Country Results Management and Country Evaluation: Approaches, Donor Practices and Implications for South Korea

Jisun Jeong and Tae Hyun Oh

In the midst of rising emphasis on country-based programming and results-based management in international development, there is a growing consensus on the importance of country strategy and country evaluation as aid management tools. One of the growing tendencies among major donors for the last couple of decades is to strategically allocate their aid to a limited number of so-called priority countries for increased effectiveness and quality of aid. In this context, in an attempt to enhance its aid effectiveness, South Korea selected twenty six priority countries for concessional loans and grants in 2010 and approved the Country Partnership Strategies (CPS) for each country. However, developing the CPS is not the goal itself. The CPS fulfills its fundamental role when used as a management tool to implement, monitor and evaluate country-level strategy and performance as well as to provide lessons-learned and recommendations for the next round of the CPS. In this background, the paper aims to provide policy implications for South Korea to strengthen its results-based monitoring and evaluation system at the country level and improve accountability and value-for-money of its ODA.

The paper begins by reviewing the history of development evaluation from the sixties to the present era. After the categorization into three branches in evaluation theories, namely methods branch, valuing branch and use branch; two different approaches largely adopted in country evaluation, Logical Framework Approach and theory-based evaluation, are presented. The study then moves on to illustrate how the country has emerged as the basic unit of aid, along with subsequent introduction of country evaluation and country results management in accordance with the change of development paradigm. The recent status and trends in evaluation of DAC aid agencies with specific focus on country evaluation were outlined. It was noted that the main unit of account for evaluation has shifted from projects to sectors, programs, strategies and countries. The paper then analyzes the key issues in country evaluation as follows: (i) evaluation criteria for Country Evaluation; (ii) attribution and contribution; (iii) feedback and learning. Then, the paper moves on to examine different approaches and practices of the United Kingdom and Ireland, focusing on each donor’s country results framework and country evaluation. The UK was featured as a model of a strong results-management framework and performance-based country allocation whereas Ireland is cited as a model for adoption of diversified evaluation approaches as well as a strong feedback system. Subsequently, the paper reviews the status and recent changes in Korea’s aid allocation system, country evaluation and results-management framework. As for the current system, evaluation practices of Korea’s main aid agencies, the Korea International Cooperation Agency (KOICA) and the Economic Development Cooperation Fund (EDCF) of the Korea Eximbank, were assessed. This was followed by the discussion on the integrated evaluation system led by the Sub-committee for Evaluation under the Committee for International Development Cooperation (CIDC).

The paper suggests that the Korean Government must develop an integrated CPS results framework for each priority country and it should be led by the newly-designated evaluation team within the ODA Policy Bureau of the Prime Minister’s Office which happens to be a secretariat of the CIDC. From the early phase of the development of the CPS results framework, the local participation and ownership should be ensured. In order to create an environment for decentralized country evaluation and results management, further decision making power and responsibility should be delegated to the country office with corresponding allocation of budget and human resources as well as local capacity building.

Furthermore, it was recommended that the integrated results management framework for the whole ODA, including goals and indicators for aid channels and priority sectors be developed through a multi-stakeholder approach including relevant ministries, aid agencies, civil society, industries and partner country from the initial stage. It was argued that the country-level performance and evaluation reports should be referred to when allocating budgets for priority countries to ensure evidence-based decision making in the aid allocation process. The paper suggests diversifying approaches in country evaluation depending on types and environments of priority countries. In particular, approaches such as contribution analysis and joint evaluation must be more actively adopted as a way to measure country-level outcomes more effectively. Additionally the paper recommends strengthening of the feedback mechanism to ensure that country evaluation reports are read and acted upon. Lastly, the importance of communications and information sharing on country evaluations with domestic and partner country stakeholders were highlighted.

Korea’s Multilateral Aid: Recent Developments and Future Challenges

Yul Kwon, Jione Jung, Jisun Jeong, Ju Young Lee and Aila Yoo

Amid the growing demands in addressing cross-border issues such as climate change, disaster relief and conflict, there is an increasing consensus on the importance of multilateral organizations in international development. Traditional donors invest in multilateral co-operation in an effort to help achieve Millennium Development Goals (MDGs), create synergy with bilateral co-operation and increase influence in global development fora. One of the most significant trends in multilateral development is the sustained growth of non-core multi-bi aid over the past few years and subsequent bilateralization of multilateral aid.

While South Korea has attempted to implement various policy measures to enhance its aid effectiveness since joining the OECD Development Assistance Committee (DAC), the newly-emerging donor has yet to establish a coherent, government-wide multilateral strategy. The fragmentation of multilateral aid among line ministries and agencies as well as the lack of strategic guidance on multilateral resource allocation are regarded as major challenges undermining the effectiveness of the Korea 's multilateral aid system. In this context, the paper aims to propose policy directions for Korea's future multilateral strategy and possible measures to improve its multilateral effectiveness by analyzing the current status of Korea's multilateral aid system. The paper is expected to provide key policy implications for the multilateral chapter in the upcoming Strategic Plan for International Development Cooperation for 2016 - 2020, which represents the second phase of the basic framework for Korea's ODA policy.

The paper begins by analyzing trends and major issues in the global system for multilateral aid. The continuous rise of non-core multilateral aid was one of the most significant trend over the past few years. It was noted that the emergence of new contributors, such as BRICS countries and the private sector, led to the diversification of multilateral donors. In the context of growing demand for accountability and transparency due to budget constraints, various approaches for evaluating multilateral effectiveness such as Multilateral Organisations Performance Assessment Network (MOPAN) and those of bilateral donors were examined.

The following chapters analyze the current status and challenges in Korea's multilateral aid to UN agencies, global funds and Multilateral Development Banks (MDBs). Acknowledging the general rise of multilateral aid, it has been shown that non-core funding to UN agencies by more than 17 ministries and government agencies resulted in a high level of multilateral fragmentation. As attention toward global public goods increases, the paper suggests that Korea needs to engage in more active investment in global funds, mobilizing not only traditional ODA but also innovative development financing. Chapter 4 examines the current trends in co-operation with the World Bank, ADB, IDB and AfDB, focusing on the performance and management of trust funds.

Based on the previous chapters, Chapter 5 provides a set of policy recommendations to enhance Korea's multilateral development cooperation. It was proposed that the Korean Government must state multilateralism as one of key pillars in its development cooperation. While focusing on core funding, it was recommended that non-core funding be used strategically to enhance the multi-bi linkage and strengthen domestic accountability. Accordingly, it was argued that Korea should take a more decentralised approach by increasing multi-bi projects and programmes with multilateral country offices. Followed by suggestions on Korea's multilateral principles, the paper proposes the appropriate volume and share of multilateral aid as a percentage of total ODA. In order to ensure the accountability of multilateral allocation for core funding, it was recommended that assessment of multilateral organizations be undertaken by looking at the existing performance results of the MOPAN and other bilateral donors while considering their strategic relevance to Korea's development priorities. For non-core funding such as trust funds, Korea as a donor should ensure result-based managements of trust funds by multilateral organizations.

The paper concludes with suggestions to improve the management and operation of Korea's multilateral aid. Case in point, fragmentation in UN cooperation is an issue that stands out in Korea’s multilateral aid as too many ministries and public agencies channel multilateral funding to UN agencies. To address this issue, it was advised that inter-ministerial partnership mechanism be set up, led by the Ministry of Foreign Affairs and participated by line ministries. The predictability of multilateral allocation is another issue to be addressed in terms of effectiveness. Recognizing the importance of the private sector in development financing, it was pointed out as critical to engage in joint efforts with the international community to mobilize more private resources in multilateral financing. In ending, the paper recommends that Korea build up its multilateral management capacity as a donor and develop human resources with expertise in multilateral cooperation.

With the advanced economies’ low interest rate policies that began in early 2000, the concerns regarding the impacts of the expanding global liquidity on the international financial markets and the world economy have become more vivid. Following the global financial crisis and the European fiscal crisis, advanced countries began implementing ultra-low interest rates and quantitative easing policies. The most intensive expansionary monetary policies in the history raise the concerns of excess global liquidity. This research defines the global liquidity as the sum of the advanced economies’ (U.S., Eurozone, U.K., and Japan) money supply and empirically investigates the effects of global liquidity expansion on the world economy.

First, to assess the impacts of the global liquidity expansion on the international commodity prices, we employ GARCH model. The results implied that the global liquidity expansion had no statistically significant effects on the grain and cooper prices, but it did on the oil and gold prices. Increase in the global liquidity by 1% would lead to a 0.64-0.76% increase in oil prices; however, on the contrary to our concerns, the liquidity expansions had very little effects on the price volatility. For gold, an increase in the global liquidity by 1% would induce a price increase of 0.01%, but also significantly increased the price volatility.

Next, to examine the effects of global liquidity expansions on the liquidity-receiving countries macroeconomic variables and financial variables, the Panel VAR model is adopted in our analysis. A data set of 34 countries (excluding U.S., Eurozone, U.K., and Japan) from the 1st quarter of 1995 to 1st quarter of 2013 was used in the analysis. Our estimation results propose that the global liquidity expansion increases the liquidity-receivers’ real GDP persistently for more than 2 years, and also increases the inflation rates until the 2nd–4th quarter. Increased inflows of portfolio investment were also observed during 1st-2nd quarter and stock prices increased for 5 quarters, hence leading to a constant appreciation of the currency values. The liquidity receiving countries were divided into advanced and developing countries; for advanced, the global liquidity expansions had no significant improvements on the real GDP growth, but only a marginal increase in the short-term. Wereas the emerging countries’ real GDP growth saw significant increases up until the 19th quarter and the margins were far greater (2.6-2.8%). In emerging countries’ analysis, we observed that the inflow of portfolio capital decreases as the global liquidity expands; the reasons for this being that foreign investment did not increase significant in Latin America despite the global liquidity expansions, due to the foreign exchange crisis in the early 2000s, hyperinflation and et cetera in the area. The effects of the global liquidity in terms of economic stimulation were also observed to be larger and more continuous in emerging countries in Asia rather than in Latin America.

Lastly, we used the ‘Block exogenous VAR’ to analyze the effects on South Korea. Especially considering that global liquidity can affect Korean economy in frequency domain that is shorter than the business cycle fluctuation, we used the wavelet analysis to analyze the effects in short periodicity. Monthly data from January 2001 to November 2012 have been used for this analysis. From the raw data analysis, increased CPI resulting from the expansion of global liquidity was observed and the result was statistically significant. From the short periodicity analysis, statistically significant effects, such as the won-dollar exchange rate appreciation, and the rise in house prices and inflows of foreign portfolio investment and et cetera were also observed.

Though the analysis work from this report, it can be seen that the expansion in global liquidity has contributed to the stimulation of world economy; however when the global liquidity begin to decrease, there exist possibility that the shrinks of the global liquidity may bring negative shocks to the world economy. It is possible that the global liquidity expansion will be continued for the next couple of years, but after the advanced countries’ normalization of monetary policy, economic slowdown can occur in emerging countries due to the fall of asset prices and the rapid outflow of foreign capital can bring financial instability in emerging countries with weak economic fundamentals.

A Study on Multilateral Aid Strategies of OECD/DAC Members and Policy Implications for South Korea


Hyuk-Sang Sohn, Toh-Kyeong Ahn, and Jong Hee Park


Globally, UN organizations and international financial institutions (IFI) play an important role in effective development and cooperation. International society has increased the volume of multilateral aid, having recognized its importance through international organizations. Advanced donor states utilize efficiency, professional knowhow, and regional expertise of international organizations to supplement bilateral aid and also accomplish their own goals in international development and cooperation along with global development goals such as MDGs. In addition, they have actively carried out multilateral policy with strategies of international organizations in order to increase their influence on international organization and society.

Hence, Korea should draw policy implications through analysis of how advanced donor states implement their strategies along with policies of international organizations for effective accomplishment of policy goals through multilateral aid. This research thus aims to do the following: 1) provide basic data for the research of the KIEP, clarifying the overall trend of multilateral aid policy among advanced donor states through study of OECD DAC member states; 2) study and analyze multilateral aid policies of five advanced donor states (the UK, Sweden, Denmark, Switzerland, and Australia) to draw policy implications; and 3) based on OECD DAC research and case studies, elicit policy implications which can serve as reference in formulation of strategies for the promotion of Korean multilateral aid.

The research report consists of five chapters. The introductory chapter explains the background, objectives and necessity of the research as well as the range, method, and its composition. The second chapter conducts a comparison of DAC member states’ multilateral aid policies, covering the general situation and policies of OECD DAC member states regarding multilateral aid; in addition to analyzing the trend and features of their multilateral aid promotion strategies and monitoring systems. The third chapter is entitled, “Analysis of DAC member states’ multilateral aid situation.” The chapter covers the volume of multilateral and bilateral aid of respective DAC member states and highlights priorities of various international organizations, areas, and regions according to the time change via network analysis and time-series analysis. The fourth chapter, entitled “Major advanced donor states’ multilateral aid policies and promotion strategies,” assesses development and cooperation, multilateral aid situation, goals, and principles of various states through a case study of five states. It also analyzes the standards and monitoring systems used to classify multilateral aid volume and use of multilateral aid. The last chapter concludes with policy implications for increasing the efficiency of Korean multilateral aid, and policy implications for Korean multilateral aid in general.

Creative Industries' Export and Internationalization Strategies of Selected Countries and Their Policy Implications

Jeong Gon Kim and Eun-Ji Kim

Along with the emergence of knowledge-based economy, importance of nonvisible production factors, such as knowledge and creativity is widely recognized. With the spread of such recognition, the concept of creative industries has been diffused over the world. Identifying creative industries as an individual industrial sector, countries have come to find that creative industries are new sources of job creation and have the potential to lead cross-industry innovation. As creative industries play a role of pioneering new markets by developing innovative goods and services, internationalization strategy takes a core position in the relevant policies.

In this sense, it is necessary to develop a unique Korean concept of creative industries which expands the current category of cultural content industries by including design, architecture, and some ICT and R&D services.

As creative industries have high concentration of SMEs and micro firms, it is necessary to exert efforts on supporting competent SMEs. It is also important to reinforce competitiveness of creative services, such as architecture, R&D, and design. Architecture and R&D service markets, which account for the largest share of creative services trade, expand rapidly in emerging countries.

Creative firms give positive effects on identification of new consumer demands, provision of new solutions and concepts, creation of new approaches to known problems, joint development of innovative ideas, etc. The government needs to select competitive creative firms and help them link with domestic/foreign firms in various sectors, and give incentives for such activities.

Compared to industrial sectors such as manufacturing, creative firms (especially SMEs) face bigger difficulties in exporting. Accordingly, the government needs to provide export funding and foreign market information specialized for creative industries, support creative firms' participation in international trade shows and formation of networks, and include competitive creative firms in business delegations.

An important feature of strategies for creative industries’ internationalization is to expand the number of target countries. Such feature includes not only expansion of trade among developed countries but also diversification of target countries into emerging countries. Countries studied in this report select strategic target countries among emerging countries based on various factors, such as market size, growth potential, maturity of bilateral economic relationship, cultural intimacy, etc.

MOU is an effective means of helping creative industries enter emerging counties in that it can contain various interests through inter-discipline and inter-department cooperation. Cooperative relationship through MOU can also contribute to building a basis for emerging countries' creative industries.

As intellectual property right is a core of creative industries, it is needed to increase the level of intellectual property right protection of emerging countries through bilateral dialogue channels including FTA negotiations.

As creative industries are important components of a country's soft power, they require utilization and attention on the government level. Especially, it is required to establish a comprehensive country brand marketing strategy that utilizes Korea's core assets including creative industries.

Comparative Analysis and Implications of Developing Country Risk

Jin Young Moon, Yun Ok Kim, and Minyoung Lee

The share of emerging markets and developing countries in the global economy is growing, and the status of G20 in the international society is also being strengthened. Considering the trend, the economic and political growth of developing countries can be regarded not only as opportunities to replace domestic and developed markets, whose growth potential is declining relatively, but also as risks. Therefore, measuring and managing the risk of developing countries is essential.

Given this background, this study selected economic, political, and social indicators to measure risks, referencing the cases of professional country risk rating agencies, and developed an analytical framework to enable comparisons among countries. Furthermore, this study derived comprehensive country risk ranking by merging the economic, political, and social risk indicators together, and also analyzed the impact of weight change on the risk rating.

Regarding the more specific results of this study, economic risk of Iran, Ukraine, Kyrgyzstan, Congo, and Tanzania appears to be generally high, and that of China and some Middle East oil-producing countries, such as Qatar and Saudi Arabia, appears to be relatively low. In terms of political and social risk, member states of the European Union generally show low risks, but Afghanistan, the Congo, Zimbabwe, Myanmar, and Pakistan are recognized as higher political risk countries. Comparing the economic risk with political and social risk, the number of countries that are within economic risk score of five, the average score for this study, is relatively high. On the other hand, political and social risk appears to have greater variation by country, which means political and social conditions in each country have greater uncertainty.

In addition, this study examined the impacts of weight changes in each risk indicator sector. If weight in political and social risk is increases, then the number of countries with high-risk (whose score is higher than 8) and low-risk (whose score is lower than 3) also increases. That is, risk distribution increases among countries. In contrast, if weight of economic risk increases, then the risk of the Eastern European countries which has higher economic risk also increase generally.

Furthermore, this study classified countries into four groups by comparing country risk with investment attractiveness. As a result, Afghanistan, Cambodia, and Tanzania appear to have both high risk and high investment attractiveness at the same time. On the other hand, Singapore and the Middle East oil-producing countries(Kuwait, Saudi Arabia, UAE, etc.) show high investment attractiveness with low country risk. In contrast, Czech Republic, Argentina, and Romania are analyzed to have both low country risk and low investment attractiveness.

This study has following implications.

First, risk-rated countries should provide more transparent and accurate information regarding their own economic, political, and social situation. Results of country risk studies can vary by departments in charge or individuals who evaluate, and providing transparent information to external rating agencies can enhance the trustworthiness of said nations in international society as well. In this regard, Korea also needs to ensure internal economic stability and inform international community of its national condition.

Second, the Korean companies need to bear in mind that country risk is different depending on regions and nations. The unpredictability of business operations in countries with high political risk can be high because of political connections. For businesses that entered into regions with high economic risk should seek various instruments to hedge such risk. Furthermore, in case of businesses that are interested in regions or nations that have restrictive indicators about country risk or attractiveness, such as Myanmar, they should conduct a more thorough risk assessment and market research in advance.

Finally, research about country risk of developing countries should continue according to a long-term perspective, rather than ending in fragmentary analysis. The change in the economic condition of developing countries is more rapid than that of developed countries, so it is necessary to supplement risk assessment methodology and monitor changes regularly. Furthermore, as Korea is higher in terms of dependency on foreign trade, Korea needs not only to keep an eye on risk of major trading partner countries including developing countries but also to evaluate foreign risks of Korea to establish a foundation for stable economic growth.

The 40th anniversary of Korea-India Amity: Evaluation and Prospects for Investment Cooperation

Choong Jae Cho and Yoon Jung Choi

Korea-India diplomatic relations is entering its 40th year in 2013, and while the two countries have engaged in economic cooperation throughout the period, there has been an upsurge in bilateral economic cooperation, including Korea investment into India. This study evaluates the investment performance of Korean firms in India as part of a review of the trends and characteristics of investment flows, in addition to conducting a factor analysis of investment determinants. The results of the study will provide policy recommendations for the Korean government and enterprises to deepen the partnership between Korea and India.

As of June 2013, the cumulative investment to India from Korea has reached 30 billion dollars according to statistics by the Export-Import Bank of Korea. India has thus become the 17th largest foreign investment destination for Korea: the amount of investment has increased significantly since the Investment Promotion and Protection Agreement between the two countries went into effect in 1996. In 2006, Korean investment to India surpassed 100 million dollars, and then soared to 450 million dollars only 5 years after that.

It should be noted that 206 Korean firms out of the 696 companies that have entered India are large corporations whose investments add up to 81 percent of total investment by Korean firms. Manufacturing appears to be the primary sector of Korean investment, accounting for 85 percent of the total investment. The concentration of investment in manufacturing is in fact a stylized pattern of Korea’s outward investment flows, as seen in the case of China (78%). However, only two sub-areas of manufacturing, namely vehicles & trailers (45.4%) and primary metal (24.9%), account for over 70% of total investments. Meanwhile, electronic components, computer, video, television and the communication equipment sector, accounting for 26% of total outward investments, does not reach even 3% in Korea’s investments to India. Investment in non-manufacturing sectors is also concentrated in a few sectors, in spite of gradual diversification since 2000. For instance, wholesale & retail trade accounted for more than 40% of non-manufacturing sector investment.

Most Korean companies in the Indian market (98%) appear to have local subsidiaries in India; yet 60 percent are wholly-owned subsidiaries. Regardless of the sectoral distinction, manufacturing or non-manufacturing, 'penetrating the local market' appears to be the most important motivation for investment.

The performance of Korean investments in India has been good compared to those in China, U.S or Vietnam. The net income of local subsidiaries has consistently ranked between the fourth and fifth since 2009, when the Export-Import Bank of Korea started publishing such statistics. In addition, net exports and trade balance improvement through subsidiaries was higher than other countries. The return on investment was four times larger than the average return on all outward investment of Korea.

Taking the above facts into account, the study analyzes the determinants of Korean investment in India through a regression analysis. The test results imply that there exists a positive relationship between the size of the Indian economy and the amount of Korean investment flows toward India. They also provide confirmation for past survey results, where the majority of Korean companies answered ‘potential gains from large market size’ as the reason for investing in India. On the contrary, the export amount and the income gap between the two countries have a negative relationship with investment inflows. Such a relationship between exports and investments suggests that the degree of inter-industry division between the two countries is still very low.

Meanwhile, the effect of Korea-specific factors such as the sheer presence of voluminous investments by large Korean conglomerates in India, specifically manufacturing-centered firms based in the country, proved rather uncertain. This implies that current investment patterns dominated by conglomerates and manufacturing should be changed, in order to improve investment performance.

With these findings, the paper presents an overall assessment of past investments and future policy recommendations to further expand bilateral investment between the two nations. Through pre-emptive investment in the 1990s, Korean enterprises in India became top market players in consumer durables, such as cars and appliances, thereby enhancing the overall image of Korea in India- its products, brands, companies, and even the country itself. Subsequently, these Korean enterprises largely benefited from their strong investment performance in India, reaping incomparable gains relative to other investment destinations.

In the 2000s, however, competition with other major investors in India has presented Korean companies with the urgent task of reinvigorating investment activity, to quickly close the broadening gap vis-à-vis other foreign competitors. Once ranked fifth among the top foreign investment sources in India, Korea plummeted to 13th place as of July 2013. For instance, Korea’s investment stock in India now stands at a mere tenth of that of Japan.

The weakening of Korean investment inflows to India calls for further involvement from industries and sector-specific private committees. The Government and investment-related agencies should support private entities in this regard. Government support should also be strengthened in areas other than manufacturing as in the case of Japan and Singapore. Location of investments should be diversified, away from existing investment hubs in Delhi and Chennai, and towards regional centers in the western and eastern regions. Likewise, financial support should be intensified. This is particularly important in order for Korea to take a more active role in burgeoning infrastructure development in the country. Furthermore, creation of more direct flights connecting major hubs of Korea and India must also come to pass.

Early realization of these goals requires a more efficient bilateral governmental consultative mechanism. In detail, summits, ministerial and private committee meetings need to be held on a regular basis and must be interconnected. In consideration of India's political and government structure, the government of Korea should gradually establish a cooperative system with state governments as well as the central government of India.

Trade Patterns and Determinants of Vertical and Horizontal Intra-industry trade between ASEAN and China

Jaewan Cheong and Ho-Kyung Bang

This research attempts to analyse composition of trade patterns and determinants of Horizontal and Vertical Intra-industry Trade between ASEAN and China. We decompose trade in goods into three parts: one-way trade, vertical intra-industry trade, and horizontal intra-industry trade based on the methodologies proposed by Fontagn and Freudenberg (1997) and Greenaway, Hine and Milner (1994).

According to the results, one-way trade has continued to take substantial part in total trade between China and ASEAN, while the vertical intra-industry trade has been increased significantly over the past two decades. Especially, this trends appears in trade between Indonesia, Malaysia, Thailand and Vietnam and China.

Our empirical analysis shows that the intensified vertical specialization structure between ASEAN and China over the period from 1992 to 2012 is caused by foreign direct investment between the two regions as well as other variables such as bilateral distance (trade costs), common language, economic size and income differences.

The main findings of this paper provide the following implications for Korea. First, as ASEAN and China are the first and second export markets to Korea, Korea needs to put more effort to expand its export and market share in China and ASEAN by conducting policy relative to trade facilitation including the reduction in trade cost. Second, since ASEAN’s export to China is increasing especially in the electronic and machinery sectors, Korea needs to develop a strategy to diversify its relative production network. Third, to maintain and expand Korea’s proportion in the East Asian intra-trade, Korea should further develop its parts and components industry and make efforts to sufficiently benefit from the East Asian production networks. Last but not least, Korea could utilize the on-going FTA negotiations with China and ASEAN countries to develop a closer link among the structure of Korea-China-ASEAN division of labors.

A Review on a Comparative Advantage in IT Service Sector among Korea-China-Japan: Focusing on Productivity Analysis

Seung Kwon Na, Hokyung Bang, and Boram Lee

IT service sector is considered as an important industry as it could enhance the efficiency of enterprises, improve a country’s economic structure by advancing productivity of other industries. Thus, this research attempts to draw policy implication towards cooperative activities among Korea, China and Japan based on an analysis on a comparative advantage of the IT service industry, focusing on productivity analysis.

First, looking into the main features of the IT service industry in Korea, China, and Japan, the three countries commonly showed high proportion in the System Integration sector, sales concentrated in few conglomerates, low intra-trade and investment proportion within the region and low front back industry relating effect. Meanwhile the IT service sector in Korea and China has shown high growth rate.

Second, as a result of the productivity(efficiency) analysis, productivity gap between the three countries exists but the gap is narrowing between China/Korea and Japan. However it seems that the gap reduction is based on a chasing effect from the efficiency gap reduction at corporate level rather than from the technological advance effect.

Also, we have discovered that each country’s institution framework including ICT technology related domestic regulations, transparency, bureaucracy, and government policy has substantial effect on productivity in IT sector.

Based on the paper results, we attempt to draw the following implications to further enhance cooperation in IT service sector between the three countries. First, Korea need active initiatives to lower the barrier to entry for the IT service government procurement market. Korea also needs to aggregate company level data to conduct a productivity comparison. Moreover, considering the high competitive environment focused on the system integration sector among the IT service industry, Korea needs to diversity its support toward other strategic IT service industries. Last but not least, active supporting policies from the Korean government towards improving conditions for innovative small businesses and training professional manpower are also needed to maintain and advance Korea’s comparative advantage in the IT service sector.