. growth during the crisis (i.e. real output growths of two countries are highly synchronized), then real contagion of the crisis is more severe on that country. The estimation results suggest that the crisis brings about business cycle convergence between the U.S. and countries that have greater stock market integration with the US during the GFC while the crisis leads to business cycle divergence to countries with greater bond market integration. Since we observed overall precipitous decline in stock market integration across countries during the crisis, this capital flight from the integrated stock market during the crisis would lead to the spread of the crisis to a country whose stock market is highly integrated with that of the U.S. However, a higher level of bond market integration with the U.S. would provide buffer against negative shock spillover during the crisis and make the crisis less contagious.

In addition, the study investigates whether the real economic spillover of the GFC cannot be fully explained by the intensity of the financial integration, and tests the ‘wake-up call hypothesis’ suggesting that economic fundamentals play an important role in the transmission of negative shock during the financial crisis. This study finds that real economic contagion from the U.S. through financial integration is robust by controlling for economic fundamentals of each country. Moreover, it is observed that a country’s economic fundamentals amplified the contagion effect during the GFC as well: countries with lower foreign currency reserves, lower financial development and higher foreign debts tend to be more vulnerable to contagion of the GFC.

The results of this research give twofold implications: First, this research can provide foresight on the spillover of current Fed’s exit strategy to Korean economy. As a matter of fact, Korea was less affected by the start of Fed’s tapering of 2013 talks due to its robust fundamentals, compared to other emerging countries like Brazil, India, Turkey, Thailand and Indonesia. Second, if the bond market integration does function as a buffer against negative shocks as our work suggested, then the further development of ‘Asian Bond Market Initiative (ABMI)’ will strengthen East Asian countries’ ability to respond to a crisis and also their fundamentals.

Cooperation between North Korea and China in Tourism and Policy Implication


Jiyeon Kim, Pilsoo Choi, Minkyung Lim, and Seung Kwon Na




China is the most significant partner to North Korea in economic cooperation of tourism. In 2012, 4,500 North Koreans traveled China, while at least 50,000 Chinese traveled North Korea. It is between April and November that Chinese tourists visit North Korea. During winter, North Korea close its door to foreign tourists due to a electronic power shortage, ice formation, problem in heating supply, and other limitation in environmental factors.

There are two different types of tour programs in North Korea, in terms of border city tour and Pyongyang and other city tour. The first one focuses on traveling border cities between the North and China, while tour programs in the second one concentrate on traveling Pyongyang and its nearby cities. Vehicle, train, or walking on foot is main transportation in the border program, while airplane, cruise, train, and vehicle are main transportation for the interior city tour. Average cost for the border program is approximately 700~2,500RMB per person, and it is 1,700~6,500 RMB per person for the Pyongyang and nearby city program. Yanji, Hunchun, Tumen, Shenyang, Dandong, and Peking are gate cities for traveling North Korea. Travelers from Yanji, Shenyang, and Peking are available for airplane, train, and vehicles, while those departing from Hunchun, Tumen, and Dandong take only train or vehicles.

There are 1,864 international travel agencies in China, and among them only selected number of agencies which make contract with national travel agencies in North Korea, in terms of Chosun International Travel Agency, Chosun International Youth Travel Agency, and Chosun International Physical Education Travel Agency obtain authority to send Chinese trip to North Korea. There are approximately 15 authorized agencies in Yanji, Hunchun, and Tumen. In Shenyang and Dandong, it is about 10 agencies, and there are approximately 10 agencies in Peking.

It is estimated that approximately 50,000~60,000 Chinese traveled North Korea in 2012. It also estimated that North Korea earned approximately 21.7million ~34.6million US dollar through Chinese travelers in 2012. When the fact that North Korea earned 86million US dollar through Kaesong Industrial Complex in 2012 is considered, economic cooperation size in tourism between the North Korea and China is not small enough to be ignorant.

Based on the paper results, fundamentally growth potential in tourism cooperation between North Korea and China is not high, because of limited chinese tourist demand to North Korea, poor infrastructure and system, and low rate of return in North Korea tour goods.

But, it could be positive factor that chinese demand for overseas travel is growing fast. And it is hard to estimate trend of china's tourism demand to North Korea, because china travel agency started to deal with travel good in North Korea, recently.

 

Strategies for Korean SMEs to Break into Latin American Markets: Based on the OLI Paradigm

Seungil Kim, Hwaseok Oh, and Hyun Seo Kee

Central and South America is approaching to Korea companies as a land of opportunities continuing a stable growth. This research covered the three countries around northwest-pacific, Colombia, Peru and Chile (“Andean three countries”), where our SMEs can access or enter into its market in the most effective way.

Among Central and South American countries, Andean three countries not only signed the Free Trade Agreement with Korea but also have a great condition in order that our SMEs can make inroad to its market in view of both geographical position and potentiality of growth. In particular, Andean three countries and Mexico established the economy community, the Pacific Alliance (Alianza del Pacifico), and its economic community is strongly emerging as a representative of Pacific coast of Central and South America.

The main purpose of this research is: (a) to analyze the present condition of economy, infrastructure, industrial composition, government policy, etc, (b) to evaluate the competitiveness of Korean SMEs in each industry field of local market after choosing the promising field and area to make inroad for their business, and (c) to seek the plans for expansion of Korean SMEs' business in the local market and the related policies.

To achieve this, this research analyzes the statics of export and import, the trend of investment, the competitive environment in local countries in depth, meanwhile, explain the condition of export and investment in central and South America through overseas direct investment theory such as OLI paradigm (Ecletic Paradigm), Phased entry theory, etc. Following this research results, the conclusion was reached as below,

Firstly, as regards OLI analysis, Korean SMEs are focusing on export based on O (Ownership-specific advantage) and I (Internalization-incentive advantage) in the Andean market. Except direct investment aiming for acquisition for local resources, however, it is very slightly to choose local direct production with all O, L(Labour-specific Advantage) and I.

Substituting the OLI paradigm, Korean SMEs have considerable Ownership-specific advantages in related industries of steel, petrochemistry, electron, auto, machine, IT, Korean wave, ete. On the other hands, There are not many elements to gain an advantage in the location-specific advantages by the infrastructure of industrial production and lack of skilled labours.

Secondly, based on the discussion in the chapter 3, we selected SMEs' 10 promising items for export in Andean three countries such as synthetic resins, steel plat, auto-component, computer, plastic product, raw material fine.

Furthermore, we select some promising products collecting opinions of Korean companies doing a business in Andean countries. As a result, daily supplies, auto-component, machine and machine-component and business related to mineral energy are selected as promising products for entering into local market for Korean SMEs.

Thirdly, as an expansion plan for entering into local market, we suggest the promotion of direct export, the business to business connection, the strategies for joint-venture entering, etc. As an example of the business to business connection and the strategies for joint-venture entering, we present two strategies as the joint overseas expansion with major company or between SMEs. the other strategy for the joint-venture overseas expansion is the connection and joint-advancement between SMEs. Thereby, SMEs with a paucity in resources can make a connection with their capability, reduce the risk and make inroads into overseas markets.

Fourthly, as policy strategies for the promotion of entering into local markets by SMEs, we present the present condition of various policies for the promotion of SMEs' entering into overseas market (export), and call on the government to strengthen foundation for the overseas expansion and come up with an effective plan for supporting the joint overseas expansion between enterprises.

In addition, as regards preparation plan for support for the joint overseas expansion, we suggest the government not only gives positive supports for the joint overseas expansion between large companies and SMEs or between SMEs but also examines and operates some policies such as support centers for joint overseas expansion with major company and SMEs to promote SMEs' overseas expansion, appointment system of outstanding company doing a business jointly.

Mongolian Economy Development Strategy: CGE Analysis and Case study

Chang Soo Lee and Backhoon Song

RThis study derived policy implications and recommendations to Mongolian government by considering theories on economic development and past experience of other countries together. Specific methodologies adopted in this study are Computable General Equilibrium (CGE) analysis and survey of policy experiences of natural resource abundant countries.
In CGE analysis, we specially emphasis on the effects of various fund allocations generated by export behaviors on economic growth in the long run. The results show that policies of investments on education, public service sectors, and infrastructure can generate higher economic growth rather than policies for current consumption expansion. In addition, we deliver how resource abundant countries overcome so-called Dutch Disease and pursue the sustainable economic growth.

1. CGE model and simulation

Firstly we build Global SAM consisting of 4 countries (Mongolia, Korea, China, and Rest of World), 16 sectors and 5 production inputs and set up GTAPinGAMS model.
There are some assumptions that we take in this model to simplify the model. We assume that income generated from sales of natural resources is belong to government revenue, and then Mongolian government allocate this fund for the use of either government expenditure itself or for transfer to private sectors.
The simulation results show that the policy that is oriented to increase export or income of natural resources is not effective enough. In the long run, when the government uses the fund for education, public service, and infrastructure the better economic result we could be anticipated.
Many developing countries endowed with abundant natural resources tend to use their budgets for current consumption because the government puts more weight on reduction of social problems such as poverty and social instability. However, this type of policy would only reduce those problems in temporal, not in the long run. Hence, the government should try to improve infrastructure and public services including education.

2. Case studies

In the beginning stage of a developing country’s economic development, the export of natural resources helps to upgrade the level of economy by accumulating capital. However, when the government emphasizes too much on export of natural resources and current consumption, it ends up with economic disaster that is well known as ‘Dutch Disease’. For example, the export fund causes domestic inflation, appreciation of domestic currency, and finally aggravates export competitiveness. When a country hands out export fund to people just for the sake of welfare, it prevents the economy from growing sustainably. However, when a country spends the export fund for future economic development not current welfare, that country will have the good chance to upgrade not only manufacturing sectors but also its sound economic structure.
In Chapter 5, we examine successful and unsuccessful case studies about the management of natural resource export funds to avoid dutch disease. A few years ago, Mongolian government distributed lump sum allowance to people. This is because the government used the political-patronage tactic on the electorate in order to gain votes. Since Mongolian government has many projects and policies to pursue its economic development, this kind of policy does not help the economic development at all. Hence, Mongolian government should pursue long-term economy policies such as build-up of infrastructure, strengthening of public service including public education. In addition, we suggest the Mongolian government set up its sovereign wealth fund as other countries have been doing.

3. Policy recommendation

Mongolian economy leans too much toward natural resource industries. One of problems that Mongolian economy faces is that its level of export dependence on natural resources is too high. Under this situation, when Mongolian economy is shocked by external factors for example sharp decline of international prices of natural resources, it would be more negatively affected by them. In addition, its export is too much concentrated toward China. Geographical property of Mongol that is in a deadlock by China and Russia makes it too difficult to find other trade partners due to transportation cost.
Mongolian government should diversify its economy structure into more processing oriented one. Mongolia’s main exports are the raw types of natural resources which is not creating higher value added. Rather creating new industries such as BT, IT etc that Mongolia has never have before, it should develop forward-backward industries of current existing industries. We suggest that when the government invests into processing industries for raw materials, the economy earns more value added.
Second, textile and cloth industries should be put on the top priority of economic development. Livestock farming such as sheep, and goat has comparative advantage than other countries. Especially cashmere products have a price comparativeness over other countries’ products, so it exports mainly to European countries. Currently there are more than 50 million livestock in Mongolia. The competitiveness of textile and cloth can also be acquired when livestock farming industry should be promoted enlargement. When this is successfully done it leads the development of textile and cloth industries as well.
Third, Mongolian government should notice the importance of tourism. The peak season for tourism to Mongolia is only between July and August. During September to June, it is hard to attract foreign tourists to Mongolia because of cold weather condition. In order to overcome this situation, Mongolian government needs to develop winter sightseeing merchandises. By considering the fact that China is a neighboring nation and Chinese like gamble, Mongolian government sets up gambling facility near ski resort, then it would attract Chinese into there in winter season. But, in order to reduce negative effects from gambling industry, the government should also set up a law that could prevent domestic people from using the gamble facilities.

Harmonizing Social Welfare and Economic Growth: Case Studies of European Countries

and Implications for Korea

Yoo-Duk Kang, Tae Hyun Oh, Cheol-Won Lee, Hyun Jean Lee and Junyup Kim

Debt crisis in some European countries have created a controversy in Korea, which has managed to achieve a relatively sound fiscal position. However, with welfare spending continuing to garner a bigger chunk of the national budget, this has become a key economic issue that has attracted much public attention. Fiscal conservatives call for tighter controls on welfare spending, because once spending starts growing, it tends to become hard to reduce and reverse. On the other hand, some are calling for greater welfare spending in order to temper the effects of economic polarization, social unrest, unemployment and an aging population. In this context, this paper aims to examine the relationship between welfare spending and economic growth and propose a direction for welfare policy which can actually contribute to economic growth.

Discussion over the proper size of welfare spending is based on the argument that large governments tend to be inefficient. It is often said that large government distorts resource allocation and economic activities, not to mention that big welfare spending decreases incentives to work, leading to chronic low growth and high unemployment. However, there are also opinions that cite positive effects of welfare spending on economic growth. First, welfare spending can make up for capital and labor market failure. As income inequality may inhibit investment for human and physical capital, redistribution policy can remedy this capital market failure and promote growth. Second, welfare spending can contribute to social integration, allowing for stable growth. Widening income gap aggravates discord and conflict between classes, becoming a factor for social unrest that leads to negative impact on economic growth. According to various empirical studies, there is generally a negative correlation between government spending/welfare spending and economic growth rate, although the correlation has not been fully confirmed. However, while it may be very difficult to find causality, it is relatively easy to prove a correlation. Against these arguments and previous studies, this paper reviews the correlation between government spending/welfare spending and economic growth rate, and finds a number of variables that may affect the correlation. Many studies have pointed out negative correlation between big government spending or large welfare spending and economic growth rate, which this paper confirmed as well. However, we have shown that the impact of welfare spending on economic growth rate varied depending on its characteristics. Of special note, countries with higher education and R&D spending displayed high economic growth rate despite large welfare spending as a percentage of GDP. This finding can be interpreted as investment in human capital and productivity increase having a big impact on the growth rate in the long run.

Even though there have been many research on the classification of the European welfare models or regimes, Esping-Andersen (1990)'s tripartie-regimes is the most significant amongst them. He argues that European Welfare models consist of Liberal (the Anglo-Saxon), Conservative (Continental) and Social Democratic (Nordic) models according to decommodification and social stratification. However, some experts and researchers, in particular Ferrera (1996) and Sapir (2005), put weight on the distinctive importance of the Southern European model which is different from the Continental model. As a result, our research makes use of four European welfare models: the Anglo-Saxon, the Continental, the Nordic and the Southern European.

The Nordic model is well known for the high level of social expenditure based on citizenship rather than on contribution. In this model, the role of government is more important than that of the market. Also the Nordic model tries to enhance the linkage between work and welfare by active labor market policies. On the other hand, the Anglo-Saxon model regards welfare not as a social right but as distribution, focusing on low income households as social assistance based on means-test. Therefore, the requirements for beneficiaries are very strict even though the level of welfare is not higher than that of other Welfare models. In the case of the Continental model, it reflects key features of both the Nordic model and the Anglo-Saxon model. While the Continental model contends that the role of the government is more important as the case of the Nordic model, it sets up complex pension systems that reflect occupation, resulting in wider economic polarization. Lastly, the family-centered Southern European model is known for its high level of employment protection. And cash benefits are more important than other methods. However, as many experts point out, the structural problems of the Southern European model have to be addressed with respect to welfare sustainability.

After analyzing the European welfare models by the OECD Social Expenditure Database (1994~2007), we can find an array of results. First, the improvement of income inequality and the rate of poverty are more effective in the Nordic model than in other three European models. Second, the welfare sustainability is even higher in the Nordic model and the Anglo-Saxon model in terms of the efficiency. Third, the Anglo-Saxon model and the Nordic model display high level of GDP per capita as the measure of economic performance. Lastly the Southern European model can be estimated to be less effective than any other European Welfare models. However, there are some critiques on the classification of European Welfare models. For instance, countries classified within the European Welfare models display disparate performances and features. This is the reason why case-studies on major countries' welfare systems are needed.

For more detailed analysis, we selected four European countries, Denmark, Sweden, Germany and Netherlands, which are regarded as successful cases of welfare reform since the 1990s. In case of Denmark, the Danish government has focused on improving labor participation to account for the mid and long-term demographic changes (i.e. population aging) and strengthen the sustainability of the Danish welfare system since the 1990s. In this context, some examples include raising the retirement age to 67 for receipt of pensions and reforming voluntary early retirement pension (VERP) that delays retirement age, providing more incentives to work. In the meantime, welfare reforms in Sweden have been initiated as a response to the negative business cycle shock and sequential crises in its welfare system. While Swedish public spending is under the control of strong fiscal regulations, the Swedish government has tried to make for a more predictable and sustainable welfare system. For instance, through the pension reform in 1998, it is possible to reflect real wage, inflation rate, economic growth, and life expectancy in the calculation of the amount of pension entitlements improving the overall sustainability of the Swedish pension system. In Germany, “Hartz reform” in 2003-2005 formed the foundation of the current German welfare system, focusing on the promotion of employment and the flexibility of the labor market. This brought about new forms of labor such as dispatch working and mini-jobs. Moreover, education and financial assistance is provided to encourage the elderly and women to actively participate in the labor market. Especially, in order to cope with the aging society, the age level of persons benefiting from the pension system has been raised. In the German welfare system, all policies acknowledge that welfare and growth influence each other. The Netherlands has long been the model of traditional and generous welfare state in Europe. After the Wassenaar Agreement in 1982, the Dutch welfare system has developed a tendency to focus on lightening the tax burden in public expenditure, control over wage increase, and reducing the level of social security by practicing flexicurity. In order to maintain female and elderly citizens within the labor market, various policies were implemented. Upward adjustment of the retirement age occurred within the same context. However, after the global financial crisis and European financial crisis, the Dutch government is seeking methods to secure financial stability by efficient allocation of welfare as well as increasing productivity by invigorating the labor market.

Today, welfare state models face numerous challenges. Many developed countries in Europe are experiencing worsening fiscal sustainability with narrow room for economic stimulus, and more sluggish economic growth. Austerity measures were put in place to recover fiscal stability, but making cuts in large spending budgets has proven difficult and painstaking. Raising tax rates, which represents an alternative, is difficult for possibility of its negative impact on economic activity. As for semi-developed countries, the likelihood of increases in future welfare spending due to low birth rate and aging populations looms over already-existing demands for more welfare. We can find some implications from the above cases toward a future direction of Korea's welfare policy. First, it is necessary to maximize existing welfare policy, but also develop ways to raise taxes in growth-friendly way. Also, in the coming years, it is necessary to decide on the time for increasing tax rates. Second, we have to create an atmosphere conducive to policy innovation. Mindful that high tax rates, an essential feature of welfare regimes, may put burden on business activities and employment, it would be necessary to ease unnecessary regulations and reform the business environment in order to encourage economic activity. Third, we must establish growth-oriented welfare regimes with special focus on strengthening human capital and employment rates. It is helpful for long-term growth to raise productivity through robust R&D investment. Welfare reforms reviewed in this paper focus also on increasing retirement age in order to cope with population aging. It is required to raise productivity and employment rates to sustain economic growth, and use the fruits of that increase on raising growth rates for sustaining the welfare regime.

Strategies to Strengthen Industrial Cooperation with Major Emerging Countries in Southeast Asia

Taeyoon Kim, Jae Wan Cheong, Jaeho Lee, Mingeum Shin, Na Ri Park and Yoomi Kim

This research studies on industrial cooperation between Korea and Indonesia, Philippines and Vietnam focusing on textiles / textile articles (Section 11), base metals / articles of base metal (Section 15), mineral products (Section 5), and electronic products (Chapter 85). It analyzes a trade structure between Korea / China / Japan and three Southeast Asian countries focusing on production process. Also, a survey is done to understand production networks of foreign manufacturing firms in the three Southeast Asian countries, originated from Korea, China and Japan.
Regarding the trade structure, global production networks have been strengthening because of the continuous increase of intermediate goods trade. Korea’s exports of final goods in the manufacturing sector have also increased, which indicates Korea’s competitiveness in the production of final goods compared to other firms.

More specifically, Korea imports both intermediate goods and final consumer goods in textiles / textile articles sector while exporting most of the intermediate goods. Primary goods and intermediate goods in base metals / articles of base metal sector are imported while intermediate goods are mainly exported. In electronic products, the trade is focused on that of parts & components and capital goods. We have a pattern of importing primary goods while exporting intermediates goods in the mineral products sector.

This study thus proposes the following measures for industrial cooperation, with respect to creating Korea’s comprehensive strategy towards Southeast Asia.
First, Korean government should reinforce current inter-governmental consultative body to create business-friendly environments, and strengthen Korea’s soft power by utilizing development cooperation. To this end, ODA tailored to each industrial sector should be expanded and contribute to enhancing the industrial competitiveness of Indonesia, the Philippines, and Vietnam. Strategies to reduce service link costs should be prepared to help Korean manufacturing firms build global production networks. AEO-MRAs (Authorized Economic Operator-Mutual Recognition Agreement) should be signed with emerging Southeast Asian countries.

Second, it is necessary to formulate strategies to strengthen the competitiveness of Korean enterprises in Southeast Asia by industrial sector. Given that Vietnam will join TPP, in the case of the textiles / textile articles companies, government should support companies to enter the local market from the initial stage of yarn production to satisfy the US’s rules of origin for textiles (e.g. yarn forward). The ongoing initiative of "Korea-Indonesia industrial cooperation" should include technology cooperation in the area of textiles / textile articles as a representative example of industry-related ODA. In the case of base metals / articles of base metal and electronics, the Korean government should make an effort to improve the inadequate system of the local governments (e.g. standardization, reinforcement of safety standards, etc).

Third, to compete with the rivals such as China and Japan, systems that can obtain and exchange necessary information with the local governments should be reinforced. The biannual meetings held between Korea and Vietnam’s Ministries of Finance, National Tax Services, and Customs Services should also be initiated with Indonesia and the Philippines, and provincial governments should also be involved.

Fourth, Korean government should develop successful cases of cooperation and fully utilize them when it comes to industrial cooperation with the three countries. Public-private partnership projects should be backed by strategies that combine Korean government’s financing and private sector’s technology. It is necessary to seek measures that encourage private companies to participate in industrial cluster projects.