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Policy Reference

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  • 현안대응자료 요약 모음집(2021 상반기)

    Date 2021.06.30

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  • 미국 바이든 행정부 시대 미중 전략경쟁과 한국의 선택 연구
    A Study on the US China Strategic Competition in the Era of Biden Administration: Policy Recommendations for South Korea

       This study aims to understand the US-China strategic competition in the Biden era and explore future strategy and policy options for Korea. The US-China strategic competition has recently increased in science and tech..

    Heungkyu Kim et al Date 2021.07.20

    Political Economy, International politics United States of America China

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       This study aims to understand the US-China strategic competition in the Biden era and explore future strategy and policy options for Korea. The US-China strategic competition has recently increased in science and technology, military, and geo-strategic terms on a global scale. This competition has provided Korea with an opportunity to rise as a great power, together with various challenges in diplomatic, security, and economic terms. This process will naturally come with certain difficulties. Korea could face the constant pressure of making choices. The consequences of the strategic competition are uncertain. It accompanies a paradigm shift in which numerous events and behaviors cannot be explained and predicted with given norms, patterns, or practices.

    It is imperative to evaluate the possible consequences of the US-China strategic competition and its implications for South Korea. The following four scenarios are possible:

    - A new form of Cold War
    - Strategic competition with complementary cooperation
    - Strategic cooperation with complementary competition
    - US-China coevolution or compromise

    This study evaluated each scenario and its implications for South Korea.

       Noteworthy is that two broadly accepted assumptions must be reexamined under these new circumstances. First is the assumption that the US-China strategic competition will be protracted. The second assumption lies in the belief of US superiority over China and the solid US-ROK alliance as a constant factor. In reality, we could consider a scenario where China assumes regional supremacy over East Asia. Regardless of any wishes on our part, there is a need to consider all these assumptions as variables, and to remain flexible and creative when formulating counter-strategies.
       This study tentatively suggests strategy to strengthen the ROK-US alliance to the global level. The ROK-US alliance remains the pillar of the ROK’s diplomatic and security policies. However, the ROK must also respect its strategic cooperative partnership with China. More importantly, the ROK has worked hard to establish active collaboration with like-minded countries. The ROK should not fall into the trap of rashly choosing one country over the other, and instead opt for a strategy which minimizes possible costs rather than maximizing potential benefits.
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  • 북한 대외 채무의 쟁점과 과제: 국제 규범과 해외 사례를 중심으로
    Issues and Tasks Regarding External Debt of the DPRK: Centering around International Rules and Cases Abroad

       The Democratic People’s Republic of Korea (hereinafter DPRK) holds external debt against the rest of the world yet has not made its position clear on how to repay this after declaring moratorium in 1984. The magnitud..

    Yoojeong Choi and Halin Han Date 2021.07.08

    Economic integration, North Korean economy North Korea

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       The Democratic People’s Republic of Korea (hereinafter DPRK) holds external debt against the rest of the world yet has not made its position clear on how to repay this after declaring moratorium in 1984. The magnitude of the debt subject for repayment is increasing annually as the interest for arrears has accumulated. The issues regarding approaches that the DPRK would take in regards to repayment of its debt were raised when Russia relieved it from its duties for repayment of external debt against the former Soviet Union in 2012. In light of the situation in 2018 and 2019, when rapprochement between the DPRK and the United States was burgeoning, once the former shows its willingness to open its economy and to enter the phase of reformation, it is reasonable to believe that the discussion on how to resolve the mounting external debt of DPRK would be expedited when US-DPRK relations enter this new phase. 
       Against this background, the external debt of DPRK will likely be one of the primary diplomatic and economic matters facing the Republic of Korea in the longer perspective, albeit not an imminent issue to be taken care of. Therefore, this study examines the current state of external debt incurred by the DPRK and international norms on how to manage this, as well as cases abroad to identify the tasks at hand for the Republic of Korea’s government to respond to various scenarios on changes in circumstances on the Korean Peninsula.
       More specifically, it analyzes international standards, cases in other countries, and policy measures to consider when resolving the DPRK external debt issue, separating itself from previous ones in the following four features. First, it covers the estimates of the magnitude of the external debt that the DPRK holds. Second, it delves into international rules on resolving debt. Third, it suggests means to relieve the external debt of DPRK under two different scenarios, one of which is when both Koreas are united, and the other where the two economies are integrated but not the countries themselves. And last but not least, it offers a systematic overview on tasks for both Koreas’ administrations once the DPRK initiates transition to a market economy and the process of economic integration of the two Koreas. Most of the related literature prior to 2020 covered the measures to relieve external debt of the North Korea postulating a situation where the two Koreas are united. In this study, however, a scenario where the two Koreas are united is briefly reviewed, with the primary focus placed on the premise of the two Koreas coexisting with economic cooperation in progress. 
       The details of each chapter are as follows. First, Chapter 2 reviews all the statistics on the external debt of the DPRK. There are various sources of estimates on how much external debt the DPRK holds against its counterparts, showing different ranges and figures depending upon the source. This study aggregated statistics open to the public based upon the counterparts, sources and types of external debt. Chapter 3 covers the international rules that manage the relief/cancellation of public and private debt as well as the international laws on state succession. Chapter 4 examines cases abroad, categorizing the countries into three subgroups: ① countries in transition (Vietnam, Myanmar), ② united countries (Germany, Yemen), and ③ China. The case of China is extremely intriguing as it holds the largest claims against the DPRK and has become one of the biggest creditors for low-income and developing countries recently. This study, unlike the previous literature, takes China into account as one of the biggest creditors of the DPRK, a key variable to consider in the future. The final chapter, Chapter 5, discusses potential measures to relieve/cancel the DPRK’s external debt under two different scenarios for two Koreas’ geopolitical situation. It concludes with the policy tasks for the administration of the Republic of Korea, bearing in mind two different scenarios of geopolitical circumstances surrounding the Korean Peninsula. 
       This study confirms that the DPRK external debt can vary depending on the inter-Korean relationship, negotiations of denuclearization, its gaining membership at international financial institutions, and measures to relieve/cancel debt against China. First, if the DPRK finds itself in the transition process and tries to relieve the debt on its own, restoration of the US-DPRK relationship and joining the IMF will be prerequisites. This is because in order for the external debt to be rescheduled via the Paris or London Club, it is a must to go through programs imposed by the IMF. In order to do so, the US needs to lift its sanctions specifically prohibiting the DPRK from joining the international financial institutions, and the DPRK must be able to show its willingness to transform its country. Second, it is predicted that if the two Koreas are united under an extreme emergency, then it is most likely the Republic of Korea would succeed the external debt of the DPRK, in accordance with international rules and practices. However, the magnitude of the debt that the administration would take on and measures on how to deal with them would hinge upon the Republic of Korea’s tactics towards its neighboring countries. 
       This study substantiates that the DPRK’s external debt against China will be a major factor that would affect not only the process of relieving this debt but also on procurement of potential financial sources after it opens its economy. In light of recent examples of how China handled its claims against developing countries, it would be imperative to determine when to resolve the bilateral debt between China and DPRK within the process of restoration of the US-DPRK relationship. At that point, bilateral talks between the DPRK and China, which potentially would improve economic circumstances within DPRK thanks to a supply of new funds or drastic debt cancellation from China, would challenge the DPRK’s attempt to reinstate its status as a normal nation. 
       It is believed that the outcomes of this study will be able to provide insights to the government of the Republic of Korea when there is significant progress in denuclearization of the DPRK and an attempt to normalize its relations with the rest of the world. 
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  • 디지털 전환 시대의 국경간 전자조달 논의 동향과 시사점
    Cross-border e-Procurement in the Digital Transformation: Discussions and Implications

       This report analyzes statistics on cross-border e-procurement, examines the use of e-procurement and e-procurement systems in the USA, the EU, and Korea, and comparatively analyzes e-procurement norms in international..

    Ji Hyun Park Date 2021.03.30

    Multilateral negotiations, Trade policy

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       This report analyzes statistics on cross-border e-procurement, examines the use of e-procurement and e-procurement systems in the USA, the EU, and Korea, and comparatively analyzes e-procurement norms in international trade agreements to identify implications. 
       The analysis of statistics on cross-border e-procurement included data on millions of procurement contracts per year downloaded from government websites to estimate the amounts of procurement, or that gained by processing publicly available data. The results showed that, while the public procurement is a gigantic market that accounts for 10‒15% of the GDP, cross-border e-procurement only represented an insignificant share. In the US procurement market, which is the largest single market in the world, cross-border e-procurement as defined by vendor nationality only accounted for 2‒3% (excluding the USA, in terms of value). This figure was 3% in the EU (direct cross-border procurement, in terms of value), and less than 1% in Korea (central government, foreign funds). However, it is notable that, as in the cases of the EU, Korea, and the USA, there is an upward trend in the size of cross-border e-procurement in countries that use electronic means in the procurement process.
       Country-specific e-procurement data from World Bank reports were analyzed to take stock of the use of e-procurement. The number of countries using electronic means decreased as the e-procurement process progressed. Also, while the US, the EU, and Korea have well-organized e-procurement systems and are showing an increase in their use of e-procurement, the share of cross-border e-procurement in these countries was shown to be very low, indicating a high entry barrier in the procurement market.
       Comparative analysis of e-procurement norms in different international trade agreements revealed incremental increases in bilateral and regional trade agreements that embrace e-procurement norms. Recent FTAs such as the Regional Comprehensive Economic Partnership (RCEP) have added or newly established provisions on e-procurement cooperation. In particular, the Digital Economy Partnership Agreement (DEPA), a digital trade agreement, includes provisions on cooperation (cooperation activities related to e-procurement) in government procurement. For the DEPA, it is notable that government procurement, which would otherwise have been addressed in individual chapters in other trade agreements, was included in the digital trade agreement. This represents a new trend in digital trade where government procurement proceeds from the perspective of cooperation. E-procurement cooperation provisions that have recently emerged one after another in trade agreements including FTAs are likely to be added or newly drafted into more concrete cooperation provisions within trade agreements to come.
       This report presents ways to vitalize cross-border e-procurement and develop norms for e-procurement. The overarching prerequisite to the vitalization of cross-border e-procurement is to build procurement statistics as the basis for developing procurement policies. Also important, particularly for countries actively utilizing electronic means in public procurement, is to modernize procurement systems and increase the use of e-procurement, as seen in the case of the EU, which experienced increases in cross-border transactions. However, even if a country has a well-developed e-procurement system, the country’s institutional regulations may serve as an entry barrier that prevents foreign companies from entering the procurement market. In this sense, efforts must be made to ease or improve institutional regulations that may hinder cross-border e-procurement. There is a need to strengthen international cooperation, especially in response to communicable diseases, and have an international council or organization overseeing e-procurement to coordinate and regulate the execution of procurement activities in emergency situations. Most of all, openness in government procurement will be limited as long as the policy stance to take advantage of government procurement as a policy tool remains, and this calls for countries’ willingness to open their procurement markets.
       This report suggests directions for the development of norms for cross-border e-procurement in preparation for an expansion in agreements related to e-procurement. In the short run, inter-governmental discussions over cooperation for e-procurement and international discussions should be expanded. In the medium term, we can expect discussions over including e-procurement in electronic commerce or digital trade chapters of international trade agreements, rather than government procurement chapters, as part of digital trade. The long- term orientation should be to establish norms to promote cross-border e-procurement, which will require discussions and considerations to regulate entry barriers in e-procurement markets and institutional regulations that hinder cross-border e-procurement. This highlights, in particular, the roles of the WTO in promoting cross-border e-procurement and developing norms for e-procurement. The e-procurement system is one of Korea’s strong points, and the country should be aggressive in exporting it. To expand exports of the Korean e-procurement system, considerations should be made for many other aspects including interconnected systems, operations, and training, rather than just aiming to export the procurement system itself. Particularly important is continued post-export follow-up, as well as constant monitoring and networking aimed at extending the scope of export from building e-procurement systems to include the advancement of these systems as well.
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  • KIEP가 함께 한 한국의 FTA 20년
    20 Years of FTAs in Korea with KIEP

    Korea Institute for International Economic Policy Date 2021.07.30

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  • 유럽 친환경자동차산업 정책분석과 시사점: E-모빌리티를 중심으로
    European E-Mobility Focusing on Automobile Industry

       This study analyzes e-mobility policies of the European Union (EU) and its major member states. Through the analysis the study provides policy implications for the Korean government in promoting eco-friendly automobil..

    Hyun Jean Lee et al. Date 2021.04.01

    Industrial policy Europe

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       This study analyzes e-mobility policies of the European Union (EU) and its major member states. Through the analysis the study provides policy implications for the Korean government in promoting eco-friendly automobiles, and strategic insights for Korean companies aiming to access the EU market.
       The automobile industry of the EU faces multiple challenges today. Aiming to achieve climate neutrality by 2050, the EU will have to reduce greenhouse gas emissions of cars by expanding the use of renewable energy, while maintaining the industry’s competitiveness. Currently, the EU remains comparatively weak in the market for eco-friendly automobiles. The share of European brands in the world’s eco-friendly car market is only 12%. Moreover, Europe is lagging behind Northeast Asian countries, including South Korea, in battery packs and hydrogen fuel cells technology and production. Upon this background, the EU is endeavoring to support the eco-friendly automobile industry to reduce overseas dependence on core components, and to expand the distribution of eco-friendly cars.
    On the EU level, the EU Commission is playing a pivotal role in laying the basis for the eco-friendly automobile industry. It has announced the European Green Deal and adopted the New Industrial Strategy for Europe. A roadmap has been presented for supporting the eco-friendly automotive industry through EU-level strategies in the areas of batteries, hydrogen, and e-mobility. Meanwhile, cooperative alliances are being formed in the battery sector, including the European Battery Alliance (EBA), BatteRIes Europe, a technology innovation platform, and the Battery 2030+ initiative. The European Clean Hydrogen Alliance has been formed to promote hydrogen fuel technology. In addition, the EU protects and supports the regional e-mobility industry using indirect methods of regulation, such as emission regulation, waste regulation, and the establishment of standards. Financial support for research innovation is being provided through the Horizon Europe and InnovFin initiatives, and through mobilization of the European Strategic Investment Fund (EFSI), while infrastructure investment is actively being carried out through the Connecting Europe Facility (CEF).
    On the EU member state level, Germany, France, Sweden, and the four Visegrad states (Poland, Hungary, Czech Republic and Slovakia) were selected for case studies, on the basis of their importance in the EU’s automobile industry. Germany, France, and Sweden are all actively using subsidies and tax regimes to expand the distribution of eco-friendly cars. Germany has introduced a new e-mobility law to facilitate the administrative process of using eco-friendly cars. Germany's eco-friendly automobile industry support policy incorporates suggestions from the industrial sector, while providing support for research and production of battery cells, as well as R&D projects in hydrogen technology. In the case of France, it is notable that the government, as a major shareholder, is actively participating in the management of major manufacturers with a view to protecting jobs and fostering the eco-friendly automobile industry. Sweden has the highest sales volume of eco-friendly cars in Europe thanks to government policies to encourage consumption. The V4 countries are gaining importance as emerging powers of the European automobile industry, with a large number of global companies entering their markets, both as primary and secondary suppliers.
       Through the analyses, the study draws three main implications. First, it is important to actively participate in the process of establishing standards through technical cooperation with Europe. For Korean companies it is important to work closely with EU companies and institutions to reflect their opinions when setting battery technology standards. In addition, Korean companies, academia, and the government should actively participate in discussions on expanding the use of hydrogen technology in Europe, so that well-advanced Korean hydrogen technology can penetrate into the newly-formed EU market.
       Second, expanding the supply of eco-friendly cars in Korea through improvement of the subsidy system can be considered. Policy makers could consider expanding the scope of subsidies to include leased or used eco-friendly vehicles, to the extent of available budget levels. Another option to consider would be modifying the eligibility criteria to incentivize transition to eco-friendly cars, rather than focusing on scrappage programs. In addition, it is necessary to consider ways to incorporate CO2 emission into the calculation of automobile taxes.
    Finally, further cooperation with the V4 countries is necessary to improve access to the EU market. To make more efficient use of the advantageous position already formed in the V4, Korea needs to implement a step-by-step cooperative framework with the V4 for the development of future mobility. Possible directions would include establishing joint R&D centers for developing electric vehicles and batteries, or forming a global consortium in the field of hydrogen cars and charging facilities.

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  • 미ㆍ중 마찰의 주요 쟁점과 한ㆍ중 경제협력 방향
    Major Issues of Friction between the U.S. and China and New Directions of Economic Cooperation between Korea and China

       As friction between the U.S. and China intensifies, this poses a huge burden on the Korean economy, which is highly dependent on China. Under these circumstances, questions are being raised about whether Korea can con..

    Pyoung Seob Yang and Jiwon Choi Date 2021.05.14

    United States of America China

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       As friction between the U.S. and China intensifies, this poses a huge burden on the Korean economy, which is highly dependent on China. Under these circumstances, questions are being raised about whether Korea can continue its strategy of aligning with the United States on security issues and with China in the economic sector. This study seeks to clarify what the main issues of friction between the U.S. and China are, and what positions and principles Korea should adhere to concerning each issue.
       The U.S.-China friction can be seen as arising from the clash between the U.S.’ vision of “America First” and the “China dream.” Xi Jinping’s leadership, which was launched in 2012, presented China’s dream of transitioning from an economic and military power to a great power. The U.S. administration recognizes this dream as a threat and challenge to the U.S. and is pressuring China. China perceives this pressure applied by the U.S. as an attempt to undermine its key interests and responds accordingly. The Trump administration defined the situation as a long-term strategic competition between the two systems and declared a “competitive approach” to China in a report titled “U.S. Strategic Approach to the People’s Republic of China” released in May 2020. In another report, “The Elements of the Chinese Challenge,” released by the U.S. Department of State in November 2020, the U.S. and the world are described as facing a new era of “great power competition” caused by the Chinese Communist Party. A U.S. congressional report released in December 2020 also described this as a “strategic competition” between China and the United States. In response to U.S. pressure, China recognized the conflict between the U.S. and China as a challenge to its development rights and declared a long-term war, regardless of the outcome of the U.S. presidential election. It has adopted a “dual circulation” strategy that puts large-scale domestic circulation first as the basic direction of long-term response and mutually drives both domestic and international circulation.
       In this study, the issues between the U.S. and China were divided into regulation of unfair practices on the part of China, China’s strategy to become a “strong country” with world-class forces amid the U.S.-China technology decoupling, and the U.S.-China strategic competition over ideology and values. First is the conflict over subsidies, intellectual property rights, developing country status, cyber security, and environmental issues raised by the United States. The second issue is China's strategy to become a strong country and decouple from U.S. technology, leading to the China Manufacturing 2025 initiative, Military-Civil Fusion (MCF) strategy, China Standard 2035 project and U.S.-China competition over network security. The third issue involves U.S. efforts to check the Belt and Road Initiative (BRI), perceiving this as a strategy to expand Chinese influence in the Asia-Pacific region. The U.S. recognizes the Belt and Road Initiative as both an economic challenge for the U.S. and a security challenge, and keeps China’s influence in check by pursuing the Indo-Pacific strategy. The fourth is pressure on China based on universal values. The U.S. is expanding its pressure on China by politicizing the issues of its party-state system, democracy, human rights, religion, and the South China Sea dispute.
       The U.S.-China friction can be both an opportunity and a threat to Korea, which is highly dependent on the U.S. and China. In the short term, China will be able to provide Korea with new opportunities if it improves external openness and transparency and takes a domestic- oriented growth strategy. However, in the process of U.S. pressure on China, Korean companies tied to the value chain will face immediate difficulties in exporting to China. It is also impossible to rule out the possibility of another “THAAD situation” unfolding as the U.S. and China pressure Korea to choose a stance on particular issues. In the mid- to-long term, should China respond by increasing its independent self- reliance in technology, this could pose a threat if China develops domestic alternatives to Korean imports. However, if China responds by opening up and expanding cooperation with neighboring countries in new industries, this could be a new opportunity for Korea. If the friction between the U.S. and China is prolonged, the relationship between Korea and China is expected to enter a new period of transition, where individual events develop into a phase and structural transformation begins. It will be necessary to assess the threats and opportunities accompanying the friction between the U.S. and China, and to prepare effective response strategies.
       Faced with pressure from the U.S. and China to choose one side, Korea will have to establish a set of principles to apply in situations where it proves impossible to maintain a stance of strategic ambiguity. This study presents new directions and tasks for Korea-China cooperation in the era of friction between the U.S. and China, namely in the areas of: adjusting Korea’s dependence relations with China, stabilizing the value chain in preparation of the U.S.-China decoupling, East Asian regional cooperation, and response measures to changes in China's strategy. In particular, in this study, an online survey of Chinese experts in Korea explored the direction of Korea’s response to U.S. and Chinese pressure to take one side. It is necessary to redefine China’s strategy by comprehensively judging China’s influence on the Korean economy, the future potential of the Chinese market, and the possibility of cooperation. First, Korea should redefine its position on each issue based on: the principle of securing national interest and minimizing damage, the principle of a fair market economy, respect for universal values, and the principle of multilateralism. Second, a new strategy is needed amid rapidly changing U.S.-China relations. Despite the friction between the U.S. and China, there is no significant change in China’s importance as a market and the importance of the U.S. as a crucial security ally. In this regard, the current structure of aligning Korea’s position with China in economic issues and with the U.S. on security issues will continue, but depending on the pending issues of friction between the U.S. and China, principles and response strategies need to be determined on a case-by-case basis.
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  • 대외자산 수익률 결정요인 분석
    The Determinants of Return on External Assets

       As external asset positions increased significantly in both developed and emerging countries due to globalization and financial integration, countries are exposed to capital gains and losses caused by fluctuations in ..

    Hyosang Kim et al. Date 2021.02.26

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       As external asset positions increased significantly in both developed and emerging countries due to globalization and financial integration, countries are exposed to capital gains and losses caused by fluctuations in exchange rates and asset values. This study constructs the return rate of external asset position (rate of external) by considering the individual country as the economy’s representative agent. Assuming that the foreign asset position is the optimal investment portfolio, the rate of external defined in this study directly measures the country’s risk premium. The rate of external is also the excess return of the portfolio that takes a long for foreign assets and a short for foreign liabilities.
       We observe that advanced economies have a far greater rate of external than emerging countries in general. In comparison, emerging countries have a relatively higher rate of external during crisis periods. Thus, international risk sharing and consumption smoothing mechanism works through external investment. Advanced economies are in a speculator position, while emerging countries are in a hedging position.
       We also empirically analyze the determinants of the rate of external. The rate of external is higher as the foreign assets’ size, and the proportion of risky assets increased. There are negative relationships with the domestic currency value, GDP growth rate, inflation rate, and current accounts. The rate of external is higher as the financial market and institutions developed, and the financial market openness increased. However, these effects are offset in the event of financial instability proxied by the VXO index.
       Contrary to general expectations, foreign reserves are likely to relate to the return on foreign liabilities rather than foreign assets. The more the foreign reserves, the higher the return on foreign liability. Countries with larger amounts of foreign reserves are more likely to have favorable economic conditions such as trade surplus, higher growth rate, and higher productivity, bringing a higher return rate to foreign investors. These effects, however, disappear in times of financial instability.
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  • 독일통일 30년: 경제통합의 평가와 시사점
    30 Years of German Unification: Assessment of Economic Integration and its Implications for the Korean Unification

       In 1990, the socialist economic system of East Germany was incorporated into the “Social Market Economy (Soziale Marktwirtschaft)” of West Germany, completing political, economic and social unification. The economic..

    Hyung-Gon Jeong Date 2020.12.30

    Economic integration Europe

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       In 1990, the socialist economic system of East Germany was incorporated into the “Social Market Economy (Soziale Marktwirtschaft)” of West Germany, completing political, economic and social unification. The economic state of East Germany was in a more serious state than expected. With unification, East Germany’s GDP fell by more than 30%, and the unemployment rate rose sharply to over 15%, and in the late 1990s, the unemployment rate in East Germany drew near 20%. 
       During the time of unification in 1990, the economic gap between East and West was the biggest problem in the process of social and economic integration. Since the reunification, the German government has made various efforts to bridge the regional gap between East and West Germany. The income of East Germans has now reached 80% of West Germans, and the productivity of labor has steadily improved to 80% of the average of the West German workers. 30 years after reunification, Germany is now the largest economy in Europe and it has the world’s fourth highest nominal GDP.
       Despite these positive aspects, the income and productivity gaps between East and West are still widening, and the rate of economic convergence is falling significantly. Moreover, the bigger problem remains in that skilled or professional workers are moving to West Germany due to the fact that there are not enough attractive jobs in the East.
       The study aims to find whether the gap in economic power between the East and the West is decreasing and if the economies of East and West are converging in the process of economic integration. If the economies of the two regions have in fact converged, then it strives to discover the factors causing the convergence. It also intends to determine the remaining problems and challenges that exist to this day. In particular, by examining the factors that promoted the growth of the East German region and comparing them with the West German region, the study aims to provide policy implications for the unification of the Korean Peninsula. 
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  • Financial Inclusion Through Fintech in the Digital Economy
    Financial Inclusion Through Fintech in the Digital Economy

       Since the 2008 global financial crisis, including the recent COVID 19 pandemic, low interest rates and low economic growth have continued around the world. In spite of this low interest rate trend, as the economic dow..

    SEO Eunsook and YOO Kyeongwon Date 2020.12.30

    APEC, Economic cooperation

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     Executive Summary

     

     I. Introduction

     

     II. Progress of Financial Inclusion
     1. Achievements of Financial Inclusion
     2. Limitations of Financial Inclusion and Advent of Digital Inclusive Finance

     

     III. Fintech and Digital Financial Inclusion
     1. Definition of Fintech and Digital Economy
     2. The Impact of Fintech Development on Personal and Corporate Finance
     3. The Benefits and Costs of Fintech and Digital Financial Inclusion

     

     IV. Promotion of Digital Financial Inclusion in Asia
     1. Digital Financial Inclusion in Asian Countries
     2. Tentative Empirical Results on the Effects of Financial Inclusion
     3. Main Implications

     

     V. Conclusion

     

     References

     

     Appendix

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    Summary

       Since the 2008 global financial crisis, including the recent COVID 19 pandemic, low interest rates and low economic growth have continued around the world. In spite of this low interest rate trend, as the economic downturn prolongs, there is a situation of concern called the “new normal” of low interest rates and low economic growth, and low prices. In this new normal economic structure, the rapid progress of aging is increasing the necessity and desire for asset accumulation. In addition, digital finance such as Fin-tech with the evolution of the underlying technologies and the emergence of new technologies has replaced or improved many functions of existing finance in the advent of the 4th industrial revolution era.
       These changes are expected to bring benefits to the individual and corporate finance sectors, which have been subject to financial inclusion. On the other hand, digital finance, which is changing at such a rapid pace, may further isolate some individuals who were in the blind spot of finance, such as the elderly, and a support system for this is an issue that should be included in the policy of financial inclusion in each country.
       In this paper we find that Asian countries like other regions have achieved tangible results in financial inclusion while achieving financial deepening. When looking through various financial inclusion indicators such as holding accounts and loans, ATMs, and bank branches, the Asian region has achieved similar or superior performance to other regions. Compared to the income level, the growth of financial inclusion in Asia was found to be attributable to better performance in middle-income countries than in other similar regions. High-income countries in Asia are performing somewhat lower than similar peer groups in other regions, but this seems to be due to stagnation of growth. More seriously, financial inclusion in low-income countries in Asia is not appearing faster than in other income groups.
       In Asian countries there appears to be a wide variation in regional financial inclusion. However, Asian countries are expanding around the younger generation in the use of ICT technology that is helpful in spreading financial inclusion so if digital inclusive finance centered on Fintech is properly applied, Asian countries will become a new model for digital financial inclusion. However, since the gap in the use of Fintech in the region is large, how to fill this gap is being raised as an important policy task for each country as well as the whole region.
       We also tentatively examined the effects of financial inclusion and digital financial inclusion in the Asian region using the Asian country panel data collected from WDI and Global Findex data. Looking at the implications of the empirical analysis results even though it is very cautious to interpret the results of this analysis due to the lack of data of inclusive finance in Asia., first, the expansion of financial inclusion(such as ATM) in Asia seems to have some relationship with the reduction of poverty rates and income inequality which is measured with Gini coefficient. And the expansion of internet usage in Asia seems to have some relationship with the reduction of poverty rates and income inequality although we use it as the proxy variables instead of the digital financial inclusion variables. Lastly, the higher share of rural population which is used as a proxy for digital divide, which may occur due to the expansion of digital inclusive finance in Asia, has the potential to erode some of these achievements, but there is still a possibility that the expansion of inclusive finance will be effective.
       Despite the likelihood of success in digital inclusive finance in the future, digital divide spreads due to various gaps such as between urban and rural areas, between young and old, between low and high income, and between men and women, occurring in Asian countries and may worsen the performance of inclusive finance. Thus the governments in the region need to actively intervene to resolve these gaps. In addition, it is necessary to close the digital gaps that is occurring between countries through policy cooperation among APEC members.
       Considering the situation that the degree of development of Fintech in each member is expanding financial inclusion, it is necessary for Korean financial companies to set up an advancement strategy that focuses on the financially marginalized class based on the advanced system strategy of credit rating based on big data.
       Our analysis results will give some implications for the New Southern Policy. Personal and SME finance are very important business areas when financial companies currently enter the ASEAN region, and accurate analysis of each member' current status for Fintech or digital finance and financial inclusion should be given priority in terms of business expansion.

     

     Keywords: Fintech, Digital Finance, Financial Inclusion, Comparative Studies of Countries
     JEL Classification: O33, G19, G20, I31, O57

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