The Yanbian Autonomous Prefecture (“Yanbian”) of China’s Jilin Province is a border area between the northeastern part of the Korean Peninsula and China and is often referred to as the Tumen River region. Yanbian is a major residential area for ​​Korean ethnic groups and uses both Chinese and Korean as official languages. It is a place which retains the history of the independence movement of the nation, and Baekdu Mountain is located in this region as well. As such, the region shares a deep emotional bond with the Korean Peninsula.
  However, from a geo-economic point of view, Korea needs to try a new approach to Yanbian. Yanbian can act as an important test bed and bridgehead in the process of actively responding to the changing Chinese economy in the era of “new normal,” and in the process of establishing new strategies for Korea to advance into China. In addition, Yanbian is an important hub for Northeast Asia and an important gateway to China and Eurasia. Located adjacent to North Korea, the region will be able to induce the opening of North Korea by serving as a space to establish and execute a creative strategy of engagement with North Korea.
  Therefore, this study sought to identify more concrete cooperation plans in the short and medium term, based on the necessity of economic cooperation for Korea in the Yanbian area. For this purpose, we analyze the process and status of the economic development of Yanbian and analyze the economic cooperation process and obstacles between Korea and Yanbian. In addition, we conducted a more in-depth analysis through joint research with the Consulate General of the Republic of Korea in Shenyang and the researchers of the Economic Research Institute of the Korean Peninsula Research Institute of Yanbian University.
  Throughout the history of China, the Northeast region has been a key industrial base for chemical manufacturing. While Yanbian is located in the Northeast, however, it is in a remote region and its economy remained relatively undeveloped for a long time. Then, following the reform and opening of the nation, the region achieved a 9.5% annual growth rate in GDP from 1991 to present. While not on par with the eastern coastal area of China, the region has seen significant growth in recent years. In particular, after South Korea and China established diplomatic ties in 1992, Korean tours to Baekdu Mountain began, and economic development centered on the service industry took place. This service-led development has been influenced by external factors such as the 1997 Asian financial crisis and the global financial crisis in 2008. However, the tourism and restaurant business in Yanbian has been undergoing development as a whole. In addition, China’s own unique approaches to economic development, such as various trade, investment measures, and financial expenditure by the Yanbian state government to construct infrastructure, contributed to the economic development of Yanbian as well. Interestingly, the economic development of Yanbian benefited considerably from overseas remittances by ethnic Koreans who migrated to Korea, serving as the background to Yanji becoming a top-tier Chinese city in terms of consumption. Currently, Yanbian is striving to maintain the momentum of development by appropriately pursuing new plans and strategies such as the 13th Five-Year Plan of Yanbian, the Chang-Ji-Tu Project, the Yan-Long-Tu project, and the Belt and Road Initiative.
  Yanbian’s economic cooperation with Korea has also contributed greatly to the region’s economic development. As free exchange with Korea gradually expanded, the economic crisis and process of Korea overcoming this crisis became directly and indirectly linked to the Yanbian economy, which continued to develop throughout the events. In particular, it has become the cornerstone of economic development in various fields such as trade with Korea, investment from Korea, remittance from family members in Korea, and acquiring of advanced business culture from Korea. With the Korea-China FTA officially taking effect in 2015, the economic cooperation between Korea and Yanbian is expected to expand further in the mid- to long-term. However, the contribution of Korea to the economic development of Yanbian has been decreasing compared to the past, meaning Korea needs a new approach to Yanbian.
  Therefore, in order to investigate this, our study evaluates the accomplishments and obstacles to economic cooperation experienced by Korean entrepreneurs engaged in business with Yanbian, while also evaluating the demand for Korean cooperation. Many Korean companies that have advanced into Yanbian report that the business conditions in the region have deteriorated as the benefits or preference for Korea have become lower than in the past. In addition, Korean-Chinese business partnerships based on ethnic homogeneity are suffering from weaker trust relations, casting doubt on business performance in the region. Nevertheless, if the South-North Korea problem is resolved in the mid- to long term, it will be evaluated as a region with great potential in the future.
  On the other hand, in the case of Yanbian organizations and local enterprises, Korea is considered an important economic cooperation partner, and it was expected that economic cooperation with Korea will continue to expand in the future. In particular, they still hope to attract Korea’s advanced technology and culture, and emphasize the need for large-scale investments centering on large corporations. In addition, they hope that economic cooperation with Korea will be achieved in accordance with the various plans and policies currently being pursued by Yanbian.
  Our research has attempted to divide the development strategies of Korea and Yanbian into macro strategies and detailed policies. In terms of macroeconomic strategy, first, Korea and Yanbian should strengthen economic exchange and cooperation in a gradual and comprehensive manner. Second, Yanbian can be used as a bridgehead for economic cooperation between China and Northeast Asia and the Eurasian continent. Third, Yanbian could be used as a location to carry out creative North Korean engagement strategies.
  Based on these three strategies, six detailed policy directions were presented. First of all, Korea should support the upgrading of Yanbian’s major industries such as agriculture and fisheries and the service industry. The second policy direction is to establish a joint research center in Yanbian and build a joint human resources training system. Yanbian, where both the Chinese and Korean languages are used jointly, is a fascinating place to cultivate talented people to monitor and engage the dynamic Chinese market. The third and fourth policy directions can be considered as the role of Korea in supporting the gradual development of Yanbian into a Northeast Asia Free Trade Zone and the establishment of international cooperation governance in the Tumen River region.
  Fifth and sixth, policies will be needed to provide a basis for sustainable economic cooperation through step-by-step financial cooperation and strengthening of social and cultural communication.
  The year 2017 marks the 25th anniversary of diplomatic relations between China and Korea, and should be considered an opportune time for South Korea to devise a new approach to the developed Chinese economy. In this context, Yanbian is a great location for Korea to develop new approaches not only for China but also into Northeast Asia and Eurasia, and toward the opening of North Korea in the future. In addition, as the Korean government designs a new economic map for the Korean Peninsula, Yanbian will play a role as a bridgehead into the mainland of Northeast Asia and the Chinese and Eurasian continents.  

  Established in January 2015, the Eurasian Economic Union (EAEU) set a grand vision to create a “Eurasian Union” resembling the European Union by 2025 through a multi-stage integration plan. The EAEU consists of five countries — Russia, Kazakhstan, Belarus, Kyrgyz Republic and Armenia — with 180 million people and a combined GDP of 1.48 trillion dollars. Currently, free movement of goods, services, capital and labor is guaranteed within the region. The members of the EAEU are planning to integrate the drugs and medical market by 2017, the electric power market by 2019, and the oil and gas market by 2025. EAEU membership is expected to expand, namely with the accession of Tajikistan, and the scope of partnership is also likely to extend out toward the APEC region.
  In the meanwhile, Korea is facing a number of challenges under escalating economic uncertainty around the world. Protectionism in trade is spreading worldwide with the launch of the Trump administration, and China has engaged in economic retaliation against the deployment of a THAAD missile system in Korea. Also, Korea has to escape from the geographical isolation imposed by the division of the Korean Peninsula. Responding to these developments, Korea will need to diversify its partnerships with emerging economies and reduce its economic dependence on the Chinese market. Strengthening cooperation with the northern Eurasian countries, and securing new economic growth engines to replace old ones, will be a way for Korea to overcome the current challenges. Indeed, the EAEU can be an attractive partner as a window of new economic cooperation in developing future-oriented relations between Korea and the northern Eurasian countries.
  Korea has a high potential to develop sustainable and mutually beneficial relations with northern Eurasian nations because both sides share characteristics in economic cooperation that are complementary to each other. Korea needs to construct a third route, a “northern economic cooperation route,” in addition to the maritime route which connects Korea with the U.S. and Japan and the China route. It will also be necessary to pioneer such a “northern economic growth space” through strategically enhancing economic cooperation with the EAEU member states. Recognizing these considerations, the Moon Jae-in administration inaugurated in May 2017 has presented a “Responsible Northeast Asia Plus Community Initiative” as one of its major national policy agendas, where the new northern policy stands as an important pillar. Accordingly, promoting economic cooperation with the EAEU has become an issue of great priority. It is timely and desirable for us to study the investment climate of the EAEU, and to devise feasible strategies to enter the EAEU and expand into the northern Eurasian region.
  This study provides an in-depth analysis on the investment climate in the EAEU and sophisticated entry strategies for Korea. This study emphasizes the necessity to establish an FTA between Korea and the EAEU, the largest market Korea has yet to conclude an FTA with. The EAEU’s growing presence within the world’s political and economic spheres hints at the emergence of the EAEU as a significant partner for Korea to diversify its international economic cooperation and generate new growth engines. The results of this study will be useful to prepare negotiations for a Korea-EAEU FTA and come up with mutually beneficial economic cooperation programs. We carried out comprehensive analyses of the literature and pertinent statistics, and conducted a survey of Korean businesses that have entered or are planning to enter the EAEU market. To supplement the results of this survey, in-depth interviews with Korean companies were conducted as well.
  There are five chapters in this study. Following the introduction, a brief explanation of the integration process of the EAEU and its strategic value are presented in chapter two. In this chapter we also analyze the major features of the economic conditions and markets of EAEU member countries. In chapter three, the economic cooperation between Korea and the EAEU is examined and evaluated, after which we make forecasts for future relations. Chapter four introduces the overall investment policies and major programs of the EAEU, and analyzes the investment environment and responsiveness of Korean businesses to internal and external factors, based on the survey results. Lastly, chapter five provides a SWOT table with combined market entry strategies, and suggests various policies to promote investment and penetrate into promising sectors within the EAEU. The investment climate of the EAEU is evaluated across four different categories: marketability, growth potential, stability and other comprehensive indexes. First, Russia is the biggest market in the region followed by Kazakhstan, Belarus, Kyrgyz Republic and Armenia. Since Russia and Kazakhstan have low levels of trade openness and they are actively implementing import substitution policies, it will be more adequate for Korea to roll out investment promotion measures rather than trade expansion policies to vitalize economic cooperation with these countries. Second, Kazakhstan has the highest growth potential, followed by Kyrgyz Republic, Russia, Belarus and Armenia. Kazakhstan shows relatively high population growth, quality human resources and favorable logistics infrastructure. Third, Armenia is the most stable economy, followed by Russia, Kyrgyz Republic, Kazakhstan, Belarus. According to the global competitiveness index, Russia is the most competitive, and Kazakhstan, Armenia, Kyrgyz Republic follow, in that order.
  Trade between Korea and the EAEU peaked in 2014, then decreased until 2016. Korea’s annual investment in the EAEU recorded 8,000~10,000 million USD up to 2010 but plunged to 2,000~3,000 million USD recently. In short, economic cooperation between Korea and the EAEU falls far behind the economic size and potential of these two entities. Even that cooperation currently in progress is concentrated in Russia and Kazakhstan. Korea’s cooperation with Belarus, Kyrgyz Republic, Armenia remains weak. The economic recovery of the EAEU and the growing share of APEC countries in trade with the EAEU makes it likely for trade between Korea and the EAEU to increase.
  Regarding the investment climate of the EAEU, a survey on Korean companies who have entered or are planning to enter the EAEU market was conducted from the period of May to August of 2016. A total of 56 Korean businesses participated in the survey. In order to heighten objectivity and feasibility of the study, we held in-depth interviews with Korean enterprises in Kazakhstan and Kyrgyz Republic in May 2016. Companies situated within the Gumi and Guro industrial complexes in Korea were interviewed as well.
  Among external factors, “Economic/industrial development and investment promotion policies of the EAEU” was the most important opportunity factor in entering the market. On the other hand, the factor of “Administrative barriers such as corruption, bureaucracy and so forth” was the most risky among these factors. The respondents perceived the market as an opportunity rather than risk. The companies showed an average level of Responsiveness. Among internal factors, the biggest strength factor is “Competitiveness in the innovation and high-end technologies, such as IT.” The most critical weakness factor is “Insufficient information on the EAEU.” When it comes to penetrating the EAEU market, the strengths of Korean companies are slightly overshadowed by their weaknesses. That is, the respondents perceived themselves as not significantly competitive enough to enter the EAEU market.
  Based on these analyses of the external and internal investment environments, combined strategies are presented in this study. The government most likely needs to make efforts to specify and realize the proposed strategies. Meanwhile, the study suggests to lay the foundation for economic cooperation and expand industrial cooperation. The following four measures are the keys to create an institutional base for economic cooperation.
  First, it will be critical to conclude a Korea-EAEU FTA. Such an FTA would provide a new concept for strategic cooperation in the so-called “Eurasian value-chain system,” as well as in the new Eurasian growth space. It will be a window of opportunity for the Eurasian region to establish significant links with Korea, and to bring the APEC region closer to Russia.
  Second, utilizing the Korea-Russia investment platform when entering the EAEU market is an important element. The Korea-Russia investment platform created in 2013 has not been utilized at all up to now. Through discussion with Russia, it will be necessary to adjust the investment destinations, industries, methods, and scope of cooperation to employ the platform. In this way, the platform can be expanded and become more useful and effective.
  Third, designing investment package support programs for SMEs is another significant measure. Overseas investment by SMEs will be important in building a foundation for cooperation with the EAEU when considering the economic complementarity of the two sides. Such collaboration is possible due to the EAEU’s demand for modernization in its manufacturing sector. Job creation and competitiveness improvement could be realized through the sophistication and internationalization of Korean SMEs.
  Fourth, it will be necessary to establish a “graduate school for Eurasian policy.” When the agenda of strengthening cooperation with Russia and the northern countries is incorporated into Korea’s mid- and long-term international strategy, it will become an urgent task to build a human resources nurturing system. Thus the founding of such a graduate school should be seriously considered. Given Russia’s growing political and economic presence in the international community, it is necessary to train elite talent to deal with issues regarding the EAEU.
  In order to lay the institutional foundation, a close cooperation between the two sides is significant, perhaps by reorganizing or newly launching channels under the governments. Also necessary will be an organization that is mainly dedicated to Eurasian issues. Most importantly, embarking on negotiations for a Korea-EAEU FTA should come first to promote investment between Korea and the EAEU. Members of the EAEU think that the Korea–EAEU FTA has to extend beyond the scope of conventional FTAs. Bilateral industrial cooperation stimulated by Korea’s investment must be included and enhanced. To enable Korea-EAEU FTA negotiations to commence, an “investment promotion committee” should be formed and the needs of EAEU member states must be discussed. At the same time, it will be necessary to establish a “northern cooperation fund” which supports SMEs to enter the EAEU market under the Ministry of Strategy and Finance. The positive effects that a Korea-EAEU FTA would have on investment should be communicated through a number of regular investment forums. Constructing industrial zones and discovering the investment promising sectors in the EAEU will have to take place as well. In particular, industrial complexes jointly planned by the two sides will help Korean enterprises to enter the EAEU market. For this, additional studies on the conditions of possible industrial zones and specialized industries should be carried out. Investment promising sectors have to be detected through analysis on industrial competitiveness, policies and investment climate. 

  One Belt and One Road (B&R, 一带一路), China’s new Silk Road initiative, is largely divided into two parts: the Land Silk Road centered on China’s inland area and the Maritime Silk Road based in China’s coastal area. Most of the Land Silk Road area is located in the Midwest and the Northeast inland area of China, hitherto marginalized by the opening policy emphasizing the eastern coastal area. In order to expand future foreign exchanges, more emphasis has been placed on promoting infrastructure connection and trade facilitation. Local governments on the Maritime Silk Road are presenting the creation of maritime infrastructure connecting Asia-Europe-Africa and the strengthening of marine cooperation as the core of their B&R strategy. Therefore, each local government is emphasizing infrastructure connection centered on major ports and announcing concrete plans related to a comprehensive transportation network including aviation, harbor and road construction and logistics, communication, information networks making use of their geographical advantages. Meanwhile, despite the achievements made by the central and local governments through various regional participation plans, the B&R initiative is faced with several challenges ahead. Among B&R countries, there are many developing and poor countries that are unstable from a political and religious perspective.
  Also, the fact that major cooperation at the present stage is promoted mainly by infrastructure cooperation is likely to act as a financial burden to the Chinese government, and economic cooperation with countries where buying power is not high is not expected to be significant in the near term.
  This report scrutinized the Chinese researches assessing the progress of the B&R initiative, and analyzed the cooperation between China and the B&R countries in infrastructure, funding, and trade – issues which are closely related to the area of economic cooperation among the five areas (Wu Tong, 五通) specified within the B&R initiative.
  China has developed a framework connecting infrastructures with Central and Eastern Europe, CIS, Central Asia, South Asia and countries along the ASEAN-5 region joining the B&R initiative, and has promoted related cooperation projects. However, execution of such projects is still in the initial stage. This is because most infrastructure projects are long-term, large-scale projects. Therefore, it is difficult to make a concrete evaluation of infrastructure cooperation projects conducted in line with the B&R initiative at this stage. Until now, the infrastructure cooperation between Russia and Kazakhstan has been relatively active and there has been some progress in constructing the China-Pakistan Economic Corridor. Many other B&R countries have low economic development levels and their infrastructure facilities are under-developed, which means demands for infrastructure development cooperation with China are large, but there are also many potential risk factors and problems to solve in the development process. In order to strengthen the connectivity of infrastructures among B&R countries, it will be necessary to coordinate among relevant parties, promote transparency, and take strict and careful consideration of the environmental issues related to developing infrastructure projects.
  Meanwhile, the level of B&R initiative funding is not high, and there is a large gap between regional and national levels, thus making further progress difficult. These difficulties are caused by the many challenges to be overcome in cash flow for the B&R initiative. First of all, B&R countries that are still developing will first have to undergo considerable levels of development in their trade and finance sectors. In particular, it will be necessary to improve deficient financial systems and expand access to financial markets for all economic entities. Second, a stable atmosphere in the political, diplomatic and military arenas should be created and risks in these regards should be reduced. Third, while regional economic development and income growth are taking place, bankable projects within the region must increase. The area still has a small population, low income, and few projects to ensure proper profits. Therefore, funds in China are likely to prefer Belt & Road businesses rather than the Private-Public Partnership projects strongly promoted by the Chinese government, while international funds are likely to opt for projects promoted by banks with higher credit ratings such as the ADB or WB. Fourth, the Chinese economy, which is leading the Belt & Road strategy, must maintain stable growth. We must keep the economic growth rate at an appropriate level even in the 'New Normal' era and be wary of sudden sharp declines in financial markets such as the foreign exchange, stocks and bond markets.
  Following this, the financing process will proceed with the following characteristics. First of all, the gap between inter-region, inter-country, and intergovernmental funding will increase further. In countries and regions which conduct active trade and financial exchanges with China, the cash flow will accelerate, whereas locations where this is not true will likely become alienated. In terms of items, it will mainly be cooperation in areas that do not mandate specific requirements and thus represent a lower burden of participation, such as participation in the AIIB, that is conducted, but such levels of cooperation as the establishment of a currency clearing bank are not expected to be achieved any time soon, as such measures would require a large amount of trade and investment in China, and a stable and advanced financial system. Second, financial cooperation in line with the Belt & Road initiative is centered on China's leading financial institutions, state-owned commercial banks, and international financial institutions, and private participation in the pursuit of short-term profits is expected to be complementary and progressive. Third, a priority will be placed on sectors of financial cooperation needed to proceed with exchanges between Belt & Road countries and China. In other words, it will be necessary to begin with cooperation in areas such as infrastructure construction, facilitation of trade facilitation, and activation of investment, if the overall level of cooperation for funding is expected to improve.
  It was found that the level of institutional connectivity is higher than infrastructure connection and cash flow. In terms of sector, investment cooperation was more active than trade exchanges, while overall trade volume declined as a result of the recent global economic downturn. The increase in investment cooperation is likely due to the significant increase in the amount of direct investment in the Belt & Road countries by China. The level of institutional connectivity can be understood by the three aspects of facilitation of trade, convenience of investment, and establishment of a cooperative economic cooperation zone. First of all, 64 Belt & Road countries are classified into the six large areas of Southeast Asia, West and North Africa, South Asia, Eastern Europe, Northeast Asia, Central Asia, and through the analysis of TSI (trade specialization index) absolute values, the level of trade optimization was evaluated. However, due to the implementation of B&R strategies, there were no zones where the trade levels had improved visibly. This indicates the limitations present in evaluating the trade activation effect at a point of time when only three years have elapsed since the strategy was raised on the B&R initiative, and for areas with differing degrees of economic development and industries. However, at the individual country level, it was found that the absolute TSI of Vietnam, Thailand, Cambodia and Laos decreased and the trade imbalance improved. In these countries, China’s direct investment is relatively large. In other words, as Chinese companies expanded their local direct investment and exports increased for products manufactured in countries where production sites were relocated, it seems that they reached a balance in their trade with China. While such a phenomenon can be seen as a relocation of Chinese production networks, it can also be interpreted as a result of the implementation of B&R strategies that include relocation of B&R countries’ production facilities. Secondly, from the perspective of investment convenience, FDI increased 23.8 percent year-on-year to China in 2015, and the ODI also increased 18.2 percent year-on-year to countries along the line. This is a significant increase when considering the overall FDI in China increased by 6.4% over the same period while ODI increased by 14.7%. Also, as of December 2016, China has signed bilateral investment agreements with 104 countries, among which B&R countries accounted for 48 percent. Even in the case of the double taxation prevention agreement, China had signed such agreements with 102 countries by June 30, 2016, but 53 of these were B&R countries, similar to the bilateral investment agreement. By actively signing investment agreements and double taxation prevention agreements, it will become possible to construct a good investment environment by establishing a system to alleviate investment risks between the two countries, and to expect the benefits of investment convenience. Third, the joint economic cooperation zones, which are expected to serve as land and maritime hubs to facilitate trade among B&R countries, have been classified into border economic cooperation zones, cross-border economic cooperation zones, and overseas economic zones. China established a joint economic cooperation framework to strengthen bilateral trade and cooperation with B&R countries, and is looking forward to securing the overseas pivotal area for Chinese enterprises to advance, and reducing regional disparities in China by developing remote border areas. As the focus of China’s opening policy gradually moves from the Eastern coastal area to the West with the progress of the B&R initiative, the strategical status of zones surrounding China’s border has been elevated to the new pivotal area for opening policy. The Chinese government is planning to support joint economic cooperation zones in pivotal areas by rearranging their roles and functions, thus preventing reckless competition from breaking out among border areas and B&R countries. The joint economic cooperation zones are expected to serve as hubs for trade and investment expansion between China and B&R countries as the B&R initiative continues to progress.
  Based on the assessment of progress in China’s B&R initiative, this report presented several countermeasures for both companies and the government. At the corporate level, continuous monitoring of changes in B&R-related policies, utilization of changes in China’s production network and the effects of FTAs with B&R countries, participation in B&R financing projects by expanding participation in public-private MDB projects, and localization strategies for promoting a friendly image in B&R countries should be considered. Meanwhile, the government needs to support B&R finance cooperation initiatives at the government level by revitalizing the Korea-China Industrial Complex, taking preemptive measures toward the cross- border economic zone in the northern part of the Korean Peninsula, strengthening proactive and qualitative exchanges with China’s local governments, enhancing foreign infrastructure financing networks, and reorganizing foreign infrastructure investment organizations.
  Finally, as the conditions necessary to proceed with B&R-related projects, such as the economic development of B&R countries and countermeasures to geopolitical risks, are yet to be established, infrastructure construction, financing, trade and investment facilitation between China and B&R countries have been slow to develop. Therefore, at the current stage, it will be necessary to discover new business opportunities by monitoring changes in China with regard to the B&R initiative. According to B&R plans announced by local governments in China, they are pursuing economic development through cooperation in infrastructure construction, industrial development, and international economic cooperation, utilizing their own local characteristics. In conclusion, therefore, we need to create new cooperation opportunities by utilizing the B&R plans of each local government in China, make institutional efforts to vitalize bilateral mutual investment, and participate in the B&R initiative with a long-term vision. 

  Since the global economic crisis triggered in the United States in 2008, the East Asian economic region has received particular attention as it achieved relatively solid economic growth compared to developed countries, which struggled with recession. The discussion on economic cooperation and economic liberalization within East Asia has mainly focused on the RCEP, with this discussion being led by ASEAN as it calls for ASEAN centrality. ASEAN is currently the second-largest overseas investment destination and second-largest trading partner for South Korea, making it an important partner in economic cooperation for South Korea. Particularly, as China is openly implementing economic retaliatory measures against South Korea for the deployment of THAAD missiles in the nation, South Korea has become more interested in the ASEAN market as it strives to diversify its trade and investment portfolio. Under this background, this research examines the characteristics of ASEAN FDI by income level and doing business conditions, then conducts an empirical analysis of determination factors to draw policy implications for stronger economic cooperation with ASEAN.
  This report consists of five chapters in total. In Chapter 2 we examine FDI determination factors which have been discussed from a theoretical and empirical viewpoint in the field of international economics. In Chapter 3 we look into the current situation of ASEAN FDI and the characteristics of ASEAN FDI by income level, along with conditions for doing business in the region. In Chapter 4, we conduct an empirical analysis of the determination factors for ASEAN FDI inflow, utilizing a covariance structure analysis. Lastly, in Chapter 5, we suggest implications for the Korean government and enterprises to generate mutually beneficial economic growth momentum by promoting Korea’s FDI to ASEAN.
  More specifically, in Chapter 2 this paper examines the theoretical and empirical implications and limitations of Dunning’s eclectic model, which is a representative theoretical frame for FDI determination factors, along with the knowledge-capital model proposed by Markusen and Venables. Based on the eclectic model, Dunning categorizes FDI into market-seeking, resource-seeking and efficiency-seeking types, while the knowledge-capital model classifies major FDI determination factors into horizontal and vertical factors. Horizontal FDI refers to the type of FDI involved when pursuing market expansion between countries which are similar in terms of economic scale and factor retention level, which can be understood in line with Dunning’s resource-seeking type of FDI. As mentioned above, there have been various attempts to clarify FDI determination factors from a theoretical standpoint, but with the results of such research differing by researcher, there is still no comprehensive theoretical model to support empirical analysis. Recently, various efforts have been made to explain the difference in FDI determination factors between developed countries and developing countries through institutional variables such as regulation.
  In Chapter 3, the characteristics of ASEAN FDI inflow and doing business conditions are examined based on a classification of ASEAN countries into three country groups according to GDP per capita, with the aim of understanding the characteristics of ASEAN FDI inflow. The results of this analysis show that vertical FDI is predominant in FDI into ASEAN, with the characteristics of vertical FDI slowly becoming visible together with market-seeking FDI in high-income ASEAN countries such as Indonesia, Malaysia, and Thailand, which have a relatively large population and economic scale. These changes are expected to continue for the time being as ASEAN tries to unify the markets and production sites within the region and is expected to achieve economic growth. Meanwhile, in terms of the conditions of doing business in each ASEAN country, ASEAN countries where FDI was concentrated, such as Singapore, Malaysia, Indonesia, and Thailand, showed highly advantageous conditions compared to other countries, whereas countries with low FDI inflow such as Cambodia, Lao PDR, and Myanmar were found to lag behind the others. Among specific evaluation items, contract implement period, bond recovery rate and trade period showed a high correlation coefficient with FDI. Particularly, the business conditions of each ASEAN country showed a distinct positive linear relationship with FDI, indicating that better business conditions lead to a higher amount of FDI inflow.
  Accordingly, in Chapter 4, an empirical analysis of the determination factors of 10 ASEAN countries’ FDI inflow was performed for the years of 2003 to 2014, utilizing a covariance structure analysis. The results of a primary component analysis show that, among 20 institutional variables, primary variables such as the time required to open a business, time required for import and export procedures, bond recovery rate after insolvency, and secondary variables such as the time required for contract implementation, start-up procedures, trade openness and export openness, were the determination factors for extra-regional investment into ASEAN. On the other hand, the results of a regression analysis to see whether these two factors affect the determination of ASEAN intra-regional FDI indicate that the above factors are not significant. In other words, while market- seeking factors and regulations are determinant factors for extra- regional countries when deciding on investment in ASEAN, these factors are not significant for countries within the ASEAN region.
  Chapter 5 suggests strategies for Korean enterprises to enter the ASEAN market and trade policy implications for the Korean government. Regarding entry strategies for the ASEAN market, first it will be necessary to enhance production networks with ASEAN and utilize these networks strategically, as seen by the example of Japan; second, our report emphasizes the need to efficiently respond to the trade policies and institutional changes of each ASEAN country; and third, investment risk should be managed by establishing strategic partnerships with local enterprises. Regarding the Korean government’s trade policy toward ASEAN, first it will be necessary to actively participate in the RCEP negotiations, contributing to the formation of intra-regional value chains. Among the issues being negotiated, the harmonized rules of origin stand out as a particularly important issue. Second, our report proposes stronger institutional support for Korea-ASEAN economic cooperation and towards this, the conclusion and revision of BITs with ASEAN members. Third, our report recommends a strategy of selection and concentration when it comes to improving the business environment in ASEAN. More specifically, we propose for the government to provide consulting in ASEAN about the factors identified as Korea’s strengths and determinant factors for extra-regional investment into ASEAN, such as contract implementation, bond recovery rate and business start-ups, as well as expanding educational support for ASEAN government officials regarding these matters. Lastly, we suggest reinforcing the national and industrial support systems for Korean enterprises to promote investment in ASEAN.
 

  The KU-KIEP-SBS EU Centre, an education & research consortium sponsored by the European Commission, was established on May 2014 by three parteners: Korea Institute for International Economic Policy (KIEP), Korea University, and Seoul Broadcasting System (SBS), The KU-KIEP-SBS EU Centre is dedicated to make contribution to enhancing interest in Europe and to expanding research base in EU area studies. Therefore, the KU-KIEP-SBS EU Centre hosted “The 3rd KU-KIEP-SBS EU Centre Research Paper Competition on EU Studies” and this book includes two best papers from the competitions. The KU-KIEP-SBS EU Centre will contribute to analyzing issues on European integration, the economic and political dynamics in EU and promoting cooperation between Korea and EU through this research competition. 

About KIEP

Highlight 2016

Bright 2016

Research-Oriented Activities

Appendix 

Since its establishment in 1989, the Korea Institute for International Economic Policy (KIEP) has served an important role in the nation’s trade negotiations by responding to the national demand for research to advance trade policies and by providing analyses and rational strategies pertaining to the trade issues of the day.

In 2016, the Korean economy was exposed to an unprecedented level of uncertainty. The decision for Brexit was approved in Europe, while the U.S. elected Mr. Donald Trump, a candidate who had campaigned for “America First” policies and the strengthening of protectionism, as their next president. These developments and others came as a warning of grave challenges for the nation’s trade and foreign relations.

Over the past year, KIEP has focused its capabilities on a number of futureoriented research projects, examining issues such as the slowdown in world trade prompted by the spread of protectionism and isolationism, the need to monitor the European economy in the midst of growing uncertainty caused by developments such as Brexit, structural change in the Chinese economy, and slower growth in emerging economies.

We continue to expand our international networking capabilities through the KIEP Beijing Office and the Korea Economic Institute of America (KEI) in Washington, as we grow our presence as a global think tank through joint research projects with distinguished scholars and experts around the world.

This annual report is a compilation of the achievements realized by our institute through specialized and in-depth research conducted over the year. The report outlines the outstanding research projects of 2016, research achievements toward key national objectives, and major research-related projects carried out by KIEP throughout the year, covering our major achievements and activities in each area.

We will continue our determined efforts to develop even further as a national research institute that represents Korea. And, as always, we extend our heartfelt gratitude for the gracious support and keen interest shown toward KIEP’s growth and development. 

Executive Summary

1. Introduction

2. Overview of the Last Decade’s Trade

3. Cyclical Aspects of the Trade Drop in 2015

4. Structural Aspects of Trade Slowdown

4.1. Trade-income Elasticity
4.2. Bilateral Trade Barriers

5. Heterogenous Aspects of the Slowdown

5.1. Destination Countries and Firm Sizes
5.2. Intrafirm Trade

6. Conclusion and Policy Implications

References

Appendix

A. Historic Trend of Korean Exports
B. List of Advanced and Emerging Countries
C. Data Sources of Goods Part GDP 

The last decade of the world trade has been marked by an unprecedented collapse, quick recovery, slowdown, another drop, and recovery. To study cyclical and structural aspects of the recent trend of trade, I use both aggregate and disaggregated trade statistics of a small open economy, South Korea, whose economic success and growth have been heavily dependent on exports. The aggregate trend of the country is surprisingly similar to that of the world, which is why the trend of Korea's export is called a proxy for the world. I show that while the last drop of trade after 2015 has cyclical aspects, there is evidence that the continued slowdown from 2012 is structural: (1) the so-called `China factor' is found in the analysis of trade-income elasticity of the world and China for imports from Korea. (2) The bilateral trade barriers between Korea and its important trading partners are universally tightening. I also show that the firm sizes, destination countries, and the mode of transactions affect disaggregated trade flows during the slowdown periods. It is advisable to diversify main export products to lower the effect of oil prices on export prices and to strengthen the cooperation with ASEAN countries, whose trade barriers have exceptionally diminished throughout the last decade.

Keywords: the Great Trade Collapse, trade slowdown, trade elasticity, trade barriers, Korea
JEL Classification Numbers: F14, O24
 

Acknowledgements

Notes on the Contributors

1. Trade in Value Added and Sino-South Korean Collaboration on Global Value Chains
Monan Zhang

Introduction: GVCs and the Development of TiVA

Policy Impacts and Challenges Posed by TiVA under the Framework of
Conventional Trade
 
TiVA Statistics Methods and Main Databases in the World
Analysis of Chinese Value-added in GVCs

Trade Competitiveness of China and South Korea in GVCs Analysis
Conclusions and Policy Implications

References

Appendix

Supplementary Tables

2. How do the Renminbi and other East Asian Currencies Co-move?

New Evidence from Non-linear Analysis
Benjamin Keddad

Introduction

Data and Empirical Methodology
Empirical Results

Concluding Remarks

References

3. Study on the G20’s Transition from the Perspective of China’s Strategy

in Global Economic Governance
Sun Wei

Introduction

Literature Review

The G20 and its Transition
 
China’s Expectations on the G20’s Transition and Sino-Korean

Cooperation under the Framework of the G20

Conclusion

References

4. Comparative Research on Economic Transformation and Economic Reform

between China and South Korea
Zhang Luqin

Introduction

Characteristics of Economic Restructuring and Economic Reform

in China and South Korea
 
Comparison between China and South Korea in Economic Transformation

and Economic Reform

What is the Role of Reform in Promoting Economic Transformation and Maintaining

Long-term Economic Development?

Comparative Analysis on SOEs between China and South Korea

Conclusion and Discussion

References

5. Growth, Structural Change and Spatial Inequality in India:

Some Dimensions of Regional Disparity
Krishnarajapet V. Ramaswamy

Introduction

Growth, Structural Change and Spatial Inequality

Concluding Remarks

References

6. Expanding Private Business Space for the Marginalized Social Groups in India:

Challenges for Inclusive Growth
Partha Pratim Sahu

Introduction

Issues and Reviews

Policies, Programs and Interventions

Enterprise Ownership: The Aggregate Scenario

Ownership Pattern by Type of Enterprise, 2010?11

Performance Differences

Conclusion

References

Appendix

7. Development of Key Performance Indicators and Impact Assessment for

R&D Sector in Palestine
Rabeh Morrar

Introduction

Literature Review

The Main R&D Indicators in Palestine
 
Methodology and Data

Results

References

8. World Park Special Status on Some Representative Protected Areas of Mongolia
Oyungerel Baast

Introduction

Protected Areas of Mongolia

Situations In Protected Areas

Organization of Management and Economic Impact of Protected Areas
 
References  

In 2009, Korea Institute for International Economic Policy (KIEP) launched "Visiting Fellows Program (VFP)" with the view of advancing cross-border exchanges of knowledge, information, insights and expertise.

 Since its inception, the VFP has demonstrated that sharing thoughts and ideas through face-to-face contacts and dialogue works as a catalyst for enhancing mutual understanding among scholars and professionals with diverse background.

 By successfully implementing the VFP for the past 8 years, KIEP has been motivated to assume the role as a hub for international economic research in the region. As a host of the program, KIEP has many mandates. One of those tasks is to let more people know what has been accomplished through the program and how valuable it is.

 In an effort to do so, KIEP has published series of research every year. This volume, the 8th of its series, contains eight research papers contributed by 2016 Visiting Fellows.

 Publication owes many debts. Here I acknowledge just a few of them. First of all, I must express my deepest gratitude to the 2016 visiting fellows for their outstanding performances. My special thanks also goes to the Outreach Team and the staffs of the KIEP Publishing Team who worked very hard for the publication of this volume.

 The views expressed in this publication are the views of the author and do not necessarily reflect the views or policies of KIEP. KIEP does not guarantee the accuracy of the data included in the publication. 

Executive Summary

Contributors

1. Introduction

2. Literature Review

3. Terminology and Methodology

3.1 Definition of PTAs
3.2 Measure of Deep Trade Agreements

4. WTO+ and WTO-X Areas in PTAs of China, Japan, and Korea

4.1 WTO+ and WTO-X Areas in PTAs Worldwide
4.2 WTO+ Areas for PTAs of China, Japan, and Korea
4.3 WTO-X Areas for PTAs of China, Japan, and Korea
4.4 The Balance between WTO+ and WTO-X Areas in PTAs
4.5 Legal Inflation for Five Groups of Areas

5. Closing Remarks

References

Appendix: Description of Provisions
 

  In this paper, we analyze the contents of all preferential trade agreements (PTAs) of China, Japan, and Korea whose date of entry into force is prior to February 2015, on the basis of sectoral coverage and legal enforceability. Based on the methodology of Horn et al. (2010), the 52 policy areas covered by the three countries’ agreements are classified into two groups, WTO+ (provisions reconfirming the existing commitments in the WTO agreements and providing for additional obligations) and WTO-X (provisions in areas outside the mandate of WTO). We find that the three countries’ coverage of WTO+ provisions is extensive, while less so for WTO-X. Among the three countries, Korea has the most extensive coverage of WTO+ provisions, followed by Japan, then China. The legal inflation rate is also low for these provisions. On the other hand, WTO-X provisions show higher legal inflation, implying that these provisions tend to be less legally enforced. Among the three countries, Korea displays the highest coverage of WTO-X areas, followed by Japan, and then China. Overall, the three countries’ legal inflation rate is below the world and the EU PTAs average, but higher than the average of US PTAs. Interestingly, Korea and Japan show a broader sectoral coverage and contain higher number of legally enforceable provisions in recent PTAs. While China’s PTAs have shown low coverage of deep provisions in the past, more recent PTAs are converging to the depth of Korea’s and Japan’s PTAs as China began negotiating PTAs with developed countries.

JEL code: F15, F5
Keywords: Preferential Trade Agreements, China, Japan, Korea