Policy Reference
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Policy Reference
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The Effects of Climate Change on Income Inequality: Evidence from APEC Member Economies
This study empirically investigates the dynamic effects of climate change on within-country income inequality. Using panel data of 17 APEC member economies, I estimate impulse responses via the local projection method. Temperature..
Wongi Kim Date 2021.11.15
APEC, Environmental policyContent닫기Executive SummaryI. IntroductionII. Related LiteratureIII. Econometrics and Data1. Local Projections2. Identification Strategy3. DataIV. Empirical Results1. Results in the Linear Model2. Results in the Non-linear Model3. The Role of Redistribution PolicyV. Discussion and Policy ImplicationsVI. Concluding RemarksReferencesSummary닫기This study empirically investigates the dynamic effects of climate change on within-country income inequality. Using panel data of 17 APEC member economies, I estimate impulse responses via the local projection method. Temperature and precipitation shocks, defined as deviations of temperature and precipitation from their historical norms, are also exploited to measure country-specific climate change. The empirical results reveal the following. First, temperature and precipitation shocks deteriorate income inequality measured by the Gini index; these effects are long-lasting. Moreover, asymmetric effects exist: heatwaves and droughts more significantly increase income inequality than coldwaves and floods. Lastly, current redistribution policies do not seem to effectively mitigate those adverse effects. I also discuss implications of carbon pricing/tax and environmental taxes related to income inequality. -
On the U.S. 2020 Designation of Switzerland a Currency Manipulator
In December 2020, the U.S. Treasury designated Switzerland, together with Vietnam, currency manipulators in its biannual report Macroeconomic Foreign Exchange Policies of Major Trading Partners of the United States to..
Dong-Hee Joe et al. Date 2021.11.12
Economic relations, Exchange Rate United States of America EuropeContent닫기Summary닫기In December 2020, the U.S. Treasury designated Switzerland, together with Vietnam, currency manipulators in its biannual report Macroeconomic Foreign Exchange Policies of Major Trading Partners of the United States to the congress. The report conducts an enhanced analysis on each country exceeding certain thresholds in three criteria: trade surplus with the U.S., current account surplus and foreign exchange market intervention. Based on this analysis, the Treasury can designate the country a currency manipulator. Switzerland met the three criterion during the period of the analysis of the December 2020 report, from the third quarter of 2019 to the second quarter of 2020, and the Treasury’s decision was the result of an enhanced analysis.During the period of the analysis, Switzerland had negative interest rates and deflation; and the Swiss Franc (CHF), considered to be a safe asset in the international financial market, severely appreciated following the outbreak of COVID-19. The report acknowledged the need for foreign exchange market intervention in such a situation to counter the pressure on CHF. However, it claimed that the magnitude of the intervention was excessive; that is, at least some of it was to improve the competitiveness of Swiss products.This study aims at evaluating the U.S. Treasury’s decision to designate Switzerland a currency manipulator, by surveying related empirical evidences. To evaluate the claim that Swiss intervention in the foreign exchange market was to improve the country’s price competitiveness, we survey the empirical evidences on the sensitivity of Swiss exports to the exchange rate of CHF. To evaluate the legitimacy of Swiss intervention in the foreign exchange market, we survey the empirical evidences on the impact of sudden exogenous appreciation of CHF on the country’s domestic economy.Swiss export is characterized by high technological intensity and value-added. At the HS 4-digit level, for instance, exports are highly concentrated in high value-added and technology-intensive products such as medicine, medical products, chemicals and luxury watches. This concentration is known to be a result of the country’s strategic choice during the first era globalization, from the late nineteenth century to the early twentieth century. Thanks to this export structure, the CHF exchange rate has little impact on Swiss exports, especially of medicine, medical products and luxury watches, which take up more than forty percentage of the country’s total exports.Sudden appreciation of CHF due to exogenous causes leads to a reduction in import prices, which in turn puts a downward pressure on domestically produced goods, resulting in deflation and distortion in the economic agents’ decision between imported goods and domestically produced goods in Switzerland. Intervention by the Swiss National Bank (SNB), the country’s central bank, is known to be effective in reducing exogenous appreciation pressure on CHF.Considering the characteristics of the Swiss economy, the SNB’s intervention in the foreign exchange market appears to be for countering the effect of CHF’s sudden appreciations on the country’s domestic economy, rather than for improving the country’s price competitiveness. Deflation had been happening for some time in Switzerland, to which the SNB’s mandate of price stability urged it to react; and as it kept its policy rate negative since late 2014, reducing it further would have been ineffective and inefficient.When the Treasury published its December 2020 report, the SNB immediately reacted by announcing its expectation that it could persuade the then-forthcoming Biden administration that its foreign exchange market intervention is solely a reaction to the exogenous appreciation pressure on CHF, not an effort to improve the country’s price competitiveness. Indeed, the April 2021 report, the first one in the Biden administration, did not designate Switzerland a currency manipulator, even though it conducted an enhanced analysis on Switzerland, as well as on Taiwan and Vietnam. This observation supports the suspicion that the conclusion of the December 2020 report was politically motivated. The Biden administration, which was about to take office at the time of the publication of the December 2020 report, was largely expected to change the Trump administration’s policies towards foreign countries, including the designation of currency manipulators. It appears plausible that the outgoing administration tried to constrain the incoming administration’s policies.This observation suggests that the Biden administration is unlikely to designate Switzerland a currency manipulator in the future. There is a high chance that Switzerland, due to the characteristics of its economy, will again meet the three criterion for an enhanced analysis. However, the Swiss government and central bank have consistently reacted to such criticisms, and the April 2021 report’s evaluation agrees with their reactions. Therefore, the conclusions of the enhanced analyses conducted in the Biden administration are likely to be in line with that of the April 2021 report. -
Does digitalization help employment stability during the COVID-19 pandemic?: Evidence from Korean survey data
This paper investigates if workers’ ICT use intensity helps to improve their labor market outcomes in the early stage of the COVID-19 pandemic using real-time survey data produced in Korea. We first find that the impacts of the p..
Seongman Moon Date 2021.10.20
APEC, ICT economyContent닫기Executive SummaryI. IntroductionⅡ. Related LiteratureⅢ. Real-Time Survey Data3.1. Survey Design3.2. Summary StatisticsⅣ. Empirical Models4.1. A Model for Different Impacts of COVID-194.2. Models for the Role of DigitalizationV. Heterogeneous Impacts of COVID-19VI. Workers’ ICT Use and Impacts of COVID-196.1. ICT Use Intensity6.2. ICT Skills6.3. Internet ActivitiesVII. Policy Implications and Concluding RemarksReferencesSummaryThis paper investigates if workers’ ICT use intensity helps to improve their labor market outcomes in the early stage of the COVID-19 pandemic using real-time survey data produced in Korea. We first find that the impacts of the pandemic on labor market outcomes are different across workers’ socio-economic characteristics and industries where they are employed: workers in service or construction industries, temporary workers, and workers who had experienced unemployment before the pandemic are more likely to be unemployed, be furloughed, work less hours, and have earnings reduced in the early stage of the pandemic. We measure workers’ ICT use intensity by weekly computer, mobile, and internet usage hours and find that workers who belong to a group with high ICT use intensity tend to mitigate the adverse effects of the pandemic on their labor market outcomes, while controlling for skill-fixed, industry-fixed, and region-fixed effects as well as for individual characteristics.닫기 -
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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 ChinaContent닫기
Summary닫기This 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 compromiseThis 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. -
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 KoreaContent닫기Summary닫기The 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. -
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 policyContent닫기Summary닫기This 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. -
20 Years of FTAs in Korea with KIEP
Korea Institute for International Economic Policy Date 2021.07.30
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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 EuropeContent닫기Summary닫기This 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.