After the establishment of the People’s Republic of China in 1949, urban migration caused by the heavy-industrialization policy initiated China’s early urbanization. The Great Leap Forward and the Cultural Revolution which generated reverse migration, however, delayed the earnest onset of urbanization until the end of 1970s. Since the Reform and Opening, rural industrialization by TVEs and land reform expedited urbanization. In the 2000s, urbanization accelerated with deepening reform. Expansion of fixed assets investments led to development of urban areas and the increase in urban population.
Immediately following the start of the Reform and Opening, urbanization in China occurred among small cities and townships. From the 2000s, urbanization began to be perceived as one of the national strategies for economic development. The 11th five year plan had focused a city-cluster strategy which materialized in the 12th plan as ‘Two Crosses and Three Ordinates’ and the ‘Self Functioning Region.’ It is expected that China’s urbanization rate will increase steadily albeit at a lower rate. Various calculations made in different researches reveal that China’s urbanization rate would reach 60% in 2020 and 70% in 2030.
In Chapter 3, we analyzed the relationship between urbanization and economic growth in China using regional data. Specifically, the Williamson Hypothesis which states that conglomeration into large cities could accelerate economic growth in the low income states, but actually slow it above a certain level of income, is verified. Cross section, dynamic and spatial econometrics models are adopted as methodologies. The empirical analysis results in policy implications as follows. First, the largest city in the region negatively impacts economic growth. For economic development, Chinese government would be better off creating several big cities rather than focus on one mega city. Second, urbanization itself obviously propels economic growth. In the cross-section and spatial econometric models, urbanization as a whole contributes to growth. In the dynamic model, however, only urban areas with a population of more than 750,000 do so. In sum, if we do not consider the spatial spillover effects among cities, hub and spoke urbanization would be the most favorable scenario; if we do consider it, increasing urbanization as a whole could be applied for growth.
In Chapter 4, we examined the Chinese consumer market from the perspective of urbanization. The total size of the consumer market in 2011 had increased by 4.7 times since 2000. The consumption rate, however, had decreased steadily. During the same period, the urban share in the total consumption increased much, indicating that urban areas have led the growth in consumption as a whole in China. Observing changes in consumption according to income levels, we found that the upper 40% has contributed the most. We also found that as income increases, the share of basic consumption declines while service consumption grows. The share of service consumption is higher than that of Korea in 1990 when the income level was similar to China today.
Estimating urban consumption items in 2020, we found that basic consumption would be larger while new growth would mainly come from service. Based on comparison of consumer durables between China’s average and Shanghai, we found that fastest growth would occur in potential markets in air-conditioner and color TV among other home appliances; and in computers, mobile phones and passenger cars. On the other hand, it is pointed out that the main obstacles in developing the urban consumption market are declines in labor’s income share, deepening income gap, insufficient social security, and high housing and education costs.
In Chapter 5, we examined the construction market related to urbanization. Urban construction investment grew steeply every year, reaching 19 trillion yuan or 41% of GDP in 2011. Shares of the individual sectors are: real estate 43%, transportation infrastructure 21%, irrigation/environment/public infrastructure 16%, and electricity/ gas/water 10.7%. Share of foreign investment takes up 4.7% in average; 9% goes to real estate.
It is expected that urbanization rate would reach at 70% in 2030, and we estimate that more than 5 trillion yuan will be invested in urban real estate every year until 2020 if the current level of investment per capita is sustained. In terms of space, urban areas occupy 4.71 million km2, or about the half of total land area in China. In the 2000s, the administrative urban area basically remained unchanged, while actual urban districts increased steadily, accounting for 13.4% of the total urban area. Real estate investment per building site has also increased, reaching 1.2 trillion yuan/10 thousand km2 in 2010.
Penetration rate of tap water and gas are relatively high, 96.7% and 92%, and road density is not low relative to the international standard. However, sewage disposal rate is a rather low at 82.3% and much investment is expected in this sector. Refuse disposal rate is 90.7%; another area with room for improvement. Observing region by region, an inverse correlation is revealed because the regions with higher penetration rates are investing more. This is because maintenance and upgrading require as much investments as building new ones.
In Chapter 6, we investigated potential risks of urbanization in labor supply, land management, municipal finance and migrant workers. Until 2010, the productive population has increased rapidly, with abundant labor for the workforce. Surplus labor in rural areas moved to cities and supplied labor for workforces in manufacturing and services. Although labor shortage has appeared recently in some coastal areas, it will not become a general phenomenon for China as a whole in the short term, as there is still a labor surplus in the primary industry and the urban population will keep increasing for the time being. The labor shortage reported recently is actually the result of the imbalance of labor supply and demand between regions and businesses. It is expected that enterprises’ share in financing social welfare will increase and wages will also rise due to government policy, thus transferring the cost of urbanization to the enterprises. If that happens, the production environment would eventually worsen.
As for the supply of urban land for construction, the ‘requisition-selling’ system has been established as the predominant mode. But the current system cannot be sustained for long because the amount of land available is limited, thus putting land finance in jeopardy. As of 2010, about half of the funds for urban infrastructure building were produced by selling land and the share has been increasing since. This means shortage of land would likely result in shortages in municipal budgets. The current system allow farmers whose lands are requisitioned only marginal compensation while local governments and land developers enjoy excessive profits, leading to shortsighted maximization of income via land sales. By doing so, the increase in urban land under construction outpaces the increase of urban population. Recently, several changes have occurred such as introduction of the property tax, development of collectively-held farmland, auctioning of manufacturing sites, and legalization of unregistered property/houses. Hence, compensation for requisitioned farmers would rise, land auction for business would become widespread and the land cost would increase. However, the current land selling system will not be substituted easily and the local government would likely resist the central government plans to introduce property tax. In addition, self-development by farmers would become widespread, resulting in diversification of land management units.
Local governments’ account balance in building urban infrastructure has generally been profitable. However, high percentage of land sales and ambiguous loans by various financing platforms reveal very significant risks. It is expected that high rates of land sales in certain areas would eventually decline to the level of Beijing or Shanghai. Naturally, the amount of ambiguous finances in big cities will decrease in the future. At the same time, the rate of land sales in underdeveloped regions could still increase.
As of 2011, more than 20 provinces have announced consolidation of the rural-urban family register system. The perfectly equal treatment, however, has yet to emerge. Most advanced cities would not dare to begin the process of consolidation, as it would mean 250 million migrant workers will become official city residents, and cost the cities about 20 trillion yuan which represents up to one-half of China’s total GDP in 2010. However, the central government is not likely to retreat in the reform in migrant worker and will force the issue in efforts to suppress their total numbers.
Based on the analyses above, we deduce the policy implications as follows. Core consumption class in China’s consumption market in China is the upper 40% and they should be considered as the main targets in marketing. Until 2020, the basic consumption market would expand by 2.4 times whereas the service market will expand by 3.6 times, implying the importance of the service market. To access the ‘large consumption market’ in coastal regions for which competition is fierce, careful analysis on income/class composition and popular items is warranted. In this respect, ‘potential consumption markets’ in inland regions with large populations could also become a major target.
Central and local governments in China have shown interest in designing the cities utilizing advanced foreign concepts and technologies, and these represent important elements in accessing China’s urban development market. The Korean government can establish and diversify inter-government cooperation channels. The Korea-China FTA could be the stepping stone for access into China’s construction market. Korean-style urban models such as environment-friendly cities, smart grids, and administrative capitals could have some appeal. New investments in sewage among others are expected and would draw the attention of city planners. Different regions should be accessed differently with respect to their urban infrastructure market, as investments would likely be for maintenance in China’s east coast, for new construction in mid-west regions while western regions have yet to witness the initiation of full-scale building.
Urbanization and increase of income would lead to increases in production costs. But this does not necessarily mean the manufacturing sector would eschew China. Alternative production sites such as inland, mid-western regions or specialized industrial complexes could be sought. Considering that the productive population would decrease and the pace of urbanization will experience a slowdown around 2020, responses must be in advance.

In 2011, COP17, Parties agreed to launch a new process, called Ad Hoc Working Group on the Durban Platform (ADP), to negotiate a new climate agreement after 2020. The most distinguishable feature of the expecting new agreement is that it will be ‘applicable to all’ Parties. Though ‘applicable to all’ does not imply applicable to all in a symmetrical fashion, Parties’ positions on legal form will not be fall along developed and developing country lines any more. This critical change asks COP to develop new aspects of operating mechanisms under UNFCCC, accordingly. Especially to Korea which has been non-Annex I member so far, the change requires her to engage more actively in the climate negotiation process with suggesting constructive ideas to design the new regime, rather than simply to express her own position.
The purpose of this research is to lay out a basic theoretical and logical foundation which may help to design key mechanisms in new climate regime. To do this, in Chapter III, we first develop a model of a new climate agreement which satisfies key characteristics of Durban Platform. Then, we identify limitations of an old approach which can be summarized into (a) national reduction target and (b) international emission trading. The main result is that when a degree of heterogeneity in benefit from mitigation between countries is high enough, the old approach cannot achieve a social optimal mitigation level, though emission trading contributes to a broad participation. In this sense, relaxing the heterogeneity will be the key for the new regime. And that is the reason financial and/or technology transfer is necessary, besides mitigation efforts.
In this study, we focus on a specific issue among possible alternatives in designing the new regime, which is integrating market mechanism and financial mechanism. In Chapter IV, we survey the current and prospecting relevant mechanisms and investigate issues needed to be tackled for each mechanism. In Chapter V, we discuss interactions between two mechanism spheres in general and the importance of an integrating approach. A relationship between two mechanisms can be simplified as follows. The most fundamental element of market mechanisms is the demand for mitigation such as reduction targets and energy security. The demand induces flows of climate finance and they enable mitigation actions to be scaled up. Based on these observations, we qualitatively explore what expecting challenges to overcome will be. For the developing countries in general, lack of voluntary mitigation incentive is the basic problem. Supported NAMA type financial mechanisms, which requires corresponding mitigation actions, may be in a right direction to solve such incentive problems. The developed and the advanced developing countries may have voluntary mitigation incentives with seeking a new economy growth engine. For them, the key question is how to scale up the private resources in mitigation investments. A solution can be found with answering how to connect effectively the mitigation incentive into financial incentive, and vice versa. A necessary condition to construct those incentive schemes is to have transparent and objective MRV systems.
In Chapter VI, we present several possible tasks to develop both market and finance mechanisms in an integrated way. First, it needs to expertise best practice of the ‘inter-mechanism’ MRV system which is about coordination between a market mechanism and a financial mechanism. Various mechanisms in each market and finance sphere are expected to appear within and out of UNFCCC in near future. In the short run, more attentions will be paid to develop the ‘intra-mechanism’ MRV system which is about coordination among mechanisms within each sphere. However, having inter-mechanism MRV system will be very effective in the long run. Before a certain system without the integrating consideration becomes status quo, noting its importance and pursuing the best practice of them will be desirable. The other two are about how to provide more incentives toward environmentally more friendly private investments while the developed countries fulfill their financial contribution obligations. Depending on a type of private financial flows, its impacts on recipient country’s mitigation actions are different. Thus, a more environmentally favorable type of private financial flows needs to be more appreciated. To reflect this on incentive mechanisms, a more volatile financial flow can be discounted more in accounting financial contributions by developed countries, besides evaluation on environmental consequences of each investment. Also, we may consider to develop the technology spillover effect index which can differentiate private investments into the degree of mitigation technology spillover. Treating private investments with a higher index as the one with a more marginal contribution can help to create incentives.

In this paper, two issues are discussed. First, considering the interaction between economic openness and R&D investment, we investigate their effects on economic growth. Second, we analyze R&D policy directions under the new international trade environments such as deepening trade liberalization, Korea’s fast economic growth, and potential dispute under the WTO.
In the last two decades, the world has been experiencing fast trade and investment liberalization. In particular, since Uruguay round conclusion in 1993 and WTO establishment in 1995, the world trade has been growing by annual 9.1% and foreign direct investment has increased by annual 11.5%. During the similar period, total R&D investments by major countries has increased gradually and the growth rates of R&D investments by non-OECD countries exceeded those of OECD countries.
As the competition in the world market has been intensified because of trade liberalization, OECD countries have focused on technology and quality competitiveness rather than price competitiveness for exports. Also expansion of foreign direct investment induced increasing R&D activities by foreign companies in domestic markets.
We analyze the effects of economic openness on R&D investment using country-level data. According to the results, private R&D investments are affected by trade liberalization but not by investment liberalization. Government R&D investments increase as the volume trade increases, but decrease when foreign direct investments increase.
The effects of R&D investments on export performance are estimated by using Korean firm-level data. We fail to find significant effects of firms’ R&D investments on their total amount of exports, but decision on export, export shares, and the timing to start export turn out to be positively affected by firms’ R&D shares. Estimating the same regression models after dividing total R&D into product innovation R&D and process innovation R&D, we find only product innovation R&D has significant effects on export performance. This implies that technology and quality competitiveness is a more important factor for exporting.
Also we analyze the interactions among R&D, economic openness, and economic growth by using Panel VAR approach. The results show that foreign R&D increases domestic R&D, and domestic R&D brings value-added growth. Foreign R&D does not have direct effects on value-added in the short run, but increase it gradually in the long run.
To discuss effective R&D policies under new trade circumstances, we examine major countries’ R&D policies and the Agreement on Subsidies and Countervailing Measures‎under WTO. In addition, policy experiments are conducted by using computable general equilibrium model based on theoretical models of strategic trade policy. The results suggest international R&D cooperation and differentiated supports on industries considering their comparative advantages.

 

 

 It has been more than four years since the outbreak of global financial crisis. However, instead of moving along the road to full recovery, the world economy is continuously being challenged with new crisis such as European financial crisis and the fiscal cliff issue of the U.S. Although major advanced countries have mobilized yet the most aggressive macroeconomic and financial policies during the process of recovering from the global financial crisis, this rather resulted in causing another crisis due to the possible side effects of such economic policies. Based on this fact, it is likely that the world economy from now on will enter the phase of preparing countermeasures for those underlying side effects. Thus, the purpose of this research is to study the effectiveness and appropriateness of the economic policies carried out by the major advanced nations under the global financial crisis. And the paper also aims to project future world economy from an understanding on the consequences of policies.

Chapter 2 analyzes bailout plans that were implemented by major developed countries during financial crisis and attempts to assess them. It is true that the bailout programs carried out for financial institutions in the midst of financial crisis played a positive role in coping with the crisis by preventing its dispersal and intensification. On the other hand, however, side effect of such bailouts is predicted to become a burden on the economy of developed countries. This is because there is a concern that ‘too big to fail’ controversy will be led to a moral hazard, which may bring about the repetition of financial industry’s risk seeking behaviour. Another reason can be pointed to the possibility of prolonging the poor performance of financial system by regenerating the institutions that deserve restructuring according to the market principles. Therefore, in order to have instability among financial field under control, which may arise from the bailout plans, it is considered that advanced countries need to supplement financial regulations through reinforcing management and supervision over financial market and put in a great deal of effort for reforming financial system.
In Chapter 3, major economies’ monetary policy as a countermeasure for crisis is analyzed. The United States and the United Kingdom have been implementing the most aggressive monetary policy in history whereas Euro Area seems to be mobilizing the monetary policy that is more faithful to its target of stabilizing inflation. It can be criticized that such policies of European Central Bank bear some responsibility for prolonging the recession and intensifying a few member countries' financial crisis. U.S. non-traditional monetary policy, which lowered various interest rates, was very effective on moderating tight-money market in the beginning, but it can be said that its effect is gradually reducing over time. According to our Event Study, we found that the impact of first quantitative easing (QE1) was the largest, QE2’s effect was about one third of QE1, and impact of operation twist was even less than that of QE2. Hence, continuing quantitative easing after escaping from the serious stage of crisis may not have satisfying benefit. Moreover, financial market participants' disappointment with the impact of such policies that fall short of their expectation may cause crisis of a larger scale.
Chapter 4 compares pre- and post-global financial crisis fiscal multiplier of developed countries through empirical analysis. According to the result of Dynamic Panel VAR Estimation, major advanced countries' fiscal multiplier during the global financial crisis was higher than that of pre-crisis. This reflects the fact that major advanced nations’ policy to increase government spending was effective. If the fiscal multiplier is to be analyzed based on each country’s government debt, it is assumed that in case of a country with higher government debt, short-term multiplier is near zero and long-term multiplier is in negative range. Thus, it may be said that the aggressive expansionary fiscal policies of developed countries during global financial crisis had a notable impact, but it seems that in case of advanced nation whose government debt surged, it is hard to expect additional effect of expansionary fiscal policy and is thought that they need to accompany fiscal consolidation policy.
Based on the previously mentioned results of our analysis, this paper projects future world economy as follows: First, there is a high possibility for financial industry in advanced countries that are avoiding crisis through bailouts and quantitative easing to experience prolonged risk due to moral hazard and delay in liquidating insolvent institutions. Second, expanded global liquidity, a by-product of major advanced countries’ quantitative easing process, may cause instability of developing countries’ foreign exchange market and capital market. Third, the effect of major nations’ macroeconomic policy is expected to remain unobserved for several years from now on and hence when a new shock that causes economic downturn takes place, there is possibility for the economy of advanced countries to show larger fluctuation.

Korea has steadily expanded its FTA network since the Korea-Chile FTA in 2004. Currently, Korea has FTAs with 45 trading partners including the world’s top three economic blocs, the U.S., EU, and ASEAN plus India. It is expected that nearly half of Korea’s total trade volume will be carried out with its FTA partners, taking into account of the Korea-China FTA, under current negotiation.
This study sheds light on the economic impact of FTAs in Korea, focusing on the agreements with Chile, Singapore, ASEAN, and EFTA. In particular, the study aims to identify how the FTAs affect exports and imports, outward and inward FDIs, and productivity and employment as the channels through which they ultimately lead to economic growth in Korea.
The findings from this study are as follows: first, the FTAs have promoted trade between Korea and its FTA partners by fostering closer bilateral economic relations as well as reducing bilateral tariff rates. Korea has diverted its suppliers of raw materials and capital goods to its various partner countries such as Chile, ASEAN, and EFTA through the FTAs.
Second, the number of firms, particularly SMEs, that newly enter the export market has rapidly increased since the FTAs, and the new entrants and SMEs experienced a higher export growth rate than the existing large exporters during the post-FTA periods. Hence it is revealed that the FTAs have played a significant role in the extensive margin of exports.
Third, there has been an upsurge in overseas investments made by Korean companies through the FTAs. The FTAs have encouraged vertical investments in the developing countries as cheap manufacturing bases and horizontal investments in the services sectors of the developed countries. Meanwhile, this study shows that the FTAs have stimulated the inflow of FDIs to Korea, mainly from the high income partners.
Fourth, it is estimated that the FTAs have contributed to the increases in productivity and employment of firms that export to the FTA partners. In particular, the impact on productivity of the FTAs tended to be magnified over time while their impact on employment was mostly delivered in less than 3 years after the inception of the FTAs.

This paper analyzes how large-scale disasters (such as large-scale natural disasters and terrorist acts) influence the macroeconomy and financial markets. According to the findings, the large-scale disasters does affect the economy of nations where the outbreak of disaster took place, resulting in a 2% drop in economic growth (in the case of the Great East Japan Earthquake) and 6% decrease in exports (ex. Great East Japan Earthquake and the 9ㆍ11) compared to the global average of each category. And the result also shows that the cumulative abnormal stock return can fall by 10% (The Great East Japan Earthquake). However, the degree of negative impacts from external shock can vary depending on the nature of the disaster, how it is dealt with, and the country’s economic condition.
First, although immediate harm from both 2008 Sichuan Earthquake and the 9ㆍ11 came mostly in the form of human lives lost, these two cases had different economic impacts. The Great Sichuan Earthquake took many lives but its impact on the Chinese economy appears to be insignificant. It is sometimes considered that the Sichuan Earthquake was actually helpful to the development of the local economy, in that it spurred reconstruction of the disaster-stricken region. On the other hand, the 9ㆍ11 attack hit hard not only US but also global financial markets since most of the lives lost or affected during this tragedy were of professionals in finance-related fields. In fact, the decline of stock prices in the global markets was larger than that of the US stock market.
Second, an instance of poor response to disaster-aggravated economic situation can be clearly seen in the case of Hurricane Katrina. Hurricane Katrina only caused a 1% drop in exports in the quarter it occurred, but the government's inadequate response and increase in fiscal deficits brought about an average of 0.5% fall in economic growth.
Third, the pace of recovery can vary according to economic conditions prior to the outbreak of a disaster. Before the 9ㆍ11 terrorist attack and the Great East Japan Earthquake, the US and Japan found themselves in a slump in terms of economic growth trends. Such large-scale disasters became the main causes that worsened economic conditions; and Japan’s economy, in particular, has yet to show signs of recovery. Moreover, it seems that disasters can have a major impact on neighboring countries. The Great East Japan Earthquake, especially, impacted negatively neighboring states and countries that Japan held extensive trading relationships with for as long as one year.
Furthermore, according to the results from the theoretical model and simulation analysis, if the potential for disaster rises--for instance, when possibility for the outbreak of war in Korea goes up or climate change causes higher frequency of natural disasters--damage and side effects are to impact capital markets first and then eventually have a negative influence on the overall economy.
However, the significance of economic impacts of such disasters should be carefully interpreted. The effects of disasters identified in this paper were determined based on our empirical and theoretical models which may not account for all fundamental factors related to disasters. Analyzing stock price indexes by industry allowed us to see the industries that experienced significant impact after external shock were primary industries hit by the outbreak of disaster (e.g. electric power-related public enterprise sector during the Great East Japan Earthquake), disaster-related industry that suffered harm due to their failure to properly predict the disaster (e.g. insurance sector during Hurricane Katrina), industry exporting to countries where disaster occurred (e.g. South Korea’s health care sector during the Great East Japan Earthquake), and so on. In overall industry, a temporary decline following the shock were valid only for about a day or two. Hence, policy makers and practitioners should keep in mind that analysis based on the relevance to the real economy is necessary in order to reduce market uncertainty arising from massive disasters. Policy enforcement as a precaution should be realized via constructing various safety nets and disaster prevention systems in order to minimize the negative economic impacts once large-scale external shock takes place.

Introduction 

Contributors 

Chapter 1. Korea and East Asia in a Changing Economic Environment 
1. Asia’s Strategic Participation in the Group of 20 for Global Economic Governance Reform: From the Perspective of International Trade / Taeho Bark and Moonsung Kang
2. The Role of Korea and East Asia under the Changing Trade Environment / Yoocheul Song
3. Financial Regionalism in East Asia and its Efficacy as Financial Safety Nets / Young-Joon Park

Chapter 2. Korea and East Asia in a Changing Security Environment 
4. Global Responsibility and the Future of Security: America and Europe / Heinz Gärtner
5. North Korean Foreign Policy and its Domestic Connection: A Quantitative Analysis (1997-2010) / Rudiger Frank
6. Korea’s Evolving Strategic Thought Toward East Asia / Sung-Han Kim

Chapter 3. Regional and Global Development Issues and the Role of Korea 
7. Transnational Consumer Activism in International Development Cooperation / Baran Han
8. Current Status and Directions of Korean ODA / Insoo Kang
9. Korea’s ODA Policy Towards CLMIV: Trends and Prospects / Sung-Hoon Park and Jung-Ho Kim

This book is the outcome of the international conference “Korea and East Asia in a Changing Regional and Global Environment” held in Vienna, 28-29 April 2011. It covers three areas: changes in economic, security and development/ODA.

During the last decade China has boosted its international recognition as an emerging economic powerhouse. Deeply integrated into the global economy, China has risen to become an international power second only to the United States, and it is often regarded the eras of the US-China G2 has come. China has been pursuing bilateral and regional trade agreements with neighboring countries such as FTAs within ASEAN, along with its WTO entry in 2001 and globalization of the Chinese currency Yuan. Under the circumstance Japan’s international economic position has weakened in proportion to the increasing level of dependence on Chinese economy. Both Japanese public and private sectors recognize that economic cooperation with China has become one of the most important international agendas. This paper is aimed at introducing the structure of Japan-China trading system and analyzing Japan’s government policy along with corporations’ management strategies on Chinese market, providing a broad picture of growing economic ties between the two countries. This paper also derives several policy implications from the Japanese experiences on how Korea should build and implement its economic cooperation schemes with China.
Chapter two exhibits the rising of China in the global economy. We use indices such as GDP, trade volume, and foreign exchange reserves to review China’s burgeoning economy in detail. We also analyze China’s growing prominence in the world by taking a closer look into the globalization of the Chinese currency Yuan, bilateral FTA negotiations between East Asian countries, and regional financial cooperation in East Asia with the emergence of a new global financial governance system.
In chapter three, the structure of Japan-China trading system is analyzed in terms of trading items, process stages, and domestic market shares in China using indices such as Revealed Comparative Advantage Index, Trade Specification Index (TSI), and Marginal Intra-Industry Trade Index (MIIT). According to the study, it is clear that the Japan-China trading system has developed competitive yet complimentary interregional relations. Even the very competitive industries between Japan and China maintain their parts and materials sectors mutually beneficial cooperative relationships.
In chapter four, three points are examined in the perspective of Japanese firms’ business management activities in the Chinese market. First, we analyze investment strategies classified by period, industry, and region. Second, we conduct business performance assessment. Increasing sales and net profit figures shows that the business strategies of the Japanese firms are paying off in China. Finally, we analyze how Japanese firms handle China risk. Japanese firms intend to include East Asia as a whole on their standard of prospective investment area to reduce country risk via diversification while focusing on the Chinese market at the same time.
Chapter five discusses the economic cooperation policies of the Japanese government in specific areas. We look into policy evaluation and prospect in two sectors; Energy Efficiency and Environmental Industry, and Monetary and Financial Market.
Some implications for the Korean government and manufacturing firms are drawn from the paper in the above analysis. First, the Korean government needs to work out effective ways of carrying forward FTA negotiations with East Asian community. Under the circumstances of both Chinese and Japanese governments attempting to take the initiative in East Asian community, it is necessary for the Korean government to take into account the ongoing Korea-China bilateral FTA negotiations, the resumption of Korea-Japan FTA negotiations, the launch of joint Korea-China-Japan FTA, and RCEP all together.
Second, we could obtain from the Japanese experiences that the Korean government should come up with the corresponding strategy with the increasing level of Korea’s dependence on Chinese economy. We suggest four options; follow the changes in consumption patterns and demand prediction on Chinese domestic market; pay close attention to the new emerging markets in Asia to diversify export regions other than China; facilitate trade flows of parts and materials manufacturing sectors by reinforcing our industrial competitiveness; foster the business cooperation with the Chinese counterparts.
Third, in order to boost Korean firms’ investments in China, the Korean government needs to be alert to the changes in Chinese foreign investment policy. The Korean government should continuously provide updated information on Chinese government policy to Korean firms while discovering cooperation fields with China to pursue mutual advantages.
Finally, the Korean government needs to take support measures to certain domestic companies armed with high technological prowess but lack of overseas expansion strategy. In this respect, the government should further actively engage in the partnership and cooperation methods by inviting China experts on training sessions, conducting Korean experts’ seminars across China, holding private and public joint forums, and creating a fund development plan if necessary.

 

  A regional cooperation project centered on a long riverway passing through several nations, in addition to ensuring agreement between the nations involved, requires cooperation from the international community as a whole. This is because of potential friction that may inevitably arise during the course of such a project; types of friction that the states involved may not be able to resolve on their own. The Mekong’s upper reaches located in China, and five developing nations of Southeast Asia sharing its middle and downstream sections, and this has made mutual agreement quite difficult. But due to the high and vocal demand for development in the region, the actors have continued to make adjust their positions accordingly and cooperate with each other in spite of the difficulties involved in developing the Mekong region.
Support from multilateral development agencies and advanced nations have kept development moving forward up to this point, in terms of hardware infrastructure. Nations in the region have been active participants in the ADB-sponsored GMS program that began in 1992, which resulted in rapid build-up of physical infrastructure in the region. They are also cooperating  through the Mekong River Commission for projects to develop the Mekong’s water resources, and also bolster human capital in the region through the Mekong Institute. Connectivity between different regions around the Mekong have been strengthened recently, to promote the flow of people and materials that would expedite development in the region.
In October of 2011, Korea announced its intentions for earnest participation in the development of the Mekong region through the First Korea-Mekong Foreign Ministers’ Meeting. During the meeting, Korea pledged active consideration to increased connectivity with ASEAN, sustainable development, and human-oriented development in six major issue areas. Korea also announced it would pursue several pilot projects at the Second Korea-Mekong Foreign Ministers’ Meeting in July of 2012. At this point, Korea must formulate a basic strategy, direction of cooperation and measures for mid-to-long term cooperation in participating in the regional development.
In this regard, the question of how we should look at Korea’s participation in the development of the Mekong region is an important one. Countries comprising the region including Vietnam, Cambodia, Laos, and Myanmar are already major cooperative partners receiving significant ODA from Korea. This means that if viewed solely from a bilateral standpoint, Korean involvement in these development efforts would create much overlap with pre-existing ODAs and would be, in essence, simple repetition.
However, the development of the Mekong region is actually a level-up, from bilateral to multilateral cooperation. The claim could be made that it constitutes Korea’s first multilateral development project after Korea became a member of the OECD DAC. It should be noted that the Korean government and the private sector will be involved together in various projects pursued by the Mekong regional bodies, which will serve to enhance Korea’s potential capacity with respect to development.
In order to ensure continued development, private sector participation is indispensable along with cooperation between governments, for which programs that enable public-private partnerships must be created. In the middle to long term, Korea should take a leading role in the Mekong development and come up with a system that would strengthen Korea’s capacity for multilateral development cooperation. Moreover, the strategy for development cooperation in Asia must be established from the larger framework of Korean development cooperation.
This research thus proposes the following measures for cooperation, with respect to creating overall plans for Korea in developing Mekong region.
First, the Korea-Mekong foreign ministers meeting must be elevated to summits, while simultaneously organizing economic ministers’ meetings as an intermediate phase to enhance economic cooperation. Following its foreign ministers’ meetings with the Mekong region countries in 2008, Japan subsequently  elevated it to a meeting of economic ministers and eventually summits, which could serve as a point of reference.
Second, an ODA base for multilateral cooperation must be established. The Mekong Sub-regional Development was made possible by converting previously bilateral cooperative relationships into a multilateral channels for cooperation. A firm foundation in the form of multilateral ODAs is vitally necessary for the continuation of such multilateral cooperation. The government-wide ASEAN Connectivity Task Force that was launched on September 2012 will focus on strengthening the connection between Korea and countries in the Mekong region. The Korean government ODA, set to be doubled by 2015 (relative to 2012), could be put to active use for the endeavor.
Third, all efforts should be expended for keeping the cooperation with donor states and regional cooperative organizations moving. The nature of each organization must be assessed and understood as well as the strategies of major donor states, to ensure amicable cooperation with those organizations/states. Korea should also seek to take leads in certain projects, circumstances permitting, and must not shrink from taking advantage of diverse, pre-existing networks. This would contribute immensely to enhancing Korea’s capacity for development in the long term.
Fourth, formulating an action plan for Korean engagement in development projects in the Mekong region is necessary. These engagements should take place separately in the six major areas of cooperation, instead of in an overarching manner. As these projects move forward, the so-called Korea Special Fund needs to be set up, so that Korea can evaluate, from the earliest stages (feasibility studies), how those funds should be spent. This allows an accumulation of data as well as provide opportunities for Korean corporations. Also, the participation of the private sector should be encouraged by establishing joint public-private programs, which would include public-private partnerships (PPPs) and other diverse formats. To further stimulate exchange in the private sector, the ‘Korea-Mekong Business Forum’ should continue to be organized. Last but not least, a system should be arranged in a manner that would bring in more small and mid-size businesses into the fold.

South Asia, one of the poorest regions of the world, is an important partner for Korea in development cooperation. While South Asia is home to 23% of the world’s population, per capita GDP of the region stood at a meager US$ 1,402 as of 2011. As such, the region has been receiving increasing amounts of official development assistance (ODA) from the international community including from Korea. Against this background, the present study seeks to identify priority sectors for Korea’s ODA to South Asia through quantitative analysis, and provide policy recommendations.

For purposes of the present study, Pakistan, Bangladesh, Sri Lanka and Nepal which are Korea's main ODA recipients in the region are selected. The study then paired each South Asian country with a comparable country based on income levels and development stages for comparative analysis which, in turn, identified development needs of recipient countries and Korea’s aid capabilities. The report also identifies 9 priority sectors, i.e., institutions, health, infrastructure, market efficiency, financial market development, education and training, technology and ICT, the environment, and agriculture; based on the sectoral pillars of the Global Competitiveness Index and the Environmental Performance Index (EPI) of the World Economic Forum, and agriculture-related data of the Food and Agriculture Organization (FAO).

The report then ranks priority sectors while considering development needs of recipient countries and Korea’s aid capabilities. For example, sectors in which both the development needs of recipient countries and Korea’s aid capabilities are high are ranked “no. 1”, followed by sectors in which the development needs of recipient countries are high, but Korea’s aid capabilities are relatively low (no.2), and then sectors in which the development needs are low, yet Korea’s aid capabilities are strong (no.3). Lastly, sectors in which both the development needs and aid capabilities are low are placed in the “aid to be deferred” category. Priority sectors (no.1) identified for each country are as follows: infrastructure, education and training, health, technology and ICT for Pakistan; infrastructure, education and training, technology and ICT for Bangladesh; infrastructure, technology and ICT, education and training for Sri Lanka; and infrastructure, education and training and health for Nepal.

The present report goes on to suggest appropriate programs by country and sector by applying Korea’s ODA model to the aforementioned priority sectors. For Pakistan, the report recommends programs aimed at building power infrastructure, industrial clusters, and green energy for the infrastructure sector; for education and training, training programs for skilled labor, and vocational training; and for heath, modernization of public hospitals in focal areas of each region. For Bangladesh, it has been identified that for the infrastructure sector, programs for building industrial clusters, developing light and heavy industries, and power infrastructure could be explored; for the technology and ICT sector, installation of wired and wireless broadband, and nation-wide computer networks; and for education and training, training programs for skilled labor. For Sri Lanka, suggested programs include those relating to the building of free economic zones, green cities, and green industries in the infrastructure sector; and in technology and ICT, waste treatment and management, and green R&D infrastructure. For Nepal, the report recommends programs for building multi-purpose dams, airports, historical and cultural cities in the infrastructure sector; training programs for skilled labor in education and training; and the establishment of emergency medical care systems in the health sector.

The present study offers the following recommendations for Korea’s ODA policy towards South Asia. First, it recommends that Korea’s ODA towards South Asia be designed according to development stages and needs of each South Asian country. There are significant differences in terms of income level and development challenges among South Asian countries. For example, while Sri Lanka’s per capita GDP amounts to US$ 3,000, that of Nepal stands at a mere US$600. In addition, Korea’s ODA should take into account the growth potential of the region and countries with high growth rates. The report also recommends that emphasis should be laid on maximizing the effectiveness of ODA projects. To that end, efforts should be made to improve aid efficiency and sustainability. Also, there is a need to reduce fragmentation and increase linkages among ODA projects, and take a program-based approach. Moreover, it is essential to increase the ownership of recipient countries and improve harmonization with the international community.

Lastly, the study recommends that an aid consultative body for South Asia be established, focusing on Korea's main development partners in the region such as Pakistan, Bangladesh, Sri Lanka and Nepal. Such a mechanism would provide opportunities for Korea not only to participate in the SASEC (South Asia Sub-regional Economic Cooperation) program, a sub-regional initiative for development cooperation in South Asia, but also to make it possible for Korea to engage with India which does not receive ODA from Korea on development cooperation with other South Asian countries.