Executive Summary
1. Introduction
2. Theoretical Backgrounds
3. Empirical Strategy and Data
4. Results
5. Conclusion
References 

This paper examines the impact of labor market regulations on FDI and employment and production of the foreign firms using an index on employment protection along with a number of employees and establishments, and production of foreign affiliates provided by the OECD. The empirical results show that strict employment protection discourages initial entry of foreign firms as well as the employment and production of foreign firms. The result is robust to various specifications in which the strictness of the labor market is measured by the unionization rate and severance pay for redundancy dismissal. Therefore, the attention of policymakers should not be limited to tax incentives, cash grants, and relaxation of market regulations but extend also to labor market deregulation and non-wage cost, to attract more foreign firms into their countries.
 

Executive Summary

1. Introduction

2. Related Literature

3. Econometric Methodology

3-1. Data and Variables
3-2. Empirical Model Specification
3-3. Estimated Coefficients and Interpretation

4. Empirical Results

5. RobustnessTests

6. Conclusions

Reference 

This paper examines the international transmission of the US monetary policy surprises. The US monetary policy surprises are defined by the gap between the actual fed fund rate and its forecast estimated a quarter ahead. The US monetary policy surprises are used as external shocks to investigate the spillover effects of policy uncertainty on other economies and address the endogeneity problem. The US is the base country where the monetary policy uncertainty shocks take place. I construct the each country’s international linkages such as the equity market and debt market linkages vis-a-vis the epicenter, US to investigate how the shocks are transmitted to other countries through those linkages. The empirical result shows that the equity market integration is associated with the business cycle divergence and the debt market integration is associated with the business cycle co-movement when the US policy uncertainty index is low. However, the equity market integration is associated with the business cycle comovement and the debt market integration plays insignificant role in transmitting the monetary policy surprises when the US policy uncertainty index is high.

 

 

One of the major changes in the current global business environment is that the global value chains (GVCs) of just a few multinational enterprises (MNEs) conduct most of the global business activities. These GVCs are structurally subdivided and regionally dispersed as a result of these MNEs’ new strategies, which are influenced by the globalization, liberalization and deregulation of nations and enterprises, the development of transportation and telecommunication technologies, and the growth of emerging market economies. The process of such globalization is further accelerated by the decreasing costs of coordinating international division of labor activities and simultaneously provides threats and opportunities not only for multinational enterprises, but also for small and medium enterprises (SMEs).
Small and medium enterprises (SMEs) can secure financial stability, increase productivity and enter the global market by participating in GVCs of the MNEs. However, SMEs require higher levels of financial and managerial resources and face more global competition to successfully participate in GVCs. Due to the many opportunities and threats to SMEs that come with participating in GVCs, appropriate government policies providing protection and support are needed for SMEs in developing, emerging, as well as developed markets (OECD 2007; UNCTAD 2010).
The purpose of this study is to examine the political and strategic implications of supporting the participation of Korean SMEs in GVCs through detailed analyses of the current global competitiveness and industrial revealed comparative advantages (RCAs) of Korean SMEs.
While previous studies on this topic exist, this study differentiates itself in three main ways. (1) This is the first time trade in value added (TiVA) is used to analyze Korean SMEs’ industrial competitiveness. (2) The methods of Korean SME participation in GVCs are classified by domestic and foreign production, of which competitiveness is measured by domestic value added and foreign direct investment, respectively. (3) This study proposes the linkage strategy between Korean MNEs and SMEs based on the evaluation of their industrial competitiveness. 

Executive Summary

I. Introduction

II. Literature Review

III. Access to Credit and the Educational System in Vietnam
1. Credit Market in Vietnam
2. Educational System in Vietnam

IV. Empirical Analysis
1. Data
2. Propensity Score Matching
3. Results

V. Concluding Remarks

References

Appendix 

This paper tries to determine the relationship between two of growth engines in Vietnam: access to credit and education. To avoid potential bias due to the endogeneity of access to credit variable, this paper utilizes the propensity score matching. This paper takes advantage of the Young Lives Survey of Vietnam that collected information on children of various ages to observe the effect of credit access in different stage of childhood. The result of propensity score matching analysis shows that the quality of education, measured by test scores, is impacted significantly by access to credit when the child is young and household income is low. However, when the child is older, most of the input to enhance the quality of education comes from outside of household resources, such as school, friends, and teachers, and the access to credit status of the household does not have significant effects on the quality of education.
 

 

 

 

The Korea Institute for International Economic Policy (KIEP) was founded in 1989 as a government-funded economic research institute. It is a leading institute concerning the international economy and its relationship with Korea. KIEP advises the government on all major international economic policy issues and serves as a warehouse of information on Korea’s international economic policies. Further, KIEP carries out research by request from outside institutions and organizations on all areas of the Korean and international economies by request.  

Contents

Executive Summary

I. Introduction

II. A Trade Model with Armington Elasticities

III. Data: Direction of Trade Statistics and Input-Output Tables

IV. Estimation and Simulation Results in a Static Model
1. Estimates of Armington Elasticities in a Static Model with Nominal Variables
2. Estimates of Armington Elasticities in a Static Model with Real Variables

V. Estimation of Armington Elasticities in a Dynamic Model
1. A Dynamic Error Correction Model of Armington Elasticities
2. Estimates of Armington Elasticities in a Dynamic Model

VI. Summary and Policy Implications
 

Korea’s export performance has exhibited a remarkable downturn since the end of 2014, declining over the 12 months of 2015 by about eight per-cent in nominal terms. Conjecturing this to reflect depreciation of the Jap-anese Yen and, during the second half of 2015, of the Chinese Yuan cou-pled with a sudden decline in China’s import demand, we apply an Armington (1969)-type trade model to match international trade data with input-output tables in order to identify the sources of export variation in Korea and, as a bridge between the theoretical model and empirical input-output table, to analyze the effect of income (GDP) and exchange rate variation. The major findings of the present study are three-fold. First, the estimated long-run elasticity (0.067) of trading partners’ GDP on Korea’s export is a lot smaller than the static short-run elasticity (0.755) of their GDP in nominal terms and the estimate of static short-run elasticity (0.462) of GDP in real terms. Second, we find that Korean Won’s real deprecia-tion helps boost Korea’s real exports in the short-run but its effect turns out to have a slightly negative effect in the long-run which implies that the positive effect of real depreciation of the Won may not last long. Third, we also find that a depreciation of Japanese Yen and Chinese Yuan in nominal terms has negative effects on Korean exports in the short-run, but the Jap-anese Yen’s real depreciation facilitates increases in Korea’s real exports consistently in both the short-run and long-run. The effects of the ex-change rate variation cannot be unidirectional in both short-run and long-run because the variation affects the relative competitiveness of imported intermediate goods. According to our findings, Korean exports, given a positive income shock in trading partner countries, tend to be replaced by foreign alternatives which reflects a tightening of technology as well as price competition in the global market, and suggests as an optimal export promotion strategy for Korea the pursuit of technological progress and a diversification policy that encompasses both destination and export prod-ucts.
 

 

 

 

Due to its rapid economic growth, industrialization, and urbanization, China now ranks first in the world as the country that produces the most air pollutant and municipal solid waste. The country also faces serious water scarcity and water pollution problems. In order to solve such problems, China has strongly revised its Environmental Protection Law as well as strengthening pollution controls and industry promotion policy in various fields of environment including air, water, and waste sectors.
Considering the development experience of the environmental industries of some of the major countries in the world, the environmental industry of China ？ a country whose GDP per capita is expected to exceed 10,000 USD during the 13th Five-Year Plan (2016~2020) ？ is estimated to enter the phase of explosive growth of a j-curve. On the other hand, the level of development in China’s regional environmental industries and markets vary due to the fact that local governments, who are the main actors in promoting environmental policies, have different strategic orientations ranging from quantitative growth to environmental protection. This research analyzes the state of China’s environmental pollution and its regional distribution, sectoral environmental markets and its regional characteristics, China’s regional environmental policies according to sectors and China’s environmental projects and major companies. Based on the analysis, this research sought to present Korean environmental companies’ exports strategy to the regional environmental markets in China as well as measures to strengthen government cooperations.
The primary findings of this study can be summarized as follows: In Chapter 2, we study China’s environmental market. It looks into the regional distribution of major pollutants and the pollution source, according to air, water and waste management; it also looks at the size of the environmental market and regional structure for each sector. For China, air pollution is mainly generated from thermal power ？ which creates energy by burning up fuels ？ and manufacturing industry, including steel and chemistry. Because of this, regions that have the country’s primary coal fields or heavy industrial centers, such as Shandong, Inner Mongolia, Hebei, Shanxi, Henan and Liaoning, were found to have high levels of pollutant emissions. Wastewater emissions were high in regions with a large economy and population, such as Guangdong, Jiangsu, Shandong, Zhejiang, and Henan, but water pollution sources (e. g. lead, mercury, nitrogen, etc) differed according to regions. Industrial solid waste, which takes up more than 90% of China’s waste emissions, are mainly produced in regions such as Hebei, Shanxi, and Liaoning, which have rich mineral resources or are manufacturing hubs. But the recycling rate of waste materials, processing ratio of recycling, and the reclamation rate differed by regions. Guangdong, Jiangsu, Zhejiang and Shandong, which have large population and economic size, produced an overwhelmingly large amount of municipal household waste. During the 13th Five-Year Plan, investment size of environmental industries is expected to reach around 17 trillion yuan. In the sectors of air, water, and waste management, investment amounting to 1.8 trillion yuan, 4.6 trillion yuan, and 4.3 ~ 5.1 trillion yuan, respectively, is estimated to be alloted. Factors restricting the growth of environmental industries and markets include low level of emissions controls, low cost of pollution disposal, and lack of punitive measures.
Chapter 3 investigates China’s environmental laws and related regulations and institutions as well as analyze regional environmental policies. Setting the Environmental Protection Law as the basic law, China has various pollution laws and regulations according to each environmental sector. It is also possible for local governments to regulate pollution emissions at a higher level than the central government’s standard. As the revised Environmental Protection Law is enacted from 2015, some major changes in China’s environmental policies include strengthened pollution regulation and legal force of its policies, expanded environmental infrastructure, local government’s environmental evaluations, and improved policy effectiveness through PPP. The revised Environmental Protection Law (in force since 2015), with its stronger legal force and stricter standards is a testimony of such changes. China has announced Action Plan in air and water sectors. Local governments are required to report work plans including yearly targets and major tasks within the year 2015.
However, there is no significant policy change in the waste sector nor has a specific Action Plan been announced. Also, whereas standard for pollution emissions of air and water is expected to increase by more than twice the current level, the standards for the waste processing fee is undecided, meaning the demand for waste processing is unable to function as a demand in the market. Regions such as Beijing, Shanghai, Jiangsu, Shandong, and Hebei are actively setting and reaching the improvement target of improving air pollution, providing subsidies and collecting pollution fees. In water management sector, Zhejiang, Tianjin, Shanghai, Anhui, and Shandong announced related measures and a rise in the pollution fee. Hubei, especially, is actively pushing for new regulations in order to implement regional standards in water management.
Coastal regions such as Guangdong, Shanghai, Jiangsu, Zhejiang, Shandong, Liaoning are actively pushing for policies on managing and separating municipal household wastes, processing fees and those related to waste disposing plants. Chapter 4 examines the ways in which China’s environmental projects work and case studies of major companies and projects by environmental sectors in China. In order to have environmental infrastructure in a short period of time, China expands PPP by giving opportunities for private capital participations. However, foreign companies are facing risks because of a lack of evidences for legal foundations for foreign companies to participate in PPP projects and Guanxi. It is expected to have more than 80 percent of demands for investments in the growing fast environmental markets. Notwithstanding of the above-mentioned facts, it is important to participate in PPP projects for entering Chinese environmental markets.
Chapter 5 offers suggestions for measures to strengthen cooperations on the basis of the above-mentioned analysis with sectoral and regional characteristics and suggest implications for the Korean government and Korean environmental companies. Considering each sector’s market size, local governments’ policies, central government’s drive, major companies’ distribution, we analyze Jiangsu, Shandong, Hebei are promising for air sector, Jiangsu and Guangdong are promising markets for water sector, and Guangdong, Shanghai, and Zhejiang are promising for waster sector.
Analyzing Chinese central government’s focal points of policies and local government’s investment for environmental sectors, we conclude the followings: First, markets with first priority are Jiangsu, Guangdong, Shandong, and Zhejiang where have excellent conditions for the environmental industries. Second, the second phase markets include Beijing, Shanghai, Hebei, and Liaoning. Third phase markets include central and west inland regions with relative better environmental market conditions such as Shanxi, Xinjiang, Henan, and Hubei.
Jiangsu can be utilized as a comprehensive platform for the penetration of the Chinese environmental market. It has a good market size, a strong political will, a high level of firms agglomeration, and cooperations with foreign companies. Yixing, where exists the only environmental industrial complex of China, concentrates water management companies that account for more than 40 percent of the Chinese water management market. Taking the advantage of which Yixing actively engages cooperations with Korea, we should make cooperative strategies at the company, association, and government level. On the other hand, Shandong and Hebei are where the Korean and Chinese governments are pushing forward for cooperative projects in the steel industry and air pollution prevention. But, these provinces do not have leading companies in air sector. We should utilize government-to-government cooperations as a platform for entering the Chinese market. Also, we should do a continuos monitoring and look for opportunities to take the advantageous position first in the central and west promising markets such as Hubei, Shanxi, Hunan.
Companies which wish to enter the Chinese environmental markets need to understand risks in relation to ways and practices of the Chinese environmental sectors and local governments’ risks. In order to minimize such risks, Korean companies should consider cooperations with local Chinese companies. Similarly, it is important to choose local partners that may offer project information and financing and have Guanxi. By doing so, it is important to find out project opportunities by attending environmental exhibitions and government-led business exchange platforms. On the other hand, it is imperative to do a continuous monitoring for the changes of environmental policies including standards for pollution emission costs and for emerging industries for investment. Small and medium-led Korean environmental sectors need to actively utilize government-led cooperative projects and build a consortium with large companies or public agencies to enter the Chinese market. Korean environmental companies should consider measures to strengthen cooperations by offering environmental management and services to Korean manufactures.
Preparing for possible additional negotiations for Korea-China FTA in the environmental sector, the Korean government should make suggestions for emerging environmental markets (e. g. building and operating for incineration plants, waste markets, food waste, and rural household waste) and for the relaxation of foreign exchange at the level of Shanghai Free-Trade Pilot Zone. In particular, we should consider the Northeast region, where has inferior environmental infrastructure and maintains a good relation with Korea, as a pilot area for environmental cooperations with a package of energy-saving and environmental protection projects.
Also, we should set a solid foundation for Korean companies to participate in PPP projects at the pre-developmental stage of PPP. Both Korean and Chinese governments could select incineration projects that are profit-making and support financing development costs. It is important to strengthen cooperations with local governments for expanding local environmental networks. Thus, we should expand to set up Korea’s environmental representative offices in provinces like Guangdong and Shanxi and to expand cooperative channels with local Chinese governments. Finally, in linking with Chinese relevant institutions, we should consider loans and credit guaranty funding systems when small and medium environmental companies enter the Chinese market.
 

 

This study conducts a historical and political analysis on the early years of European integration, including the establishment of European Coal and Steel Community (ECSC), from the perspective of “deal-making.” It probes the possibility that the creation of a specific regional institution may not guarantee an automatic spill-over to further functional progress and provides an alternative approach based on political engineering of cooperation. Early European integration often involved high political costs and progress was possible by taking political risks through multiple linkages of leadership.
Paradoxically, the alleged low political cooperation on coal and steel was enabled by the highest political drive to solve this “concrete and limited” issue. The pursuit of regional cooperation has a very limited window of
opportunity and would require skillful management in both domestic politics and diplomacy. The role of a leader is to secure a political space for the cooperation project and to convert latent opportunities into an actual deal.
Regional cooperation in Northeast Asia should directly deal with structural obstacles such as political environment and historical conflict. Instead of institution-building based on a unilateral proposal, regional cooperation strategies should focus on leadership networks, political coordination, and reconciliatory measures to facilitate actual “deal-making.” A preliminary consultation among the leaders is crucial in the early stage of regional cooperation; this needs to be complemented by politically empowered multinational expert groups on a long-term basis. The trilateral summit (South Korea, Japan, and China) and other high-level meetings should be more galvanized to build an effective communication channel that would clarify each other’s ideas and interests. Northeast Asian cooperation should be based on “the politics of dialogue” among diverse leaders and the public rather than introvert “declarations” and “monologues” targeting the domestic audience.
The agenda-setting of regional cooperation requires sufficient concentration and political endorsement on a “concrete and limited” project rather than proposing a spill-over-driven comprehensive package. The pragmatic utilization of existing networks and building blocks will facilitate the agenda-setting and increase the likelihood of successful cooperation. The examination of the European case also shows that a historical reconciliation may not be a precondition for regional cooperation. It could be drawn as an outcome of
the progress in multilateral projects, which will reduce the political cost of rapprochement by providing a useful political exit. Finally, the regional cooperation strategy in Northeast Asia should be complemented by a close coordination with the US and major international institutions to prevent a political veto and to expand the basis of common interests.