Executive Summary

Contributors

1. Introduction

2. Trade in Intermediate Goods and Pro-cyclical Productivity
2-1. The Model with Domestic and Imported Intermediate Goods
2-2. Empirical Results

3. Trade in Intermediate Goods, Misallocation and Productivity Loss in Korea
3-1. Model of Misallocation and Multiplier Effects in Input-Output Framework
3-2. Productivity Growth and Efficiency Changes in Industry-Panel Data

4. Conclusion

Appendix

References 

There have been voluminous contributions such as Daudin et al. (2011), Johnson and Noguera (2012), Koopmans et al. (2010), and Trefler and Zhu (2010) in measuring value added trade based on input-output tables as generalizations of the vertical specialization measures following Hummels et al. (2001). These studies focused on trade in intermediate goods as a key feature of recent global trade. In the case of Korea, about 50% of total exports and 70% of its total imports are intermediate goods trade. This paper contributes to the discussion about the trade in intermediate goods and productivity by revisiting Basu (1995), Jones (2011), and Lee and Pyo (2007) to examine implications of trade in intermediate goods for macroeconomic business cycles and productivity and welfare at the current stage of Korean development. The major revision of the Basu (1995) model is attempted by decomposing intermediate goods into domestically produced intermediate inputs and imported intermediate inputs to investigate implications of the model in a small open economy. The major finding is that the procyclicality of the intermediate goods usage relative to labor usage and TFP changes in both value added and gross-output regressions are significantly weaker in a small open economy like Korea than the large economy of the United States. We also investigate the effects of misallocation and multiplier effects due to intermediate goods on industrial productivity and efficiency following the model of Jones (2011). Since the effects of misallocation can be intensified through the industrial input-output structure of the economy, we calculate the intermediate goods multiplier by Korea's 29 manufacturing industries. We find technical changes and the degree of inefficiency are related with the magnitude of multipliers, but we leave a fundamental identification problem to future research.

 

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  The aim of the research is to suggest economic cooperation framework between Korea and the Middle East in the times of lower oil prices. A rapid decline of oil prices since the second half of 2014 has negatively impacted on economy of the GCC(Gulf Cooperation Council) countries which heavily depend on oil and gas sector. GCC countries are facing economic recession with the worsening of the financial situation, lack of liquidity and decrease of investment. The sharp drop in oil revenues due to lower oil prices caused government fiscal distress and made the GCC countries use accumulated foreign exchange reserves and sovereign wealth fund. They also prioritize projects focusing on social infrastructure including education and public services, leading to decrease of number of project contracts awarded in the GCC region.
  In response to the economic slowdown and fiscal burden, GCC countries have strengthened policy measures for economic diversification. They have promoted various supporting policies to nurture their strategic industries - most notably the renewable energy sector - and competitive small and medium-sized enterprises in the region. In order to regain fiscal soundness, GCC countries have been trying to cut their energy subsidies and revise the tax system, expanding government loans and privatization of their state-owned companies than the past. Moreover, they are making more efforts to increase foreign direct investment inflows with improvement of business environment and PPP(Public-Private Partnership) procedures.
  The economic difficulties facing the GCC countries due to lower oil prices is causing a significant concern over dwindling economic cooperation between Korea and the GCC countries. In response to this, a new cooperation framework is needed to strengthen bilateral ties for shared growth. Four fields of cooperation can be identified as follows. First, industrial cooperation should be reinforced to expand economic diversification and job creation in the GCC countries. Second, energy cooperation should be broadened into the fields of renewable energy development and energy efficiency technology other than energy trade. Third, investment cooperation need to be strengthened to facilitate joint investment in the region including joint ventures. Fourth, institutional cooperation between governments is needed to share Korean institutional reforms in the fields of tax, subsidy, privatization, FDI and so on, deepening mutual understanding of economic partners for co-development.
 

 

   Uncertainties in the global economic environment are increasing due to prolonged low oil prices, China’s low economic growth, the possibilities of strengthened protectionist trade policies after the U.S. presidential election, and the emergence of neo-isolationism due to Brexit. In this situation, the Central Asian governments are developing and pursuing individual economic strategies which reflect their own socio-economic characteristics and core policy goals.
  Kazakhstan is shifting its policy direction from maximizing exports of raw materials to qualitative economic development. The country has pursued an open foreign policy and trade liberalization to overcome its geographical limitations as a small landlocked country. The open economy originally focused on exporting energy resources and attracting foreign capital, but with some control by the government in energy resources management. However, as the structural changes in the external economic environment occurred after the global financial crisis in 2008, the government started to focus on improving the structure of the economy, which remained dependent on energy resources. The key tasks for Kazakhstan were to upgrade its competitiveness, improve the investment climate, build infrastructure, diversify its industries through technological innovation, expand the role of private sectors, improve the efficiency of national asset management and develop human resources. Accordingly, the government adopted the State Program of Industrial-Innovative Development for 2015-2019 and announced the Nurly Zhol plan for promoting infrastructure development in 2014, followed by the ”100 Concrete Steps to Implement Five Institutional Reforms“ in 2015. This was a strategic attempt to build a foundation for sustainable economic growth by responding to changes in the external economic sector, through securing new growth engines in the economic sector, promoting industrial diversification and implementing structural reform.
  Uzbekistan has been pursuing an import substitution policy while maintaining a closed economy since independence. Uzbekistan’s government-led closed-economy essentially followed policy goals which prioritized the protection of its domestic market and economic stability from external volatility. Thereby, the country concentrated its efforts in developing domestic industries among the five Central Asian countries. Thanks to this, the country has been able to accomplish considerable achievements in the manufacturing sector, but still has many limitations in cultivating its export competitiveness, asits main export items are weighted towards raw materials (cotton, gold, gas, etc.) and its manufacturing sector is mostly composed of labor-intensive industries. Recently, the Uzbek government is putting the highest emphasis on enhancing competitiveness and efficiency in import substitution while promoting export-oriented industrialization. Through these efforts it aims to pursue stable economic growth based on strategic cultivation of the export industry and to drive a shift from labor-intensive industries to technology-intensive business. The government set key initiatives in reducing excessive governmental involvement in the economic sector, expanding the role of the private sector, deregulating trade activities and exchange rates, etc. In this context, the government formulated a comprehensive global financial crisis recovery plan in 2009, and such initiatives as the “Priorities for Economic Policy” and the “Short-term and Long-term Action Plan of the Uzbekistan Cabinet” were presented in 2015. At present, the government is preparing long-term programs for economic development up to 2030, which are expected to include more details on improving the nation’s industrial structure, such as the development of raw materials processing and high value-added industries.
  Turkmenistan’s government-led closed-economy has its key policy objective focused on natural gas exports, based on strong national control over its energy resources and the financial sector. However, such obstacles as excessive dependence on exports of raw materials, strong governmental control over the economy, and inefficiencies in the economic system have hampered sustainable economic growth. In response, the government adopted the “National Program of Socio-Economic Development of Turkmenistan for 2011-2030” in 2010, identifying sustainable economic development as a major goal of its national strategy. Modernization of the energy sector, industry diversification through cultivation of non-energy sectors were selected as priority goals. Currently, the government is aligning its efforts with the “Socio-economic Development Program 2012-2016,” while formulating the next “Socio-economic Development Program 2017-2021.” In particular, in 2016, President Verdi Muhammedov presented the ”2017 Socio-economic Policy Direction,“ and selected three major projects: attracting active investment, fostering companies with international competitiveness, and developing the private sector. According to this agenda, future projects such as the construction of a mineral processing complex, production of petrochemical products, and construction of industrial infrastructure will be carried out.
  As mentioned above, amidst the uncertainty in the global economic environment, Central Asian countries are devoting all their energies to prepare plans for sustainable economic growth. Their aim is to reform their economic structure centered on exports of resources and pursue industrial diversification. In this situation, our government should establish plans to expand economic cooperation with these countries. In this context, this paper presents plans to promote economic cooperation specialized for each country.
  With Kazakhstan, it is necessary to formulate plans for economic cooperation in areas that contribute to Kazakhstan’s economic modernization, industrial diversification and infrastructure development. Regarding industrial diversification, the six major manufacturing industries (nonferrous metals, chemicals, petrochemicals, machinery, building materials, groceries), agricultural modernization, four major innovation sectors (mobile multimedia technology, aerospace and nanotechnology, robotics and genetic engineering, future energy), tourism cluster creation and energy efficiency are promising areas. For infrastructure development, promoting cooperation in the areas of transportation and logistics, and industrial and energy-related infrastructure can be considered. In addition, technology cooperation in high-tech industries such as medicine, biotechnology, information and communication, as well as knowhow sharing in national land development and renewable energy industries are also promising directions to be considered.
  In the case of Uzbekistan, cooperation measures should be prepared in the fields of industrial diversification and localization, and infrastructure development. Regarding industrial diversification and localization, it is most desirable to seek economic cooperation in the ten priority industries (electric power, oil and gas chemistry, chemicals, machinery, textile and leather, electronics, building materials, pharmaceuticals, groceries, and minerals), the seven most promising industries for localization (agricultural products, minerals, chemical and related industrial products, textile materials, building materials, metal products, machinery and equipment), and the agricultural sector. Regarding infrastructure development, we can cooperate in areas of transportation, and industrial and energy sectors. In addition, the healthcare industry, construction of a joint industrial complex, eco-friendly green technology, tourism industry are also desirable areas for bilateral cooperation.
  For Turkmenistan, it is necessary to prepare cooperation plans linked with industrial diversification, localization and infrastructure development, which is quite the same with Uzbekistan’s case. However, the details within each sector are different. In the industrial diversification and localization sector, we should focus on industrial modernization (oil and gas, chemicals, light industry, food processing, building materials, machinery, textile, agricultural products), localization (building materials, chemicals, household appliances, grocery products), and export promotion industries (chemicals, agriculture, pharmaceuticals, light industry, grocery products). Regarding infrastructure development, the development of tourism-related infrastructure connected with transportation infrastructure (north-south and east-west corridors, complex transportation and logistics hub, and tourism cluster), and infrastructure related to the information communication and agricultural sectors (processing facilities for dairy products, fruits, vegetables, fish) are promising areas of economic cooperation. In addition, further cooperation measures should be explored in the tourism sector, which has recently been designated as one of the priority industries in the non-energy sector.
  Overall, approaches for expanding economic cooperation between Central Asian countries and the Republic of Korea can be summarized as follows.
  Firstly, based on the holding of regular high-level talks, our government should continue strengthening relations with key Central Asian figures, especially through summit diplomacy with key nations in the region. In addition, we should upgrade the Korea-Central Asia Cooperation Forum, which has been held at the vice-ministerial level, to a summit-level meeting. Through this, we can pioneer the ”3.0 era of cooperation between Central Asia and Korea” while further strengthening the responsibilities and performances of cooperation.
  Secondly, deciding on the main actor of economic cooperation between Central Asia and Korea is highly essential. An organization to formulate short- to mid- and long-term strategies for major Central Asian countries is needed in order to promote deeper economic cooperation. To this end, a Korea-Central Asia economic cooperation committee should be established, under the Korea-Central Asia Cooperation Forum, to coordinate Korea’s economic cooperation with major nations in the region. In principle, the committee should be composed of 1.5 tracks, in which all public organizations and representatives of private enterprises in every country participate. In this way, efforts to establish systematic supportive measures and cooperation policies targeting domestic SMEs can also be made.
  Thirdly, we should seriously consider establishing a fund for industrial cooperation between Korea and Central Asia to promote industrial cooperation between countries. It is highly important to reduce investment and cooperation risks for private companies which have limited financial resources. Funds can be sought by national banks in each country and be reviewed to see if our Official Development Assistance (ODA) fund can also be made available to support infrastructure development.
  Finally, since the future development of the Central Asian countries will depend on human resources, a systematic supporting system that includes professional technical training, industrial specialists training, academic and technical exchanges, should be provided by establishing a ”Korea-Central Asia Future Generation Promotion Committee“ under the Korea-Central Asia Cooperation Forum. For example, we should prospectively consider establishing vocational training schools and operating technical education programs in Central Asia, as well as supporting international students from Central Asia through various special programs. 

 

  Due to North Korea’s nuclear test and the UNSC’s sanctions on North Korea, economic cooperation including North Korea-China trade is one of the most internationally recognized issues, and many analyzes and studies are underway. However, there is little research on the comprehensive trading practices of North Korea and China, centering on the border areas of Liaoning Province and Jilin Province, which serve as outposts in China's trade with North Korea. In this study, we analyzed the changes in trading practices in the UNSC sanctions against North Korea (2006 ~ 2016 (No. 2270)) and bilateral trade between North Korea and China due to bilateral sanctions.
  The disconnection of trade between North Korea and Japan stemming from Japan’s ban on trade with North Korea in 2006 and the suspension of inter-Korean trade due to the implementation of the 5.24 measures in 2010 seemed to have a considerable influence on North Korea’s foreign trade. However, in the late 2000s, the rapid increase in demand for mineral resources due to the economic development of China, the increase of Chinese enterprises’ trade and investment in North Korea replaced the place, and the dependence of North Korea on China trade became even more increased. The UNSC’s sanctions against North Korea and the independent bilateral sanctions imposed by the South Korea, the United States, and Japan have contributed to the deepening of North Korea’s dependence on China and the increase of trade in North Korea and China. In addition, considering the trade structure and characteristics of the North-China whole-trade and the border region, the effect of the existing North Korean sanctions on the North Korean and Chinese trade is very weak and the North- You can see that the map has changed.
  Since the 2000s, the trade between North Korea and China has started from complementary relations. ① there has been a rapid increase in trade volume between North Korea and China, ② the dependence of North Korea on China’s trade has increased, ③ China’s imports to North Korea increased, ④ structural change in trade items, ⑤ China’s trade with North Korea has changed from the three provinces of the northeast to the southern coastal areas such as Shandong, Jiangsu, Sichuan, and Hebei provinces.
  In Liaoning Province, trade between North Korea and China plays a major role as a major trade channel between China and Pyongyang. However, since the normalization of trade in North Korea is becoming more difficult in the international community, especially in the period from 2013 when the issue of settlement of accounts has begun to arise, a special settlement system (trust payment). The importance of the Dandong region in trade between North Korea and China is evident in both formal and informal trade.
  Jilin Province’s trade with North Korea has made great progress in both quality and quantity in the 2000s. Since the implementation of sanctions in North Korea, Jilin Province’s main items of North Korea and China trade are not included in the scope of sanctions, and most of them are in the form of changed trade.
  The main types of trade between China and North Korea based on statistical data of China Customs can be divided into general trade, change trade, processing trade, and bonded trade. General trade accounts for the largest portion of the total trade between North Korea and China. In the case of the border area between North Korea and China, the share of general trade in North Korea’s public imports is not much different, but it is clear that the proportion of the total exports is considerably small. Since the change trade can only be done in a geographically bordered area, it can only be done in Liaoning Province and Jilin Province in North Korea and China Trade. These border areas serve as trade bases for North Korea and China, accounting for more than 70% of the total bilateral trade. Since the United Nations sanctions on North Korea in early 2016, Chinese companies have become increasingly active in ordering or outsourcing orders to North Korea. Especially in the garment processing sector, clothing processing plants in Pyongyang are continuously operating. This suggests that North Korea is actively engaged in the trade of clothing after using the comparative advantages of the clothing sector, which is not subject to sanctions, as the international dispatch of North Korean workers becomes more difficult and the passage of foreign currencies narrows. As for the bonded trade in the border region, the size of the bonded trade has greatly increased in the mass exports, and the proportion of the trade has been steadily maintained at 30 to 40%. As in the case of processing trade, the share of bonded trade exports in the border region is higher than that of bonded exports in total exports, which means that most bonded trade takes place in the border region. In particular, it can be inferred that exports to third countries such as Korea and Japan are actively being carried out through China after 5.24 measures, given that North Korea’s rapid exports of bonded trade exports to China have increased since 2010.
  There is a clear difference between the North and the China trade as the border region and the non-border region and comparing the main trade items. The amount exported by North Korea to the border and non-border regions of China is comparable, and most of the exports to non-border regions are occupied by minerals. The most prominent items in the border region are clothing and minerals. Apparel items account for more than the exports of mineral items, and more than 99% of the detailed items of apparel items are finished products. In the case of North Korean mass imports, imports from the border region are much higher than imports from non-border regions. In general, imports are more distributed than exports, indicating that various consumer goods and intermediate goods consumed by North Korea are covered by imports from the border region.
  As formal trade has expanded in the border region between North Korea and China, smuggling trade is also naturally increasing. It is estimated that the smuggling trade between North Korea and China is relatively systematic and large scale in the region of Liaoning Province, Yalu River Estuary, Pollution, and Jilin Province Changbai. In addition, it seems that a large number of small-scale private transactions are taking place along the border areas of the Yalu and Tumen River basins. Despite the regional differences, the major backgrounds of the smuggling trade are ① the fall of the local economy, ② long-term practice, ③ socio- cultural ties, and ④ embargo on trading items. In this situation, local residents are directly or indirectly involved, and even if there is a crackdown, there is a high possibility of resuming, even if the crackdown is temporarily suspended. This is also the reason that the smuggling trade is not eradicated.
  Currently, North Korea and China are cooperating with each other in expanding trade in non-commodity trading services, which are not included in the new sanctions, and this trend is expected to be expanded and strengthened regardless of sanctions. It is very likely that the Chinese government will activate the border areas of Dandong, North Korea’s main trade hub with North Korea, and Yen Banju, which is easy to reach into Russia, and North Korea and China are showing such a movement even now.
  China, on the other hand, is participating in international sanctions against North Korea while strengthening economic cooperation with North Korea in the border region. The policies related to the Northeast region of China are aimed at improving the trade infrastructures of the neighboring countries and strengthening the interconnection between the border regions and the neighboring countries of China and revitalizing the economy.
  In this study, we examine the trading practices centered on Liaoning Province and Jilin Province, which are bordered by North Korea and China, and analyze the trade practices of North Korea and China in the border region. The changes were analyzed. This study aims to promote the understanding of the current status and system of North and South Korea trade while also examining the changes in economic cooperation in the border region between North Korea and China caused by sanctions against North Korea.
 

 

  India has received the spotlight from the world as ‘Next China’, because of 2nd largest population in the world and many various policies from the government to support India’s development. India has had an average of 8.35% economic growth rate since 2005.
  As new government established by prime minister of India ‘Narendra Modi’ in 2014, there has been many changes in India. Modi has tried to make India as world manufacturing base, urbanize and modernize Indian cities. Modi government has also made programmes to educate Indians for start-ups and small-medium companies and support them with government organizations. For foreign policy in India is mitigating regulations and laws on FDI(Foreign Direct Investment) and reinforcing economic cooperations with many other countries.
  Korea has established diplomatic relations with India since 1973. In effect, relationship between Korea and India started from Korean War. India had detached their medical force, they also were presidency for ‘Neutral repatriation committee’ after Korean War. After establishing diplomatic relations, the two countries have shown their efforts to reinforce their relationship by culture, politics and economy. Especially on economy, two countries have signed for CEPA (Comprehensive Economic Partnership Agreement) to enhance total amount of trade between two countries has grown rapidly. Total amount of trade was about 2.3 billion dollars on 2000 but in 2015 it has increased to 16.3 billion dollars by 600%, which means many Korean companies are trying to enter to India market. Nonetheless only major companies and very few small-medium companies have settled down at India market. According to statistics of export, trading rate of small-medium companies in india has possession of 17.8% of total export rate in india in 2015. Statistics of newly founded Korean small-medium companies in India from 2012 to 2015, most companies were based on manufacturing which was about 47.7% and rest of other fields were very small amount. For start-ups and small-medium companies, India was very unfamiliar country to enter. However many companies are still trying to enter to India market.
  This paper introduces a survey which was revised from 500 people from Kolkata and Chennai, cases about Korean companies in India and some interviews from local company and Korean start-ups in India. The reasons to choose Kolkata and Chennai were; Kolkata is most fast growing city in India and also market is being modernized very fast. Chennai already has Korean companies so that start-ups and small-medium companies would be easier to access. As a result of the survey, India people tend to prefer price, brand and performance of the product rather than country of origin. And they tend to use small shops the most.
  7 cases are about major companies and start-ups/small-medium companies from Korea. Some companies successfully entered India market by ‘localization’, ‘gaining trust from their clients’and ‘understanding of India market’. But some companies were still struggling because of lack of brand awareness or portfolio strategy.
  Chapter 5 introduces about business strategy for start-ups and small-medium companies which wants to enter to India market. First, approach India market as long-term perspective. India is very conservative market so it is important to build up trust from Indian customers and companies. Second, it is important to network with local distribution companies. Because India has large territory but transportation system is not modernized, it is needed to use of local distribution channel to spread companies products. Third, localization is very important. India has various culture and their own special consumer behavior. By localizing marketing and products they will be easier to approach to Indian customers.
  Not only efforts from companies, but also efforts from Korean government are needed. Korean government should establish research organizations for getting the newest and crucial information about india. By doing so, start-ups and small-medium companies solve the financial issues for searching information about India. Also, Korean government should organize 2 types of ‘task force’ for entering India. One should be established in Korea to support start-ups and small-medium companies from the beginning of export and the other should be set-up in India to network Korean companies and local companies.
 

 

  The Chinese government has been actively supporting startups in response to the slowdown in economic growth and the sluggish job market. In its 13th Five-Year Plan (2016-2020), the concepts of Dazhong Chuangye ,which signifies mass entrepreneurship and innovation, and Chuangke , which translates into “technical makers,” have emerged as main keywords. In addition, the establishment of business incubator spaces called Zhongchuang kongjian,meaning “maker-spaces for the people,” is expanding nationwide.
  Following the trend, leading cities for startups such as Beijing, Shenzhen and Shanghai, as well as other local governments, are making every effort to create a startup eco-system. Among these, Chengdu in Sichuan Province and Wuhan in Hubei Province are gaining attention. In this report, we analyze the changing trends, investment and policy directions for startups in China. We also further analyze the entrepreneurial eco-system of Chengdu and Wuhan to draw implications for future cooperation.
  The number of China’s startups in 2015 was 4,439,000, rising to the highest ever. The hottest sector for startups was in the area of services, more particularly internet, culture and education services. Startups must overcome very fierce competition for survival, as the percentage of expert-led startups is small and startups are concentrated in similar target sectors. Investment for startups also recorded a historic amount. Along with the collapse of the stock market, unicorn companies have suffered a drop in profitability and investment for startups looks to have shrunk in the first half of 2015. However with vigorous fund exit taking place through the “new third board” OTC (over the counter) market, China remains the second-largest in number of unicorn companies in the world after the United States.
  The Chinese government is removing restrictions on company establishment in terms of the process and cost required, also launching a government guidance fund to encourage investment for startups as well as to help startups diversify their funding channels. In addition, it is promoting new start-up spaces (Zhongchuang kongjian), based on the judgment that incubating is an effective means to develop innovative ability and employment.
  Meanwhile, the supporting system for startups in Chengdu and Wuhan is building up rapidly, but the software to run this system remains weak and there is a lack of diversity and domain expertise in supporting services. Moreover, the number of experts like management specialists and investors who can mentor the startup teams are fewer than in Eastern cities in China. Therefore, Chengdu and Wuhan show a high demand for skillful and experienced manpower. Finding themselves unable to internally resolve these shortages, they are actively recruiting talent from outside. Thus, Chengdu has established cooperation channels with South Korea, Singapore, the EU (Germany, France), and Wuhan with Taiwan, the USA, UK and others, under various preferential policies.
  As a result, the following policy implications can be drawn. Above all, it is necessary to establish and vitalize cooperation channels for startups. Both cities have a high potential to develop startup eco-systems, and are willing to cooperate with Korea. Therefore, Korea has to promote the cooperation of the working-level committees and personnel exchange led by the Ministry of Science, ICT and Future Planning or the Small and Medium Business Administration, which are the main organizations in charge of startup policies in Korea. It is also necessary to hold regular events to improve the mutual entrepreneurial environment and market understanding, and help companies form a network. Especially, these events should be regularized on an annual basis, in the manner of regular exchange events held between Wuhan and Silicon Valley. The online platform Kechuangtong should be used to share corporate information between Chengdu and Korea as a mutual information channel.
  Second, a specialist group needs to be adopted to enhance cooperation with Chengdu and Wuhan as well as to increase the success rate of startups, as we see in the case of cooperation between Chengdu and France, which designated management specialists as mentors to mutually support startups on each side. The mutual incubator service has to be a key part of cooperation, but it is preferable to exchange opinions on the operating system through the dispatch of managers. Furthermore, it will be necessary to actively communicate the opinions of the Korean side in order to carry out effective exchange and cooperation measures and ensure proper operations at Sino-Korea Innovation and Startup Park in Chengdu.
  Third, Korea must establish a joint investment platform with Chengdu and Wuhan to support Korean startups which aim at the Chinese market as well as to attract Chinese capital to Korea. In addition, we must be able to grasp the investment trends of both countries and obtain information on local prospective companies. Furthermore, increasing the fund size of Korean venture capital willing to enter the Chinese market would contribute to the development of related technologies and industries.
  Fourth, deregulation is necessary to revive domestic business and improve the competitiveness of startups. Unlike China, Korea applies a positive list system, and there are many regulatory measures such as enforcement ordinances, enforcement regulations, and guides. This has been identified as an obstacle for active entrepreneurship and innovation through business convergence. Therefore, the government, industry, and political circles should conduct active discussions to seek ways to resolve these issues.
  Next, the four main implications for businesses are as follow. First, it is necessary to develop items with high local preference through preliminary research on Chengdu and Wuhan markets. For example, Chengdu is famous for conspicuous and show-off consumption, and tends to be fashion-conscious in spite of its inland location. The region also shows an interest in culture and gourmet. Wuhan has high demands for transportation, culture, and bio/healthcare services.
  Second, the cooperation of support services for startups should be sought. As most incubators located in Chengdu and Wuhan are lacking in operational know-how, Korean incubators could consider entering the market to provide consulting services and supporting the entry of Korean enterprises into the cities.
  Third, Korean startups should make use of support organizations with networks in China. There are several ways to enter the Chinese market, such as pitching on Demo Day or setting up a local company in China, but these approaches are difficult to implement without Chinese experts. Thus, receiving assistance from domestic incubators which have specialized networks in China, for instance Born2Global and Hanwha DreamPlus, is recommended.
  Finally, it is time to preemptively invest in Chinese startups. In particular, the internet business sector is an area in which investment should be considered, as it poses difficulties for foreign companies to advance into due to Chinese domestic regulations.
 

 

 

 

  What is the cause of the rapid recovery of the US after the financial crisis compared to other advanced countries, and how will the US’s medium- and long-term growth be followed? It is one of the most important questions about the recent US economy. The purpose of this study is to present the analysis of these problems and to examine the implications of US economic recovery and mid - to long - term growth on Korea. First, after the financial crisis, the US economy is recovering faster than other developed countries such as Japan and Europe. On the back of this recovery, the US is trying to normalize its monetary policy by moving away from zero interest rate. However, other developed countries such as Japan and Europe are still trying to stimulate the economy through easing monetary policies such as quantitative easing.
  As shown in various data, during the 2008-2009 financial crisis period, the real GDP of each country has recovered slowly after a sharp decline, but it is recovering differently in each country. In the case of the United States, it shows a rapid recovery compared to Japan and Europe. One thing to keep in mind is that the recovery rate from the financial crisis period until 2011 is not much different among US, Japan and Europe, but the recovery of Europe and Japan has stagnated since 2011. As a result, in the US, GDP in the first quarter of 2015 is about 10% higher than in the first quarter of 2007, but in Japan and Europe, GDP in the first quarter of 2015 is only about 1-2% higher than the first quarter of 2007.
  On the other hand, despite the rapid recovery compared to other developed countries, there are still many people who doubt the mid- to long-term growth path of the US economy. In the mid-to-long term, the growth potential of the US is limited to mid-1%, and economists such as Larry Summers and Paul Krugman are questioning the US’s long-term growth by insisting on the US’s structural stagnation. In particular, Gordon presented a very pessimistic analysis of the US mid- to long-term economic growth. His analysis suggests that the United States’ mid- to long-term growth prospects are not bright due to the US structural problem such as aging population and low productivity.
  The impact of the US mid- to long-term growth path on the future growth of the global economy is crucial in light of the US weighting in the global economy. Especially, in the case of Korea, export is still a large part of the economy, and the mid- to long-term growth of the global economy is a big part of Korea’s mid- to long-term growth. Aside from this, the United States is the second largest export destination of Korea after China, and it is highly likely that the US economic growth will directly affect Korea. In addition, the rapid recovery of the United States relative to other advanced countries after the financial crisis is highly suggestive of Korea’s growth and economic deregulation policies. In Korea, it has been experiencing a steady decline in growth rate since the financial crisis, and its potential growth rate has also been falling. In this situation, it is important to find a way to accelerate economic recovery through benchmarking of US growth policy, which is recovering faster than other advanced countries.
  The purpose of this study is that analyzes the possibility of mid-to-long term growth of the United States to provide a foundation for Korea’s mid-to-long term foreign strategy. Furthermore, we try to find the reasons behind the rapid recovery of the US after the financial crisis and to provide its implications on the growth strategy for the Korea economy. In Chapter 2, we analyze the US economic growth rate and examine whether the US economy has experienced in structural changes. As a result of the analysis, structural changes in the US economy, measured by the decline in trend growth, took place in early 2000, before the financial crisis, and the financial crisis accelerated the decline in this trend growth to some extent. In general economic theories, the impact on trend growth is known to be largely influenced by supply side factors such as technology progress and labor supply. Based on these facts, we analyzed the supply side factors such as total factor productivity and labor supply factors in Chapters 3 and 4.
  In Chapter 3, we use the growth accounting method to diagnose whether the US will grow in the medium to long term. Growth accounting is a method for analyzing the effects of supply side factors such as labor supply, total factor productivity, and labor quality on mid- and long-term growth, and is particularly appropriate for analyzing the impact of trend growth decline analyzed in Chapter 2. The results of the analysis are as follows. According to the labor supply factors such as the degree of population aging and the quality of education, and productivity, the US economic potential growth rate is found to range from 1.4% to 2.9% on average by 2060 unless the effects of the aging of the population are reduced or rapid increase in productivity due to the recent 4th industrial revolution. Especially, in case of population aging, the average annual growth rate is reduced by about 0.17%p.
  Chapter 4 tries to explain why the US is recovering faster than other developed countries after the financial crisis, despite the mid- to long-term growth is uncertain through dynamic stochastic general equilibrium model (DSGE model). In particular, we have constructed a model in which the growth and supply side factors have a great impact on the economic cycle. Based on this model, we examined the impact of the decline in trend growth on the economic recovery and searched for the reasons for the rapid recovery of the US. US productivity is recovering faster than other countries after the financial crisis. The results of the DSGE analysis show that the recovery of productivity reduces the decline of trend growth and the this better trend growth is positive for current consumption and investment through expectation of future income increase. This rapid US productivity recovery can be attributed to the large-scale national R&D initiated during and after the financial crisis, and the large-scale increase in aggregate demand through general fiscal spending has also contributed to productivity growth. In addition, continuous policy implementation is important in the case of attempting to increase the aggregate demand through the management of trend growth or fiscal policy through investment of national R&D. If these policies are suspended or canceled in the middle, in the worst case, it seems to have a negative impact on the economic recovery.
  Based on these discussions, Chapter 5 examined the policies of the Obama administration during the financial crisis period and until the recent years. In particular, the specific details of the policies that led to the recovery of productivity presented in Chapter 4 - National R&D policies and large scale fiscal stimulus package - were summarized to help establish the actual policies. Chapter 6 summarized the discussions and the policy implications for Korea are derived.
  The policy implications suggested in this paper can be divided into two major categories. The first is about the establishment of foreign policy based on the mid-to-long term growth of the United States. The second is about the establishment of Korea’s growth policy, which is based on fase recovery speed of US. First, the implications for the mid-to-long term foreign policy are as follows. The US is Korea’s second largest export market and has a large impact on the global economy. The Korean economy is still highly dependent on exports. Considering this point, we need to diversify export market, increase export unit price through development of high value-added products, and develop core goods that are less affected by economic fluctuations, Also, it is necessary to establish a so-called two-track strategy to reduce the export dependency of the Korean economy through the revitalization of the domestic market.
  In addition, Korea’s mid-to-long term growth strategy suggestions are as follows. As a result of supply side analyzing of the growth rate of Korea, the recent decline in growth rate caused by productivity decline, decrease of capital accumulation, and low contribution of labor supply. Therefore, it is necessary to implement investment promotion policy similar to productivity improvement and innovation-related policies which are actively promoted by the Obama administration. In addition, the low contribution of labor supply to GDP, despite the long working hours among the OECD countries, is an urgent task to be solved. Finally, implications for national R&D policy for mid-to-long term growth are as follows. Korea’s R&D spending is quantitatively the top among OECD countries. On the other hand, the volatility of R & D spending is high and uncertainty is higher than the US. Uncertainty as a result of increased volatility in R&D expenditure may result in lower efficiency of R&D spending by hindering researchers’ stable research as shown in Chapter 4. In the United States, efforts are being made to secure the permanence of the R&D by enacting the Protecting Americans from Tax Hikes Act (PATH) Act of 2015. In Korea, it is important to benchmark such a system to ensure the sustainability of R&D investment and raise efficiency.
  This study is meaningful to analyze the US economy in terms of supply side and draw implications for the Korean economy. Although there are some articles analyzing the US recovery after the financial crisis, they are all focused on the analysis of the demand side. Furthermore, there are few studies that provide policy implications for Korea. This study provides a new perspective on the recovery of the US economy and mid-and-long term growth by identifying the reasons for the rapid recovery after the financial crisis and the mid-to-long term growth of the US through supply side decomposition. In addition, this study is different from the previous studies because it provides implication of the growth path of US on the Korea economy.
 

 

  Since the financial crisis began in the late 2000s, the tendency of protective trade has been strengthened in the globe. In India, Prime Minister Narendra Modi evaluated the current FTAs of India as non-beneficial to India. The Modi administration has redirected its FTA strategy from the quantitative expansion that the previous administration pursued to the strategy that emphasizes qualitative growth. It is possible that the Modi administration implements protective trade policies directly and indirectly in order to push the 'Make in India' industrial growth policy that seeks to make India a global manufacturing hub. Therefore, negotiations for improving the Korea-India CEPA are likely to be delayed and face various obstacles.
  This study investigates relevant government bodies, institutions and policies on TBT (Technical Barriers to Trade) and SPS (Sanitary and Phytosanitary Measures) in India. It also analyzes relevant specific trade concerns to TBT and SPS, and explores the effects of TBT and SPS on exports to India.
  In Chapter 2, this report examines government bodies and institutions related to TBT and SPS and also relevant articles and Mutual Recognition Agreements (MRAs) to the FTAs that India has already signed. India's standards and regulation systems are complex and poorly established, compared to those of advanced countries and hence India has continuously expanded its regulations and has established, revised and supplemented its systems. While most of the FTAs by India deals with TBT and SPS, the Japan-India CEPA and Singapore-India CECA are more detailed, compared to the Korea- India CEPA. On the other hand, India is not yet active to enforce MRAs.
  Chapter 3 analyzes pending specific trade concerns (STCs) on India's TBT and SPS, and especially the STCs on Korea by reviewing WTO's TBT and SPS Committees and STCs from the various trade reports. Most TBT related STCs raised by India were raised by the EU and the US and automobile-related items were the most frequently discussed. Most countries that raised TBT and SPS against India were advanced countries including the US. The most controversial issues were the differences between India's standards and international standards.
  In addition to the qualitative analysis, chapter 4 provides an empirical analysis of the effects of India's TBT and SPS measures on the exports to India of trading partners.
  First, in case of the entire trading countries and industries, the results show that overall India's TBT measures had a positive effect on exports to India while SPS measures are not expected to have much influence. In other words, India's TBT measures have a positive effect on export through the provision of market information and increasing product reliability against expectations.
  Secondly, when the industries are divided into agriculture and manufacturing, the estimates show that TBT has significant positive on exports to India in the manufacturing sector while SPS’s effect is limited. Our empirical results are in line with previous studies. However, the results for SPS were still statistically insignificant.
  Lastly, results of the effects of TBT and SPS on individual industries were disparate. TBT forms a trade barrier for processed primary goods, processed minerals, general machines, and electric machines, while rubber/chemicals and nonmetallic minerals that have high portions of intermediary goods and precision machinery and other manufacturing sectors that have high levels of capital goods gained positive impacts. In the case of SPS, exports of processed primary goods and the paper/lumber industry were expedited as a result of India's SPS measures while exports of the rubber/chemicals industry were blocked.
  This study provides suggestions and policy implications. It is suggested that the creation of a new division exclusive to the TBT and SPS measures on the Agri-food sector, policies in response to the political industrial application of the TBT and SPS, and policies in response to the poor administration systems on the TBT and SPS are needed. Lastly, it is recommended that the Korean government seeks to conclude an MRA with India to invigorate economic cooperation, including merchandise trade, between the two countries.