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 

This report investigates the reduction of regulatory restrictiveness in services sectors in Korea using recent free trade agreements in effect and studies its impact on FDI inflows. The research outcomes provide three main findings as follows.
First, FDI inflows of Korea closely follow the trend of global FDI flows. FDI inflows to Korea from developed economies have appeared dominant; FDI inflows from the U.S., Japan and European economies account for the major share. The increase of FDI inflows from China is significant. Moreover, the FDI inflow shares of capital-intensive industries such as electronic, chemical, and machinery in manufacturing and financial, distribution, and business in services are also large. The fact that FDI inflows in services have become two times larger than those in manufacturing since early 2000’s is noteworthy. In the meantime, while FDI flows in forms of M&A in most developed economies, M&As as a form of FDI are still less prevalent in Korea.
Second, Korea’s services trade restrictiveness indices provided by the OECD are updated and recalculated reflecting the FTAs recently put in force. Further liberalization through recent FTAs in force is identified in legal, accounting and telecommunications services.
Third, this report analyzes the impact of services liberalization on FDI inflows in Korea. As suggested in theoretical predictions, further services liberalization through FTAs plays a positive role in FDI inflows in Korea. Such outcomes are derived not only in services sectors but in manufacturing sectors as well. 

Introduction

I. How Realistic are the Initial Re-unification Assumptions in this Exercise?

II. Real World Starting Conditions in Post-unification Northern Korea: Potential Complications

III. Estimating and Explaining DPRK Economic Performance to Date: Rationale and Design for a Simple Model Utilizing International Panel Data

1. Theoretical Background
2. Model Specification: Variables, Indicators and Data Sources
3. Initial Model Results
4. Methodological Issues
5. Modeling Contemporary North Korean Trade and Investment Performance through Our Simple Approach
6. Sensitivity Analysis for North Korean Results from Our Simple Model

IV. Illustrative Indications of Northern Korean Economic Performance in Year U Plus 10

V. Illustrative Trade and Investment Profile for Northern Korea in Year U+10, and the Implications for US Commercial Interests in the Territory

VI. What US Role in Strategic and Economic Cooperation for Such a Northern Korea in Year U+10?

VII. Concluding Observations

References

Appendix 

  Our assignment in this paper is to consider the question of “management under temporary separation and international cooperation after Korean unification”: more specifically, to examine “U.S. strategy for economic cooperation with unified Korea, particularly with a focus on investment in North Korea” (and, to the extent feasible, the) “prospects of changes in East Asian value chain after Korean unification: from the U.S.’s perspective”.
  The basic assumptions about the nature of the hypothetical future re-unification for this exercise are laid out as follows:
  Of the many scenarios of Korea’s unification, this research project will focus on the “compromising scenario” which is a scenario that has achieved political unification through governmental negotiations but have not yet begun full-fledged economic integration. Economic integration in this case will be a gradual process.
  This scenario involves one political and economic system (market capitalism), but will have two separate economic units (North and South) which eventually is expected to reach full integration. Initially there will be integration of the commodities market and capital market (1ststage) then there will be labor market integration (2nd stage), then adaptation of a common currency (3rd stage), which will gradually reach full integration into a single market.
  This project will focus on the 1st stage of this process, where we assume an integration of the commodities and capital market, but not yet labor market integration or a unified currency.
  In this paper we will propose an alternative method for attempting to quantify economic performance for the DPRK?and by extension, for a future northern Korea in a re-unified peninsula. This is based upon an approach of modeling economic performance on the basis of international datafiles which do include estimates of North Korean socioeconomic conditions. This approach seems to produce generally robust results, and affords a novel method for estimating possible macroeconomic performance and international trade and financial performance for a northern Korea in a re-unified peninsula. Developing this model and presenting its results is the main contribution of this paper.
  Many different future re-unification scenarios for North Korea can be envisioned, and indeed have been in some detail by researchers and policymakers: these include the possibility of a regime collapse, an internal upheaval and “implosion”, or an end to regime resulting from an attack against the South (“explosion”). Reviewing the framing stipulations for the nature of the re-unification for this exercise, one is tempted to observe these conditions look to be the very most convenient from the standpoint of South Korean policymakers. At the same time, however, they all look to be exceedingly unlikely to concord with reality in the event of an actual re-unification of the peninsula. Yet even under our putative “best of all possible worlds” scenario, there would be serious “transition risks” bearing on economic performance in post-unification northern Korea. It is notable that virtually all these uncertainties would make for poorer performance than we might otherwise expect against our baseline.
  In this monograph we model “the economic growth of nations”?postwar economic performance, including international economic performance, for a large sample of countries?solely on the basis of human resource inputs and the quality of policy/institutions. This approach to estimating and predicting macroeconomic and international economic performance is new. Models attempting to explain and predict economic performance at the national level on the basis of human resource qualities and human societal/organizational arrangements alone are as yet not part of the economic literature.
  To date the main approach to estimating the North Korean economy’s quantitative performance has been with physical indicators, drawing on physical indicator-to-value added relationships from a limited number of other countries (or sometimes just a single country, South Korea, from earlier decades). Our approach offers a very different theoretical narrative?one explaining economic output entirely in terms of human resources and social arrangements, rather than inanimate inputs?and a truly global international context.
  The results from our simple approach to modeling are striking: on the whole, they are powerful, robust, and stable. We appear to have uncovered deep and statistically meaningful relationships from these panel data for postwar relationships between human resources and the quality of institution and polices on the one hand and economic performance?in terms of per capita output levels, trade volume, and levels of foreign domestic investment stock?on the other. We use lagged independent variables to estimate dependent variables 10 years later. By this same process we can estimate notional economic performance for northern Korea ten years after a notional Korean re-unification (U+10). For our purpose in this paper we illustrate estimates for U=10 based on the assumption that unification took place in 2015?using alternative assumptions for initial “business climate” in northern Korea.
  Will the United States be willing to commit to the sorts of strategic and economic efforts that would promote the chance for a successful Korean re-unification?especially to the sorts of measures that would be most helpful in the early stages of such a re-unification? At this writing, there may be more uncertainty about the answer to this question than at any time since the world awaited President Truman’s response to the North Korean invasion of the South in June 1950. The immediate reason for this uncertainty is the inauguration of President Donald J. Trump?a very new type of American President, with seemingly very different ideas about America’s role in the world from any of his postwar predecessors, Democrat or Republican.
  This is not to say that the new Trump Administration might not embrace “liberal internationalist” style policy choices concerning Korean re-unification at the moment of truth. The plain fact, however, is that the new Administration’s potential approach to this question is much less clear and much less predictable than for any American President in the living memory of most readers.
  This new uncertainty about America’s commitment to liberal internationalism?to the international architecture, in other words, that the United States itself was instrumental in designing after World War II?did not entirely commence with the Trump Presidency. It is a classic case of “domestic bases of foreign policy”?and as such it has been gathering slowly, and for some time.
  Just how the American approach to a prospective Korean re-unification will play out under the influence of these new and unfamiliar populist tides remains to be seen. Winston Churchill famously remarked that Americans could be relied upon to do the right thing?after they had exhausted all other alternatives. Perhaps?but for now, convincing America to do “the right thing” with respect to Korean re-unification in its early stages looks to be a considerably harder sell than would have been the case just a few years ago.  

Ⅰ. Introduction

1. Summary of Approach
2. Korea’s North African Economic Relations
3. Current Korean Economic Conditions
4. Overview of the Report

Ⅱ. SENTURION Methodology

1. Horizon Scan Approach
2. SENTURION Data Collection Process
3. SENTURION Agent Based Computational Economics Modeling
A. Defining the Political Landscape
B. Overview of SENTURION Algorithm
C. Votes & Forecast
D. Power
E. Risk
F. Stakeholder Game Tree
G. Mapping of Perceptions
H. Network of Proposals
I. Learning and Discounting

Ⅲ. Algeria: Political and Economic Development and Forecasts

1. Recent Algerian Macroeconomic Activities,  Facts and Figures
A. Korea’s Political and Economic Relations with Algeria
B. Summary of Algeria Three Year Baseline Forecast
C. Algeria Data Collection
D. Base Case Projection
E. Robustness Testing of Algeria Political Stability
F. Removal of the Executive Leader Due to Unforeseen Circumstances

Ⅳ. Morocco: Political and Economic Development and Forecasts

1. Recent Moroccan Macroeconomic Activities, Facts and Figures
2. Korea’s Political and Economic Relations, Trade and Investment Activities in Morocco
A. Summary of Three Year Morocco Baseline Forecast
B. Morocco Data Collection
C. Base Case Projection
D. Robustness Testing of Morocco Political Stability

Ⅴ. Tunisia: Political and Economic Development and Forecasts

1. Recent Macroeconomic Activities, Fact and Figures
2. Korea’s Political and Economic Relations, Trade and Investment Activities in Tunisia
A. Summary of SENTURION Three Year Baseline Forecast
B. Tunisia Data Collection
C. Base Case Projection
D. Robustness Testing of Tunisia Political Stability
E. Scenario Analysis
F. Removal of the Executive Leader Due to Unforeseen Circumstances
G. Monte Carlo Simulations

Ⅵ. Policy Implications and Conclusions

References

Executive Summary

국문요약 

  Political unrest, emerging Islamic State terrorism and uncertain macroeconomic growth across Algeria, Morocco and Tunisia could threaten Korea’s trade, business investment activities and higher-level diplomatic policy development in the region. Although Korea’s aggregated goods and services trade is currently estimated to be merely US$3.7 billion in export and about US$1.2 billion in imports, it is North Africa’s potential as a future market, rather than the trade amount today, that makes the region a strategic location for Korea. The importance of these countries also resides in their economic growth potential and maintaining market entry based in light of peer competition from China or Japan.
  This study performs a deep horizon scan of Algeria, Morocco and Tunisia’s domestic political stability over the next three years.  Within each country, we map and track the anticipated evolution of government support from domestic, regional and international stakeholders. We employ an agent based computational economics model called SENTURION to forecast likely political stability outcomes given current conditions, irregular regime change scenarios, macroeconomic shocks and varying political opposition scenarios. As strong linkages between political stability, economic growth and foreign direct investment have been found by both economists and political scientists, we then infer the subsequent potential impact on Korean trade and investment activities in each country and offer policy implications. Table  below summarizes our horizon scan results and substantive policy implications for Korean investment, trade and business relations.
  Algeria continues to strengthen its economy by further developing hydrocarbon resources, increased private sector development, and launching massive infrastructure improvement campaigns with economic diversification. As we expect a relatively stable political climate given our SENTURION horizon scans, this presents a strategic opportunity for Korea. We anticipate an increased demand for construction and manufacturing equipment, almost certainly to be accommodated by international trade partners, presenting Korea with lucrative opportunities. In this context, Korean trade, investment and business activities should continue current activities or even start a slow, yet steady and measured increase in infrastructure and plant export activities due to Algeria’s anticipated continued climate of stability. Even after Bouteflika’s government, Algerian political transition should be stable and this presents Korea a potential opportunity to outperform other peer competitors such as Japan and China in these sectors. Depending on Korean policy makers risk appetite, the investment could be direct, commensurately matched or secured with significant government subsidies or hedged through other bilateral and multilateral investment schemes.
  Morocco’s medium-term economic outlook is favorable and structural risks are decreasing, particularly because of Morocco’s strong ties to the euro zone. Korea’s current export and investment portfolio in automotive and manufacturing sectors should continue to produce desired returns as our horizon scans indicate a robust and stable political climate under most anticipated scenarios.  Korea can partner with other domestic industries and take advantage of Morocco’s long standing EFTA trade status. This can include Korean investment in further automotive and electronics manufacturing activities as well as labor intensive industries, such as textiles or machine assembly, or other intermediate good finishing industries in Morocco which can then subsequently be exported to Europe or other markets where Morocco enjoys a preferred trade status or existing export lines. In this context, Korean trade, investment and business activities should continue or can increase into different sectors given Morocco’s anticipated continued climate of stability. King Mohammed’s eventual departure will result in a smooth political transition and like Algeria, could also present Korea a potential opportunity to outperform peer competitors. The investment should be commensurately matched, secured with significant government subsidies or hedged through other bilateral and multilateral investment schemes depending on Korean policy makers risk appetite.
  Since the overthrow of dictator Zine El Abidine Ben Ali, Tunisia has proven a relatively rare success story in the post-Arab Spring Middle East and North Africa. However, given prevailing underlying structural macroeconomic risks that include a dispersed population and sporadic GDP growth coupled with high unemployment, Tunisia remains at high risk for domestic political instability and conflict based on our assessments. We caution against increasing investment flows outside of apparels and textiles without strong guarantees due to the expected deteriorating political environment and poor macroeconomic performance. In the event of an irregular leadership change, we anticipate a fierce competition for governance with no clear winner as the heir apparent today. Moreover, we find that Tunisia is fragile and not resilient to domestic political or economic shocks. Any sustained or continued investment in Tunisia should be highly hedged through other bilateral and multilateral pooled investment schemes to reduce direct risk to Korean investment.