This report analyzes migration and labor market in the European Union (EU henceforth). First, the EU’s and major European countries’ regulations and institutions on migration are analyzed, and some stylized-facts are established. Comparing these stylized-facts with the Korea counterparts, it offers policy implications for Korea. Also, main features of the states of migration in the EU are described, to deepen the understanding of the situation. A major interest regarding immigration, in Korea as well as in the EU, would be its impact on labor market in destination countries. To help better understanding on this, the impact of immigration on the recipient labor market is estimated, using the data from the EU. By doing a comprehensive analysis, this report aims to deepen the understanding on migration and labor market in the EU, derive policy implications for Korea, and offer a reference to assess the impact of an increase of immigration on the Korean labor market.

   Given its geostrategic position and growing importance in the world economy, the Indo-Pacific region has attracted many major powers to actively engage with the region. With the unveiling of the New Southern Policy (NSP) in 2017, Korea has also sought to upgrade its relations with ASEAN and India by boosting economic ties, socio-cultural exchanges and cooperation in the area of peace and security. While an earlier version of the NSP focused on bilateral cooperation with targeted countries, it gradually began to explore opportunities to collaborate with other players in addressing the needs of ASEAN and India. In particular, as the United States seeks cooperation with its key allies in forging the Free and Open Indo-Pacific Strategy (FOIP), there has been growing interest in the search for convergence between the FOIP and the NSP. Initially, the Korean government took an ambiguous stance toward the U.S.’s new policy, but in 2019 the two governments agreed to work together by building synergies between the NSP and the FOIP. Nevertheless, given the strategic nature of the FOIP as a counterbalance to China’s Belt and Road Initiative (BRI) and the attendant concerns in Southeast Asia about being embroiled in U.S.-China rivalry, close collaboration with the FOIP poses some challenges for the NSP, whose primary objective is to win the heart of targeted countries and steer toward stronger cooperation with them. Against this backdrop, this report presents suggestions on how the NSP could cooperate with the FOIP in ways that suit the interests of ASEAN and India. The policy recommendation is based on analyzing how the FOIP is received by NSP-targeted countries and the cooperation needs of this region.
   Before exploring ASEAN/India’s stance on the FOIP, Chapter 2 reviews the details of the FOIP focusing on its three pillars: security, economic and governance. By comparing the FOIP and the NSP, we explore the chance of convergence between the two policies. The results of our analysis suggest that while both policies have different objectives and approaches, particularly in the “security” pillar, there are sufficient opportunities for cooperation between the two in the fields of economic cooperation and non-traditional security.
   To clarify the position of targeted countries, Chapter 3 examines how Southeast Asia and India have responded to the U.S.’s FOIP. To counterbalance China’s growing regional power, most Southeast Asian nations welcome the active presence of the U.S. in the region, but ASEAN’s long-standing tradition to preserve its neutrality leads them to take a discreet approach to the FOIP. While most ASEAN member states are reluctant to clarify their position, they are likely to participate in FOIP-related initiatives that suit their national interests. On the security side, maritime states, particularly Vietnam, are eager to seek U.S. support for enhancing their maritime capacity to better respond to Chinese aggression in the South China Sea and other maritime challenges. However, although these countries will step up security cooperation with the U.S., where their interests lie, no Southeast Asian nations ‒ including two treaty allies and a close security partner, namely Thailand, the Philippines and Singapore ‒ are likely to align themselves with the FOIP that promotes anti-China narratives. On the economic front, in general, most ASEAN member states are expected to welcome economic initiatives under the FOIP. Desiring to diversify their trade/investment partners, even China-leaning countries such as Cambodia, Laos and Myanmar are not in a position to say no to new sources of finance and projects to develop their economies. One major drawback, though, is that ASEAN is unsure about the U.S.’s commitment to play a more active role in the regional economy, given the small scale of FOIP-related programs compared to those associated with China’s BRI project. Good governance principles advocated by the FOIP also create additional barriers for the majority of Southeast Asian countries that are unlikely to meet the high standards required by the U.S. Meanwhile, based on shared strategic interests to counter the rise of China, India has accelerated defense and economic cooperation with the U.S. although it is yet to fully commit itself to the U.S.’s FOIP. Like ASEAN countries, India does not agree with the China containment policy embedded in the FOIP, but given the escalated tension with China after the border row in 2020, it appears to be working more closely with the U.S. to counterbalance China. What is notable is that both ASEAN and India promote an inclusive vision of ndo-Pacific cooperation. By adopting the ASEAN Outlook on the Indo-Pacific (AOIP) at the 34th ASEAN Summit in 2019, ASEAN showed its determination to play a key role in making the Indo-Pacific a region of cooperation and prosperity for all. India’s vision of the Indo-Pacific also envisions a free, open and inclusive region where all players enjoy shared security and prosperity. More importantly, ASEAN attempts to alleviate tensions caused by great power rivalry in the region by calling for development-driven cooperation with particular emphasis on economic cooperation, connectivity, SDGs and non-traditional security issues. ASEAN and India’s stance at the evolving    Indo-Pacific cooperation is closely in line with the vision of Korea’s NSP, which envisages a “people-centered community of peace and prosperity.” This suggests that Korea’s collaboration with the U.S. in the region is better to be focused upon inclusive economic cooperation and people-centered non-traditional security areas.
   Taking this into account, Chapter 4 analyzes the needs of targeted countries in selected areas where synergy is expected in promoting ROK-US cooperation: digital, energy, infrastructure development and several sub-fields of non-traditional security. In addition to policy reviews of major cooperation partners – Indonesia, Malaysia, Myanmar, the Philippines, Thailand, Vietnam and India – in each sector, quantitative analysis was conducted to calculate the cooperation demand by sector in these countries, and to evaluate the competitiveness of Korea and the U.S. in supporting development in each sector of the countries. When it comes to non-traditional security issues, ASEAN’s needs are explored focusing on the areas of environmental protection, disaster relief, health and maritime cooperation.
   Drawing upon the analysis addressed in the previous chapter, Chapter 5 discusses possible directions in which ROK-US cooperation can play out in the Indo-Pacific region. Most importantly, to step up economic cooperation, a working-level commission could be established where relevant authorities of the two countries can discuss overlapping interests and identify feasible joint projects where they see synergy. As for cooperation by sector, one major high-profile area in the digital sector is ICT infrastructure development, particularly in Indonesia, Malaysia, the Philippines, Thailand and India, where demand is high. In addition, given the growing digital economy in the region, the two countries should pursue collaboration to improve digital systems and standards in ASEAN. They may regularly hold workshops for knowledge exchange and provide training programs designed to enhance the digital and cybersecurity capacity of potential partners in ASEAN. In the energy sector, one salient area for ROK-US partnership is the promotion of energy efficiency in the region. Korea and the U.S. can launch a joint energy efficiency initiative and set up a working group to initiate programs for reforming energy regulation and supporting the growth of renewable energy industries in potential partners. Pertaining to infrastructure development, Seoul and Washington have vast opportunities of cooperation in road connectivity, water system and electricity infrastructure. In particular, they can work together to enhance road connectivity in Indonesia, Malaysia, the Philippines and Vietnam and upgrade water facilities in the lower Mekong area. The two countries also need to pursue a joint initiative for improving electricity infrastructure in the region, including institutional support to woo private investment. Given the high demands for electricity facilities in Myanmar and India, a bilateral working group can be formed to address the need of these countries and provide consultation for their governments and private sector. As for the non-traditional security area, it will be better to start by exploring overlapping areas between existing programs conducted by Korea and the U.S. in ASEAN. To this end, Seoul and Washington need to create a regular dialogue channel between working-level authorities of competent agencies on both sides, for instance the Korea International Cooperation Agency (KOICA) and U.S. Agency for International Development (USAID). In the areas where their interests overlap, they can launch ROK-US cooperation funds designed to support specific projects in need. In the area of environmental protection, priority areas will be climate change adaptation in ASEAN member states and biodiversity conservation in the lower Mekong wetlands. Regarding disaster prevention and relief, they should work together to improve flood forecasting/warning systems in vulnerable countries by sharing information gained by satellite observations as well as reinforcing preventive facilities against floods and landslides. Korea and the U.S. also need to jointly support capacity-building for disaster response and management in ASEAN member states, including support for emergency rescue operations. In the health sector, the utmost priority should be given to fight against covid-19 in ASEAN member states, and in the long term the joint assistance should be extended to enhance the capacity of ASEAN countries in preventing and responding to new infectious disease outbreaks. Lastly, Korea and the U.S. should promote their partnership in maritime capacity-building of ASEAN states. Maritime cooperation not only meets the high demand of targeted countries, but also has a great potential to further upgrade ASEAN-Korea peace cooperation. In this sense, Korea needs to be more active in collaborating with the U.S to strengthen ASEAN’s capability in Search and Rescue (SAR), Humanitarian Assistance and Disaster Response (HA/DR) and law enforcement against transnational crimes at sea.
   In conclusion, Chapter 6 provides policy suggestions for Korea’s NSP in collaborating with the FOIP. First, Korea should consider targeted countries’ sensitivity to the FOIP and therefore promote cooperation with the U.S. in areas where shared interests overlap, rather than aligning the NSP with the FOIP. More importantly, the needs of targeted countries should be foregrounded when exploring the convergence between the two policies. Second, recognizing the criticism that the NSP prioritizes ASEAN over India, Korea should bolster cooperation with India. Promoting joint projects with the U.S. will provide a good opportunity to upgrade Korea’s cooperation with India. Our recommendation is to start from the areas where India’s demands are high such as smart city development, renewable energy and connectivity projects linking ASEAN and India. Last but not least, given the limitation of resources allocated to the NSP, Korea needs to narrow its focus and concentrate on where synergy is expected in navigating the convergence with the FOIP. Considering the strategic needs and competitiveness of both countries, our study suggests that digital transformation, smart city development, Mekong cooperation and non-traditional security should be prioritized in promoting the ROK-US cooperation.

   This study investigates changes in the trend regarding the IP protection level in RTA and how the IP protection through RTAs has affected the composition of aggregate trade flows of member countries in order to provide basic findings necessary to formulate the FTA policies regarding the protection of intellectual property (IP) in Korea.
   This study first quantifies the depth of IP protection in RTAs based on more than 300 RTAs all over the world, showing that recent RTAs contain more comprehensive and strong IP protection provisions. We find that only 6 out of 71 RTAs had a high level of IP protection before 2000, while 45 out of 105 RTAs have a high level of IP protection after 2010. Second, we find that establishing such RTAs with high level of IP protection has positive effects on trade. In particular, exports in IP-intensive industries have increased in member countries of RTAs with high level of IP protection compared to other countries. However, the impact that strengthening IP protection through RTA has on imports is complex; it is negative in IP-intensive industries but positive in other industries. In order to rationalize these findings, we develop a two country and multi sector model featuring North firms deciding between exports and FDI, while South firms decide between imitation and R&D. In the model the increased IP protection affects South firm’s R&D incentives and relative wages, followed by changes in North firm’s FDI incentives. These strategic interactions between North and South firms vary depending on IP intensity of the industry, partly explaining the empirical findings.

   The main goal of this study is to identify policy implications for investment cooperation between Korea and Russia in the 4th presidential period of Putin and to seek ways to increase mutual investment. In particular, case studies were conducted of various investment cooperation projects by Russia with other countries during the 4th Industrial Revolution, aiming to suggest a more practical way to increase Korean investment in Russia.
   Chapter 2 focuses on the main characteristics of Russia’s investment environment and overseas investment patterns during Putin’s 3rd (2012‒18) and 4th (2018‒) presidential period. The foreign direct investment to Russia decreased starting from the Ukraine crisis in 2014 (50.5 billion dollars in 2012, 69.2 billion dollars in 2013 to 6.8 billion dollars in 2015). When analyzing the same period by region, European countries are still top-investing countries, although the size of their investments decreased year by year. Other countries except for Europe have similar patterns. Russia’s overseas direct investment also declined after the Ukraine crisis in 2014 and in 2018, when Putin’s 4th presidential period started. Eventually, the total amount of foreign direct investment (FDI) decreased due to economic sanctions against Russia, low international raw material prices, and changes in the ruble value. However, when analyzing the investment trend by country, except for some Europe countries, the investment volume was maintained at a similar level.
   Chapter 3 examines the recent trends and main characteristics of Korea’s foreign direct investment, and Korea’s direct investment to Russia. Over the past five years, Korea’s foreign direct investment has increased the proportion of M&A and SMEs, market entry via third countries, SMEs’ export promotion and low-wage investment, and the proportion of finance and insurance. Direct investment to major emerging countries also showed similar trends. In the case of Russia, it proved difficult to obtain meaningful results due to the absolute reduction in investment size, but the share of investments for entering the market expanded. However, considering that the proportion of SMEs has slightly decreased, and the proportion of SMEs remains low among the major emerging countries, it will be necessary to advance the industrial ecosystem of existing manufacturing industries and create new markets in the fields of innovation and domestic distribution, consumer goods and services, in order to overcome the stagnation of Korean investment to Russia. SMEs must play a stronger role in this process.
   In Chapter 4 we conduct an empirical analysis of the determinants of Korea’s FDI with Russia, determining why Korea’s FDI with Russia has been relatively poor and offering policy suggestions to improve the situation. According to the main results, in addition to economic variables, cultural and institutional variables acted as important determinants in Korea’s FDI to Russia during the analyzing period (2000-20). In addition, from an aggregate perspective, the negative impact of economic sanctions against Russia on Korea’s total FDI to Russia was less than expected. Also, the factors that determine FDI were very different depending on the investment motive, the type of business, and the size of the investment company. Based on these points, the following implications can be made. First, it is necessary to improve cultural and institutional conditions. Second, as the economic sanctions against Russia are likely to be prolonged, it is important to find ways to cooperate under these conditions. At the same time, it is necessary to identify more fundamental ways to expand FDI to Russia.
   Chapter 5 proposes policy implications for investment cooperation between Korea and Russia in the 4th presidential period of Putin, and suggests measures to revitalize investment focusing on high value-added industries. Korean investment in Russia is focused on automobiles, home appliances, and food (consumer goods). However, the biggest sector within Russia for investment by European and other foreign companies is natural resources such as energy and metals.
   To sum up, Korea and Russia have the potential to increase investment cooperation in the future. First, cooperation should be expanded in investment fields (energy, logistics, telecommunications, etc.) that Russian and foreign companies are traditionally interested in. Second, it will be necessary to cooperate in the emerging innovative industries. Third, active cooperation plans must be formulated in the strategic industries where Russia has global competitiveness. Fourth, it is necessary to allow management of the Export-Import Bank of Korea investment support program fund by investment rather than loans. Fifth, joint investment should be considered by Korea and Russia for entry into third-country markets. And sixth, it will be necessary to seek ways to bypass Western economic sanctions against Russia. The solution may be different for each individual investment and economic negotiation issue. Therefore, a permanent advisory body for support will be needed.

   The aim of the research is to study changes in the economic policies of GCC countries in the era of low oil prices, and to suggest policy implications for economic cooperation between Korea and Middle East countries. We conduct a review of economic policies, including case studies, divided into the areas of industrial, employment, trade and investment policies. Then, corporate risk factors and implications are drawn for Korean companies aiming to consolidate their market position in the Middle East.
   Chapter 2 analyzes the oil-dependent economic structure of GCC countries and the long-term economic plans being pursued to diversify this structure. As the economic structure of GCC countries heavily depends on oil and natural gas exports, volatility in international oil prices poses the greatest risk to economic stability in those countries. The drop in international oil prices reduces export performance in the oil and natural gas sectors, which in turn results in a decline in the stability of fiscal revenue. Accordingly, the six GCC countries have established new mid- to long-term economic plans with a focus on diversifying their economies, improving the quality of human capital and expanding local production and procurement. They are diversifying their industrial structure by fostering high-tech manufacturing industries such as aerospace and life sciences, and knowledge service industries such as finance, logistics and tourism, and strengthening policies in areas including technology development related to the fourth industrial revolution, digital transformation and startup support.
   Chapter 3 examines industrial policies focusing on strengthening technological innovation capabilities and digital transformation. Although the level of innovation in GCC countries is still considered to be below expectations, technology innovation policies are continuously being pursued to strengthen innovation capabilities in Saudi Arabia and the UAE. In addition, digital transformation is being actively promoted by digitizing government services and establishing various digital service platforms. Digital transformation is also becoming more important in the oil sector as it can increase operational efficiency and workplace safety and minimize environmental impact. State-run oil companies are employing cutting-edge technologies in the form of robots, drones, AI and big data to conduct real-time analysis and management of their industrial facilities. Smart cities, tourism, logistics, space and life sciences are areas where the introduction of digital technology is accelerating, and government-level fostering policies are being strengthened. Meanwhile, Saudi Arabia and the UAE recognize technology-based startups as key factors that will lead the nation’s innovation and are pushing for policies to vitalize the startup ecosystem by expanding support programs for startups.
   Chapter 4 touches upon recent changes in the employment policies of GCC countries, focusing on expanding employment for national workers and enhancing their job competencies. Through the introduction of the Nitaqat system, Saudi Arabia has strengthened the management and supervision of the quota system for national workers and subdivided its application criteria by industry and business size. Furthermore, in recent years, quota systems have been applied to jobs that require relatively high levels of technology, such as engineers, while foreign fees have also been introduced. The UAE is implementing systems that take into account the relatively small size of its national workers, with the Absher Initiative, in which the government covers the cost of vocational training for national employees, and the Tawteen Gate, in which companies that want to hire foreigners are mandated to review national job seekers first. In addition, GCC countries are taking measures to improve the employment environment of the private sector by introducing a minimum wage system, wage protection system and maternity leave. Regulations to expand the employment opportunities of national workers can lead to certain negative consequences, such as industrial development being hindered, outflow of excellent foreign workers, and reduced inflow of foreign investment. In preparation for such a situation, GCC countries are trying to increase vocational training support for national workers, eliminate restrictions on women labor and foster cooperation with companies and educational institutions in advanced countries.
   Chapter 5 surveys the GCC’s trade and investment policy changes. The GCC’s tariff rate remained low at around 5 percent as it launched a customs union in 2003, but has been rising slightly since 2015. Saudi Arabia, in particular, has raised its own tariff rate by up to 20 percent in June 2020 in order to secure the government’s non-oil revenue. The GCC also drew up a “Common Law on Anti-Dumping, Countervailing and Safeguard Measures” in 2004 and has been imposing safeguard and anti-dumping duties on imported goods such as steel products, car batteries, whose domestic production have increased. In addition, the GCC has tightened regulations on food imports for the purpose of health and safety for its citizens by increasing the number of sanitary and phytosanitary measures (SPS) notifications. The GCC Standardization Organization (GSO), a joint body of GCC countries, is increasing standards and technical regulations, while each GCC member country is introducing its own certification system and tightening labeling policy as well. Regarding investment policies, GCC countries are relaxing various regulations and offering incentives to support foreign investors. In particular, Saudi Arabia, the UAE and Qatar are removing regulations restricting foreign ownership, expanding various support measures, including granting permanent residency to foreigners, tax exemption and allowing the transfer of profits overseas. On the other hand, these GCC countries are also strengthening localization policy so that overseas bidders can further contribute to investment, production and job creation in the region by granting additional points to local employment and local production of the bidders.
   Chapter 6 examines online surveys and in-depth interviews to identify major troubles Korean companies are facing in the GCC countries, and their requests for the government. According to the surveys, lack of market information (26.7%), local regulations (23.3%), cultural gaps (20.0%), and lack of skilled workers (10.0%) are the main difficulties in conducting investment in GCC countries. In the area of government support policies, the respondents requested for better legal services, the latest investment information, and financial assistances. In light of the above findings, this research presents the following policy recommendations. First, a digital cooperation platform should be established for infrastructure build-up, technology development and industrial development based on a shared vision of digital transformation. Second, vocational education and training (VET) systems should be strengthened to enhance productivity of local workers employed by Korean companies. Korea and GCC countries need to cooperate in sharing programs between their VET institutions. Third, corporate support programs of diverse institutions such as Korean embassies and KOTRA should be unified under “one team one goal.” This would help Korean companies share market information, networks, and new local regulations.

   Over the past several decades, we have witnessed an accelerated pace of the tertiarization of the global economy. The tertiarization of the economy – the expansion of the service sector - has long been understood as a major characteristic of advanced economies, but the GDP and employment shares of the service sector in developing countries have been also increasing rapidly in recent years. For instance, the GDP share of the service sector in middle-income developing countries increased by 8.9% points from 45.2% in 1997 to 54.2% in 2017, exceeding the 4.8% points increase in high-income countries during the period.
   The tertiarization of the economy is driven by various socio-economic factors such as increased demand for income-elastic services, the spread of labor-saving technologies in manufacturing, the expansion of global value chains, ICT development, the aging population, and the participation of women in economic activities, etc. The advent of Fourth Industrial Revolution and the recent COVID-19 outbreak are expected to further accelerate such trend by breaking down the boundaries between manufacturing and services.
   Against this backdrop, the main purpose of this study is to examine the major characteristics and status of the ongoing tertiarization, investigate the competitiveness of Korean services in the global value chain, and discuss the direction of mid- to long-term trade policies for the Korean economy. In this study, a particular research focus is drawn on the servicification of manufacturing, which has not been adequately addressed in existing economic literature. The servicification of manufacturing refers to the situation that manufacturers expand the use of services as intermediate goods in the production process and/or provide services in the form of final goods. It encompasses not only outsourcing of service functions, but also increasing the proportion of in-house services generated by manufacturers themselves or simultaneously producing and selling goods and services.
   As the servicification of manufacturing spreads globally, there has been an upsurging policy and academic interest in intermediate types of services that are embodied in goods and thus indirectly traded in the form of goods exports. These services tend to promote high value-added manufacturing, not only by mediating the international division of manufacturing through transportation, telecommunications, finance, and logistics services, but more importantly by providing knowledge- intensive services such as engineering, R&D, marketing, design, and advertising.
   This study empirically investigates the value-added structure of services embodied in the export of final goods. Specifically, we divide intermediate-type services into three types: domestically-outsourced services, foreign services, and in-house provision of services within manufacturers, and then examines the value-added contribution of each type to commodity exports for the period of 2005-2015.
   The major analytic results of this study can be summarized as follows: first of all, compared to major exporters in the global market, Korea’s manufacturing exports tends to rely more on foreign services outsourcing and less on domestic services. This phenomenon is not attributed to certain industrial sectors, but rather to the overall manufacturing sector. The proportion of domestic outsourcing for distribution services and knowledge-based business services is found to be particularly lower than that of other major exporting countries.
   Second, the overall contribution of intermediate services to the total value-adds of manufacturing exports has been around 45~50%. It declined from 50.0% in 2005 to 44.8% in 2011, and then has been on the rise again afterward. Such trend stems mostly from year-to-year variation of in-house services within manufacturing firms, rather than from that of domestic or foreign outsourcing.
   Third, our analytic results indicate that the in-house provision of services within manufacturers is complementary to domestic outsourcing activities of services, but substitutable to foreign outsourcing. This suggests that the increase of the in-house provision of services by manufactures could be an effective way to reduce the extent of foreign outsourcing while helping to improve the outsourcing demand for domestic services.
   Fourth, Miroudot and Cadestin (2017) recently examine the contribution of services to commodity exports for the sample OECD countries. Basing on the Korean Labor and Income Panel data, they claim that the contribution of in-house services to the total value-adds of manufacturing exports is only at around 8% for the Korea case, which is one of the lowest levels among OECD countries in comparison. On this other hand, when re-estimating the service contribution by employing the Labor Survey by Employment Type, we finds that the contribution of in-house services in Korean manufacturing amounts to 18.6%, being well above the OECD average. Miroudot and Cadestin (2017) may have underestimated the actual contribution of serviceization in Korean manufacturers, taken into account that the Labor Survey by Employemnt Type is a more representative and comprehensive data source, compared to Labor and Income Panel data that they use.
   Finally, servicification within Korean manufacturers has been mainly centered on large-scale companies with a high export share, and their contribution continues to increase, especially after the global economic crisis. On the other hand, it is shown that servicification of small and medium enterprises remains stagnant at quite a low level. This implies that the government needs active policy support to help small and medium-sized companies increase service utilization and/or production, in order to improve the competitiveness of the overall economy.
   Given the aforementioned findings into consideration, this study provides the following implications regarding mid- to long-term trade policies; first, the importance of manufacturing has been highlighted again in the aftermath of the recent global economic recession. At the same time, as aforementioned, intermediate services embodied in manufacturing products is emerging as a driving force for manufacturing competitiveness. Furthermore, the development of new technologies related to the Fourth Industrial Revolution will gradually blur the boundaries between manufacturing and service industries, and accelerate the servicification of manufacturing industries. Therefore, the government should establish and implement trade policies that help to maximize synergies between manufacturing and services in the value chain. As our analysis suggests, the contribution of services to the manufacturing value-adds, through either the intensified in-house provision of services or increased domestic service outsourcing, is expected to increase. Hence, it is imperative for the government to establish support policies considering these areas.
   Second, one of the key results of this study is that there is a complementary relationship between in-house service provision and domestic outsourcing of services, and these domestic activities help to reduce the reliance on foreign outsourcing. The government's “Smart Factory Support Project” for SMEs is a very encouraging policy in this respect, which aims to encourage the use of IT technology and related services and combine them into the entire process of value chain, such as product planning, development, production, and sales. If the smart factory system is successfully settled, then the use of domestic services or servicification within SMEs can be further promoted, leading to enhance the overall productivity. The government should further develop and implement support schemes that allow SMEs to increase their utilization not only in these IT services but also in other knowledge-based services.
   Third, efforts should be made to strengthen the domestic value chain and revitalize the domestic outsourced service market by actively incorporating intermediate goods services into the "Export Supply Chain Support System" introduced as a countermeasure to Japan's recently triggered export regulations. This system refers to a policy measure that provides financial and technical support to small and medium-sized Korean companies that supply intermediate goods to export firms. Until now, the support system has mainly targeted small and medium-sized manufacturers that produce materials, parts, or equipment, but it should be expanded to service providers that supply intermediate-type services to manufacturing exporters. In the case of service providers, their core assets are in the form of intangible assets, and therefore have very limited access to finance due to the lack of fixed tangible assets with collateral value.
   Finally, if the Korean government pushes for new FTA negotiations or amends existing FTAs, it is necessary to prepare and implement negotiation strategies related to the servicification of manufacturing. The existing FTA negotiations have focused mostly on reducing tariff and non-tariff barriers in the commodity sector and expanding access to the market for Modes 1-4 service transactions defined by GATS. On the other hand, future FTA negotiations should also make great efforts to liberalize services in the form of intermediate goods.
   Within the GATT/WTO multilateral system, the liberalization of goods and services has been pursued separately within the GATT and GATS systems, respectively. As a result, the blind spots of these international norms are gradually expanding as the servicification of manufacturing and industrial convergence further proceed. In this regard, the EU has recently raised calls for defining intermediate-type service transactions that are embodied in commodity exports as Mode 5 and urged to initiate multilateral discussion on Mode 5 liberalization. Therefore, the government needs to preemptively identify how liberalization and potential revision of international norms related to Mode 5 will affect the price competitiveness of our product exports and establish policy alternatives.

   In this paper, we analyze the impact of IT sector innovation on the Russian economy in terms of structural transformation. Currently, Russia’s economy has a structural problem of excessive reliance on energy resources. Excessive economic dependence on the resource sector undermines sustainable growth, as the transition to medium and high value-added manufacturing is delayed, impeding qualitative growth through productivity enhancement, which is necessary for long-term growth. The Russian economy has been entrenched in the pattern of quantitative growth driven by physical capital and labor input since 2008.
   Chapter 2 of the study diagnoses delays in the structural transformation from a resource-dependent economy to a high value-added manufacturing one as a case of so-called “bad equilibrium” from the multiple equilibria perspective. In other words, the growth problem in the Russian economy is identified as a failure of coordination caused by the non-convexity of the production function.
   This research’s main contribution is to theoretically examine how technological innovation in the IT sector helps address the structural transformation delays that middle-income countries have suffered. This theoretical finding underlies the intuition that advances in IT technology positively improve productivity in the service industry, seen for instance in how online banking, e-commerce, and transportation services benefit from online matching. If such IT technology enhancements increase productivity in the service industry, the added value of IT industry production increases, which moves more economic resources (production factors) toward mid-and-high value-added manufacturing sectors, including the IT industry. Moreover, this structural transformation to the mid-and-high value-added manufacturing sector can be expedited by the substitution effect when the service sector’s productivity grows faster than the other sectors. Consequently, in the context of the so-called “big push theory,” IT technology innovation can function as a big push facilitating structural transformation in developing countries with abundant natural resources.
   Another contribution of this research is to investigate the possibility of IT cooperation between Korea and Russia in both policy and technological aspects. To this end, Chapter 4 performs a quantitative analysis with an ample dataset, including analysis of Russian IT patents, along with an extensive literature survey and reference. As a result, we found that both Korea and Russia share the same policy direction: they have exerted national policy efforts to discover new growth engines restoring growth potential through IT technology innovation. From a technological perspective, when we follow the common practice of categorizing the IT industry into the areas of IT hardware, software, and services, Korea has a clear-cut competitive edge in IT hardware while Russia is advanced in non-hardware sectors. This comparative advantage is prominent, particularly in the IT industry’s labor supply for both countries, namely competitive personnel in the areas of IT hardware and non-hardware for Korea and Russia, respectively.
   Taken together, the economic, policy, and technological conditions for IT technology cooperation between South Korea and Russia are all in place. Therefore, we can infer that voluntary and persistent IT technology cooperation between the private sectors of both countries can be guaranteed to some extent once the conditions for cooperation are established.