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
 

Executive Summary

I. Introduction

II. Data

1. Investment
2. (Global) Megatrends
3. Uncertainty

III. Empirical Model: Augmented Demand Accelerator Model

IV. Results and Policy Implication

1. Closed Economy
2. Open Economy

V. Conclusion

Appendix

References
 

Even at near-zero interest rates for a prolonged period since the financial crisis, why has business investment in advanced economies remained persistently below its pre-crisis level? This paper investigates empirically the roots of this investment puzzle from the global megatrend perspective. The empirical model of this study augmented the uncertainty-finance accelerator investment model with megatrend variables of a transition to service industry, ageing population and a rise in income inequality. The main estimation results show that they have affected negatively the business investment over the period 1980-2014. The shift-to-service driven investment fall is the price-dominant effect during the transition, which is not necessarily pessimistic news, while the suppressing effects from ageing and a rise in income inequality require adequate policy reactions. In addition, the analysis finds significant negative spillover effects of trade partners' ageing and income inequality on a country's own private investment. Based on the empirical results, I expect that the G20’s efforts in inclusiveness with structural reforms will stimulate global business investment.

Keywords: investment, megatrends, aggregate demand, uncertainty, G20, inclusiveness
JEL classification: E20, F41, F42 

Executive Summary

1. Introduction

2. Theoretical Framework and Literature Review

3. The Revision of the Companies Act in India in 2013

4. Data and Identification Strategy
4-1. Data
4-2. Empirical Specifications and Methodology

5. Results

6. Discussion and Conclusion

References 

India is the first country to introduce mandatory CSR spending for eligible firms, based on the revision of the Companies Act in 2013. In this paper, I explore the effects of the revision of the Companies Act in India on the likelihood of a firm's CSR participation and its profit. It is the first work to investigate the effects of the provision of mandatory CSR. The results show that the revision increased the eligible firms' CSR incurrence by 2.3 percentage points, compared to ineligible firms. The findings also indicate that the revision is effective to increase the eligible firms' profits by 3.5 percent, compared to the ineligible firms. Therefore, I suggest that profit-maximizing CSR and private provision of public goods through mandatory CSR are valid in India. 

  Keywords: Corporate Social Responsibility (CSR), The Companies Act of 2013, Mandatory CSR

  JEL classification: D04, D22, H42, O10, O53