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.

 

   This study aims to provide implications for policies on the part of Korea’s competition authority to prevent ICT firms from abusing their market power and carrying out anti-competitive M&As under the changing competitive environment in the era of inter-industry convergence. It may be difficult to conclude whether these firm behaviors harm market competition or consumer welfare under existing competition policies. In this regard, we focus on recent policies of the U.S. and EU competition authorities in terms of how they deal with anti-competitive behaviors in ICT sectors.
   Chapter 2 presents an overview of U.S. and EU competition policies, including policy characteristics and causes of policy differences between authorities in the two economies. Recently, the Department of Justice (DOJ) and Federal Trade Commission (FTC), two U.S. competition authorities, investigated behaviors of large digital platforms such as Google, Apple, Facebook, and Amazon on whether they abuse their market power to an extent that negatively affects competition, innovation, and consumer welfare. As for the EU, the European Commission (EC) has implemented competition policies and recently announced EU-level online platform regulations to effectively implement competition policies for the rapidly developing digital platform industry.
   In chapter 3, we examine various forms of U.S. and EU regulation, focusing on abuse of market power and reviews of M&As. Largely two types of market power abuse were examined: exploitative and exclusionary abuse. The U.S. and EU take different perspectives on exploitative abuse. While the EU explicitly prohibits exploitative abuse in the Treaty on the Functioning of the European Union (TFEU), the U.S. does not have any legal provisions on exploitative abuse. Moreover, the U.S. does not consider this a target of regulation, on the grounds that there is no way to confirm whether the market price is the outcome of severe competition or market power abuse. In the area of exclusionary abuse, we examine predatory pricing, conditional rebates, tying, and refusal to deal. In regard to predatory pricing, U.S. legal authorities require rigorous analysis of the economic impacts of firm behaviors, whereas the EU competition authority has aggressively regulated these behaviors. In the case of conditional rebates, while there are no cases do date of the U.S. Supreme Court ruling such behavior as illegal, EU legal authorities such as the European Court of Justice (ECJ) have been more likely to consider those behaviors illegal as they harm competition in the European Common Market. In regards to tying, U.S. legal authorities concluded that a Microsoft (MS) case was not illegal as technological tying might increase market efficiency and provide benefits to consumers, whereas the EU authority concluded illegality in the MS case as it could set an entry barrier against its competitors due to network effects. When it comes to refusal to deal, while the U.S. considers that the theory of essential facilities is not necessary to determine monopolistic firm behavior, the EU holds the opposite view. Finally, the difference between the U.S. and EU in regulations for conducting reviews of M&As was relatively small compared to cases of market power abuse.
   Chapter 4 relates the characteristics of the digital platform industry to the U.S. and EU competition policies. Specifically, section 1 examines how the regulation differences between the U.S. and EU arise as inter-industry convergence and active market integration further progress across industries and regions due to the development of the digital economy. First, it may be difficult to assess exploitative abuse for certain firm behaviors as the price of digital platform services is often 0, or even minus (-). Second, technological tying as the outcome of a combination of products or technologies should be analyzed considering the impacts of limiting market competition and harming consumer welfare. Third, much more attention has been paid to conglomerate M&As under the environment of the digital economy. Concerning this issue, while the EU accepts the theory of portfolio selection, which states a certain firm can transfer its market power to another market through M&As or product bundling, the U.S. does not.
   In section 2 of the chapter, we investigate representative cases of anti-competitive ICT firm behaviors in the U.S. and EU and compare legal and policy responses by their respective legal and competition authorities. For example, the U.S. DOJ argued that MS abused its market power by the tying of its Windows operating system (OS) and Internet Explorer (IE) web browser. The EU, however, closed the case after MS accepted corrective actions to guarantee freedom in choosing web browsers for computer manufacturers and consumers. When it comes to the acquisition of WhatsApp by Facebook, the U.S. and the EU both allowed the deal as the merged entity would not harm market competition.
   Section 3 analyzes the impacts of digital platform M&As on market competition. Specifically, we examine the acquisition of WhatsApp by Facebook, utilizing data on the characteristics of 15 mobile social network service (SNS) applications (apps) and estimation using a structural model combining generalized method of moments (GMM) with instrumental variable (IV) estimation as empirical methodology. According to the empirical results, app file size negatively affects SNS app demand, whereas the number of apps provided by an individual digital platform has a positive impact on consumer demand. Furthermore, we calculate the change of own- and cross-demand elasticity in response to changes in app characteristics. The results show a 1% increase in the number of apps provided by Facebook leads to an increase in the market share of firms in the Facebook group but a decrease in the market share of competitor apps. This indicates a tipping effect in the market for mobile SNS apps due to Facebook’s acquisition of WhatsApp. In addition, we compare the markups of 15 SNS apps before and after acquisition by using a simulation method. As a result, we find that apps in the Facebook group experienced more increase in markups following acquisition, relative to competitor apps. This implies that Facebook’s acquisition of WhatsApp harms competition in the market for mobile SNS apps.
   In conclusion, it may be difficult to determine whether firms’ abuse of market power and M&As are unlawful using the existing competition policies. Drawing upon this perspective, and the case studies and empirical results of our study, we derive the following policy implications. First, Korea’s competition authority should transition out of the current regulation paradigm and introduce new legal systems in cases where the dynamics of competition and innovation should be ensured. Second, if the authority cannot determine whether the anti-competitive impacts of a certain platform’s behavior are greater than pro-competitive impacts, it needs to use ex-post regulation instead of ex-ante regulation to promote innovation and increase efficiency. Third, the authority needs to increase personnel to respond to the increase in M&As of small- and medium-sized startups by large digital platforms. Fourth, the authority needs to find a regulation level optimal to establish an environment where competition and innovation can coexist, as innovation will drive growth under the digital economy. Finally, the authority has to apply flexible regulation measures to diverse M&A cases instead of unconditional non-approval of M&As, as small- and medium-sized startups often use M&As as their exit strategy.

Preface Executive Summary Contributors Chapter 1. Introduction 1. The Birth of the Income-led Growth in Korea 2. About this Report Chapter 2. Is the Korean Economy in a Wage-led or Profit-led Growth Regime? 1. Introduction 2. Measuring Labor Income Share 3. Effects of Labor Income Share on Aggregate Demand 4. Labor Income Share and Consumption 5. Labor Income Share and Investment 6. Labor Income Share and Net Exports 7. Labor Income Share and Aggregate Demand 8. Concluding Remarks Chapter 3. The Structure of the Income-led Growth Policies of the Moon Jae-In administration 1. Basic Scheme 2. Policy Composition and the Three Pillars 3. Additional Discussions Chapter 4. Economic Performances of the Income-led Growth 1. GDP and Its Main Components 2. Employment 3. Income Distribution 4. Fiscal Expansion Chapter 5. The Minimum Wage Debates in Korea 1. Introduction 2. Initial Criticisms and Some Evidences Against Them 3. Employment Effects of the Minimum Wage Raises in 2018 and 2019 4. Impact of the Minimum Wage Raises in 2018 and 2019 on Wages and Income 5. Change of Direction 6. Conclusion Chapter 6. Assessment of the Social Safety Net Policies 1. Background 2. Reforms of the National Basic Living Security System 3. Reinforcement of the Basic Pension 4. Child Benefits, Youth Welfare, Unemployment Assistance and Housing Welfare 5. Social Services and Welfare Delivery System 6. The Mooncare Chapter 7. Transition to an Inclusive Regime of Industrial Relations 1. Introduction 2. Economic Impacts of Labor Market Institutions 3. Labor Unions and the Collective Bargaining System 4. System of Extending Collective Agreements 5. Institutional Improvement in the Korean Labor Market 6. Alternative Labor Policies for Income-led Growth References

   Income-led growth is at the core of the Moon Jae-in administration’s economic policy. It aims to build an inclusive economy by enhancing the capacity of household consumption and improving distribution, through a more active role of the state and social agreements. This report laregely reviews what the Moon administration’s income-led growth has achieved and has not, as of the end of 2019 (due to the data availability). The reader is advised to keep in mind that the administration had been in two and a half years into the 5-year term by the end of 2019, and the growth effect may take a longer time to realize. The main goal of this interim review is to share the rare case of the income-led growth policies with the policy research circles abroad.
    After an introduction in Chapter 1, Chapter 2 applies the approach of Hein and Vogel (2008) to Korea, to have an idea of the growth regime of the Korean economy. An economy is said to be in a wage-led (profit-led, respectively) growth regime if the aggregate demand increases (decreases, respectively) with labor income share. Because the self-employed takes a large share of the labor force in Korea, the chapter uses adjusted measures of labor income share, following Jeon and Joo (2015, 2018). The empirical evidence indicates that the Korean economy is in a wage-led growth regime, at least since the currency crisis in late 1990s. This is largely because consumption is more sensitive than investment or net export to labor income share, and this sensitivity has become stronger after the currency crisis. This finding suggests that the main cause of the post-crisis consumption
slowdown in Korea is the concurrent decline in labor income share. This supports the relevance of the Moon administration's income-led growth strategy, which can be interpreted as an attempt to improve the factor income distribution.
    Chapter 3 outlines the directions and contents of the Moon administration’s income-led growth policies. It introduces the virtuous circle that the income-led growth aims at creating, consisting of increase in decent jobs, increase in the household income, enhancement of the household’s capacity for consumption and economic growth. The chapter introduces a detailed structure of this circle, the three pillars of the income-led growth, namely increasing household income, reducing household expenses and expanding welfare and safety net, and the composition of the detailed policies aimed at achieving each of them. It also points out the shortcomings of the current structure and composition. Moreover, it discusses the relationship between the income-led growth and the two other directions of the Moon administration’s economic policy, namely innovative growth and fair economy.
    Chapter 4 offers a brief interim economic assessment of the income-led growth, focusing on the changes in growth and income inequality between 2017 and 2019. It provides evidences that private consumption stayed solid during the period, while construction and equipment investments fell, and income distribution (especially wage inequality and wage share) improved. Growth rates, however, were disappointing, due partly to the global rise in
protectionism. It argues that fiscal policy was too conservative to properly support the pursuit of income-led growth, leaving more revenue in 2018 than expected, for instance.
    Chapter 5 discusses the minimum wage increases of the Moon administration, which dominated the public’s perception of the income-led growth. The statutory minimum wages were raised, compared to the previous year, by 16.4% for 2018 and 10.9% for 2019. As a result, the hourly minimum wage has risen by 29% from KRW 6,470 in 2017 to KRW 8,350 in 2019. The chapter discusses the socio-economic impacts of the minimum wage raise in the Moon administration. It also reviews the changes of the Moon administration’s policy directions in fairly detail, during which the minimum wage was at the center of the policy debates.
   Chapter 6 offers a brief evaluation of the Moon administration’s social safety net policy in the context of the income-led growth. It reviews how the Korean social insurance and welfare systems, such as the Basic Living Security, Basic Pension and Child Benefit, have been reformed. It assesses the policies related to social services and welfare delivery system. It also discusses the “Mooncare”, the health care policies of the Moon administration.
    Finally, Chapter 7 discusses labor protection in the context of the income-led growth of the Moon administration. It reviews the literature on labor market institutions, trade unions and collective bargaining. It explains the characteristics of the Korean labor market and discusses possible ways to improve the current system of labor protection in Korea. It critically reviews the Moon administration’s labor protection policies and suggests policies that are more consistent with the income-led growth.

   Mongolia is one of the world’s top 10 resource-rich countries, with high growth potential based on abundant mineral resources such as copper, gold and coal on its vast land, which is more than seven times the size of the Korean Peninsula. It has received much attention due to its geopolitical importance in Northeast Asia, and is actively promoting cooperation with the United States, Korea, Japan and European countries in addition to Russia and China. It is also expected to play a certain role in promoting peace and stability on the Korean Peninsula as a country of simultaneous diplomatic relations between the two Koreas. However, Mongolia has a population of around 3.3 million and its income level is not high, and thus the small market remains limited in size. As of 2019, Mongolia’s total GDP is about $14 billion, and per capita GDP at just over $4,200. There are also various constraints and difficulties in transportation as a land-locked country.
   Nevertheless, the strategic value and importance of Mongolia should be highly valued. The first reason is that the Mongolian economy has high potential for future development. Many international organizations predict that Mongolia will be able to achieve economic growth of around 6% annually in the future based on abundant resources. In terms of economic structure, resource-rich Mongolia and Korea, where technology and capital have a comparative advantage, can form a complementary relationship. Second, Mongolia has been regarded as a country that achieved political democratization since it switched to a market economy in 1990, and has been improving its international status through China-Mongolia-Russia cooperative relations. Northeast Asia is an area where the need to establish a multilateral peace and security system is growing. Strengthening friendly relations with Mongolia and sharing the vision of future cooperation are also in line with the direction that Korea’s New Northern Policy is pursuing. Third, Koreans and Mongolians share cultural friendliness and emotional bonds with each other. Currently, nearly 50,000 Mongolians in Korea form part of Korean society, and historically, they have called Korea “a country of rainbow” and expressed friendly sentiment. In Mongolia, interest in the Korean language is as high as that for English and Japanese, and the Korean Wave is also quite strong in popular culture. Emotional friendliness and amicable feeling are important factors as the basis for future cooperation between the two countries.
   Korea already accounts for a high proportion of Mongolia’s economy in terms of trade volume and direct investment. Mongolia is the second-largest ODA partner for Korea and continues to share the development experience of the Korean economy. With bilateral summits and high-level talks continuing since the establishment of diplomatic ties, the two countries currently have a ‘comprehensive partnership’ and are seeking to upgrade to a “strategic partnership” in the future. Mongolian students studying in Korea rank third in terms of the size of foreign students, and they are growing as resources to take charge of the future of bilateral exchanges and cooperation. A group of Mongolian students studied in Korea, and many pro-Korean figures have organized a human network to assume the role of a channel for civilian diplomacy between the two countries.
   Under the global economic environment that has entered a low-growth era, Korea is pushing its New Northern Policy to seek new growth engines. Many of Korea’s main industries are now in their mature stages and need a new breakthrough, with northern countries likely to form complementary ties with the Korean economy due to their wide territory and abundant resources. Korea also needs to strengthen transnational multilateral cooperation with Eurasian countries to promote peace and prosperity on the Korean Peninsula amid geopolitical tensions and competition in Northeast Asia. Mongolia is an important partner in this situation which is highly likely to cooperate with Korea, has high demand for energy, is interested in the development experience of Korean economy, and shares mutual cultural familarity with Korea.
   In the 21st century, Mongolia once gained attention as it recorded rapid growth due to rising international resource prices. However, as the resource-based economy suffers from economic instability due to its limitations, the Mongolian government continues to push for an economic diversification policy. Mongolia established the “Long-Term Development Policy Vision 2050” in 2020, and is presenting the main goals and future plans that the country aims for. Many of the policies being pursued here are directly or indirectly in line with the direction of Korea’s New Northern Policy, and we should seek cooperation tasks to meet the demands of both countries and broaden the horizon for future cooperation. Given the policy direction that the two countries are pursuing, the vision of future cooperation between Korea and Mongolia is presented as an ‘Inclusive Shared Growth’ that will achieve peace and prosperity in the 21st century in Northeast Asia. This is because Mongolia is recognized as a member of the Northern Economic Community in the 21st century, and it is a country that needs comprehensive support from Korea while cooperating with each other.
   Marking the 30th anniversary of the establishment of diplomatic ties between Korea and Mongolia, the study was designed to explore future cooperation tasks and ways to realize them in each field. The purpose of this study, which takes the form of comprehensive regional research, is to analyze the achievements and limitations of Korea-Mongolia exchange cooperation in each field that has been carried out so far based on the cooperative environment between the two countries, and to present measures for finding and realizing cooperation tasks to overcome the problems and limitations that arise there.
   This research consists of seven chapters, including introduction and conclusion. The first section of Chapter I describes the background and necessity of the study, focusing on the strategic value and importance of Mongolia. Based on the common denominator of Korea’s New Northern Policy and Mongolia’s Long-term Development Policy, the two countries are setting the direction and vision for future cooperation. In the second section, the contents of the preceding study are reviewed and the contributions of this study are presented, focusing on the literature of Korean, English and Mongolian, and in the third section, the research methods and contents are explained.
   Chapter 2 deals with the characteristics of the Mongolian economy and the challenges in Korea-Mongolia economic cooperation. In the analysis of the economic cooperation environment for the first section, the contact point of the two countries’ economic cooperation is being sought first through the characteristics of Mongolia’s resource-based economy. To overcome the instability of the resource-based economy, Mongolia is pursuing an economic diversification policy, which could be an important point of contact for the bilateral economic cooperation. Also, the Mongolian economy has a good long-term growth outlook, which increases the possibility of future cooperation between the two countries. Section 2 analyzes the achievements and limitations of economic cooperation between the two countries in terms of trade and investment cooperation. Although Korea is one of Mongolia’s top five economic cooperation partners, there is still a limit to trade and investment volume, and Mongolia is looking for ways to improve the situation through the Mongolia-Japan EPA. Section 3 presents the vision of economic cooperation between the two countries as “Inclusive Shared Growth,” proposing the promotion of EPA and the establishment of a proper technology transfer center as a practical measure to promote economic cooperation.
   Chapter 3 deals with the tasks of Mongolia’s industrial policy and Korea-Mongolia industrial cooperation. The first section analyzes the cooperative environment between the two countries through analysis of Mongolia’s industrial structure and industrial policies, and analyzes the current status of Mongolia’s major industries such as mining, agriculture and livestock, manufacturing, and tourism. Mongolia’s “Long-Term Development Policy Vision 2050” suggests the direction of national industrial policy, which includes the selection of major strategic industries, including the fourth industrial revolution technology. Mongolia, with its vast national territory, values the development of specialized regional industries, and thus analyzing Mongolia’s regional industrial policies is also an important task in bilateral industrial cooperation. Section 2 analyzes the achievements and limitations of bilateral industrial cooperation, including Korea’s ODA. Although there are still many small and medium-sized investments to Mongolia, investment of large companies has also been on the rise recently, and the connection between the two countries’ industrial cooperation through ODA is also important. Section 3 examines the bilateral industrial cooperation tasks in Mongolia’s major industries and fourth industrial revolution technologies, and suggests measures such as boosting technical support, dialogue and cooperation channels, and strengthening the value chain of industrial cooperation.
   Chapter 4 deals with Mongolia’s political diplomacy and Korea-Mongolia cooperation tasks. The first section analyzes the political and diplomatic cooperation environment between the two countries through the analysis of Korea’s northern policy and the characteristics of Mongolia’s political diplomacy. Korea has been pursuing the Northern Policy since the late 1980s, and Mongolia is believed to have maintained its own important position under previous administrations. Mongolia operates under a dual-governance system and has a unique political system, and is considered to have a well-connected national security and foreign policy while pursuing a pragmatic diplomatic line of “The Third Neighbor Policy.” Section 2 deals with the achievements and limitations of bilateral cooperation in the political and diplomatic sectors, and the exchange and cooperation between the two governments have been developed repeatedly as summit diplomacy and high-level talks continue even amid regime changes. Section 3 deals with bilateral political and diplomatic cooperation projects, focusing on multilateral transnational projects, including participation in China-Mongolia-Russia linked projects, and plans to participate in the Northeast Asia Super Grid project.
   Chapter 5 explores approaches to expand human exchanges and cooperation between Korea and Mongolia. Section 1 examines the current status of human exchanges between the two countries and the environment of cooperation through analysis of the reasons for the expansion of human exchanges. The number of Mongolians living in Korea has reached 50,000, and Mongolian students studying in Korea have been on the rise. The reasons for their choosing Korea to study are also analyzed in various ways, including economic income and cultural friendliness. The number of Koreans visiting Mongolia has also increased significantly recently due to the demand for travel, and the Korean community in Mongolia continues to maintain its size. Section 2 presents quantitative and qualitative achievements of bilateral human exchanges, and analyzes the obstacles to expanding human exchanges. Human exchanges between the two countries are diversifying and deepening due to the establishment of pro-Korean organizations in Mongolia, active activities of Mongolian student organizations studied in Korea, and exchanges between Korean and Mongolian scholars. However, there are obstacles to be solved, such as visa problems, unregistered Mongolian residents in Korea, and a lack of airline availability. Also, by looking at examples of exchanges between Mongolia and Japan provides several implications for promoting exchanges between Korea and Mongolia. Section 3 deals with ways to promote bilateral human exchanges. First of all, measures such as an asymmetrical visa exemption system, the use of work-tourism visas, and an open-sky agreement are proposed as countermeasures against obstacles to human exchanges. Furthermore, to expand and diversify human exchanges between the two countries, the establishment and utilization of human networks and the establishment of a Korean center are comprehensively proposed.
   Chapter 6 deals with cooperation tasks in the Korean-Mongolian language and culture fields. The first section analyzes the cooperation environment between the two countries based on their understanding of Mongolian language and culture. The Mongolian language incorporates the traditional Mongolian nomadic culture, so understanding it will also help the two countries cooperate in the political and economic sectors. The Korean language has a deep linguistic relationship with the Mongolian language, too. The second section analyzes the achievements and problems of bilateral cooperation in language and culture through how Mongolian and Korean studies have been educated and studied in both countries, respectively. Korean is being selected as a major in many Mongolian universities, and Korean language education for the general public is also being activated through the King Sejong Institute. There are two universities in Korea that have established Mongolian programs as a major for their students, and research is also being activated to find the origin of Korean culture in the cultural field. In the third section, measures to promote language and cultural exchanges are discussed, including the establishment of a comprehensive Korean cultural platform, the strengthening of the excellent teacher dispatch system, and the expansion of the Mongolian cultural research support system.
   Chapter 7 presents the conclusion of the study and our suggestions. In Section 1 the main points of the study are summarized, establishing the vision for future cooperation between the two countries. Based on the vision of future cooperation, the second section presents major cooperation tasks and realization measures, such as tasks and measures to revitalize economic cooperation and industrial cooperation, political and diplomatic cooperation tasks and realization measures, and tasks and measures to promote human and cultural exchanges.
 

국문요약 

제1장 서론 
1. 연구 배경 
2. 연구 목적, 차별성 및 연구 구성

제2장 중국의 기술 발전 전략 
1. 과학기술 육성 정책 
2. 첨단산업 육성 전략
3. 과학기술 인재 육성 전략 

제3장 중국의 부상과 미ㆍ중 기술격차 분석 
1. 중국의 부상 
2. 미ㆍ중 기술격차 분석 
3. 소결

제4장 미국의 기술 분야 대중국 제재와 중국의 대응 
1. 미국의 기술 분야 대중국 제재 
2. 미국의 제재에 대한 중국의 대응

제5장 결론 및 시사점  
1. 요약 및 평가 
2. 시사점 

참고문헌 

Executive Summary 

   Since March 2018, when President Trump decided to impose additional tariffs on $50 billion worth of Chinese imports, the U.S.-China trade dispute has continued to this day. This study was conducted from the viewpoint that the nature of the U.S.-China conflict is not a tariff war but essentially a technological rivalry, represented by the U.S. Section 301 report and U.S. sanctions against Huawei.
   Recent developments in technologies are changing the concept of national security and that of hegemonic competition. The key feature of technologies in the 4th Industrial Revolution is dual-use. Emerging technologies such as 5G, AI, big data, robotics, aerospace, supercomputers and quantum computer-related technologies can be used for both civilian and military purposes. The more you invest in the development of advanced technologies, the closer you will be to economic and military hegemony. Therefore, it is no wonder that the U.S. harbors great concerns facing the rise of China in these advanced technologies.
   Chapter 2 examines China’s science and technology development policy, high-tech industry development strategy, and national talent development plan. The rise of Chinese science and technology was not achieved overnight. Since the nation’s founding in 1949, China has always been devoted to developing science and technology. Especially after China’s reform and opening, as economic construction became the central task of the country, science and technology have been perceived as “productive power.” The recent Xi Jinping government continues to place emphasis on science and technology, and aims to build China as a world-leading “Innovative Power.” This is also reflected in various statistics.
   Chapter 3 describes the data that support the rise of China. China is now the world’s largest economy in terms of real GDP (USD PPP) and trade volume, and has grown into the world’s second-largest country following the U.S. in terms of military expenditures, R&D expenditures, and international patent applications. In addition, this study constructs a structural estimation model in which each country produces international patents using R&D expenditures and R&D researchers. Empirical results have presented novel findings indicating that China’s innovative productivity has surpassed that of the U.S. since 2015.
   In light of these developments, Chapter 4 discusses at great detail the U.S. sanctions against China. The U.S. views China as not adhering to the principles of market-based trade and investment systems, rather utilizing a form of state-led mercantilism following its accession to the WTO. Based on the perception that China has used illegally and unfairly acquired U.S. technologies to undermine the national security and foreign policy interests of the U.S., the U.S. is strengthening trade and investment sanctions against China. This study, in specific, investigates the backgrounds, contents, and actual applications of the Export Control Reform Act (ECRA), Article 889 of the 2019 National Defense Authority Act, and the Financial Foreign Investment Risk Assessment Modernization Act (FIRRMA). In return, China is responding to the U.S. sanctions with a new “Long March” strategy rather than a tit-for-tat strategy. In other words, China has been setting long-term goals and responding to the U.S. sanctions by improving institutional arrangements, refining industrial policies, and developing its own technologies.
   Chapter 5 diagnoses the impact of the U.S.-China rivalry on the Korean economy by predicting the possible scenarios of the U.S.-China tensions. An international environment without conflict between the U.S. and China is the best for Korea in terms of both national security and economic growth. This is because South Korea has to strengthen cooperation with China based on a solid ROK-U.S. alliance for security and economic development. The more the conflict between the U.S. and China intensifies, the less policy choices and room for profits are left to Korea. However, the conflict between China and the U.S. is expected to be prolonged due to several reasons including China’s unfair practices, bipartisan anti-Chinese sentiment in the U.S., the institutionalization of tensions, and China’s strong response to the U.S. measures.
   In the short run, it seems important for Korea to pay attention to the negative impacts that might occur due to the expansion of U.S. sanctions against China, rather than expecting the benefits that might be brought by the U.S. sanctions to delay China’s technological progress. Recently, there are signs of the U.S. sanctions against China even further expanding the scope to financial sectors. Ironically, increasing pressure from the U.S. is expected to further strengthen China’s R&D capabilities in advanced technology and accelerate its competitiveness in emerging industries. With the onset of the 4th Industrial Revolution, China is rapidly closing the quality gap and technology gap in major industries where Korea has a comparative advantage. If Korea does not adequately respond to changes, it may be difficult to maintain a comparative advantage over China. Thus, now that U.S.-China tensions are intensifying, Korea is facing a pivotal moment in determining the future path of its economy.
   Moreover, the greater the conflict rises between the U.S. and China, the likelihood increases of pressure being applied on Korea to choose between one or the other. However, as the recent China-Japan relations imply, if you have what the other country needs, it is possible to secure strategic autonomy to realize national interests. Facing the 4th Industrial Revolution, “what every country needs” is “technological power.” We must keep in mind that a cooperative partnership with others and respect from other countries can only be guaranteed when Korea maintains global competitiveness in innovation capacity.