Appropriate Technology in African Development Cooperation
Africa has received 1.4 trillion USD in aid over the past 60 years since the wave of independence witnessed across the continent in the early 1960s. However, there is still much discussion and controversy over the effectiven..
Young Ho Park et al. Date 2014.12.30Economic development, Economic developmentSummary
Africa has received 1.4 trillion USD in aid over the past 60 years since the wave of independence witnessed across the continent in the early 1960s. However, there is still much discussion and controversy over the effectiveness of development aid, as many African countries have not been able to escape poverty. While other aid recipients in Asia have achieved industrialization through agricultural development, Africa remains unable to replicate the success in Asia, as reflected in the continent’s unresolved food security problems.
Why is it so difficult for Africa to escape the ‘poverty trap?’ This is because development conditions are different from that of other developing regions. Naturally, given conditions that include a tropical climate, lack of water resources, barren soil as well as ethnic and religious conflicts, poor infrastructure, absence of human capital, lack of national will to develop, and outdated concepts on labor and work values, make for a very complicated and diverse reality with respect to African poverty.
Characteristics of Emerging Cities in China and Corporate Strategy to Enter the Market
As China is undergoing a rapid shift in paradigm of its economic growth from an export-driven one to one focused on domestic consumption in the wake of the global financial crisis, the consumer market in China is expanding gradual..
Furong Jin et al. Date 2014.12.30Economic relations, Business managementSummary
As China is undergoing a rapid shift in paradigm of its economic growth from an export-driven one to one focused on domestic consumption in the wake of the global financial crisis, the consumer market in China is expanding gradually, especially in the new emerging cities. Foreign companies, which had mostly based their marketing centers in first-tier mega cities such as Beijing and Shanghai, are now competing to enter those new emerging cities. Despite such developments, however, South Korean companies are still tied to the coastal area, where most of the first-tier cities are located, with respect to their entry into the domestic consumer market in China. And the insufficient information available about the local market, combined with the lack of distribution channels and deteriorating brand competence, is hindering their efforts to develop their own domestic consumption market.
Given the backdrop involving such shifts in the economic climate, this study is aimed at analyzing the characteristics of the consumer market in the new emerging cities in China and coming up with recommendations with regard to strategies for entering them. This study contains two important differentiating factors: 1. The first point of the study that differentiates it from the rest is that it analyzed the consumer market with its research focus on the specific, ‘micro’ consumer attributes limited to 10 target cities in China, instead of reviewing all major metropolitan areas; 2. This study performs a one-on-one survey and case study in terms of its research methodology, while also applying key management theories such as consumer behavior model, 4P and STP strategy.
Equipped with such differentiating factors, the ten emerging cities in China were selected based on a quantitative method followed by interviews with local consumers in the emerging cities to identify their characteristics. Especially, a case study on the South Korean companies operating in China was performed through in-depth interviews with company officials working in companies with a local presence in China.
For this study, a total of 287 Chinese cities at the prefecture level and above were classified into 4 levels while considering their respective consumption scale and growth indicators, and selected the cities that satisfied the definition of the emerging city. For the consumption scale indicator, three variables including per capita GRDP in 2011, the size of the consumer market (total retail sales of consumables) and size of the potential market (per capita disposable income × population in the urban center) were considered, while the annual rate of increase of the said variables from 2009 to 2011 was assumed as the growth potential. And the top 50 cities as measured by their consumption size were excluded to pick out actual ‘emerging cities’; and the high-growth cities were selected from the selected 50 cities, while the cities overlapping geographically were excluded from the pool. The emerging cities selected through such filtering process include: Second-tier cities such as Chongqing(重庆), Ordos(鄂尔多斯), Chengdu(成都), Changsha(长沙), Daqing(大庆), Xi’an(西安) and Zhengzhou(郑州), and third-tier cities such as Nantong(南通), Jiaxing(嘉兴) and Hefei(合肥).
And to identify the consumer characteristics of the 10 emerging cities selected, 50 consumers from each city were surveyed for their consumption pattern, consumption characteristics and their perception on and assessment of South Korean products, with the survey results being analyzed with such statistical methodologies as frequency analysis, ANOVA and regression analysis.
First, the result of the frequency analysis shows that consumer products with relatively larger shares in the total consumption includes grocery, daily necessities, clothing and fashion products whereas in the service segment the expenditure on transportation/communication, eating out and culture/entertainment took the largest share in the total consumption. The purchase channel of those consumer products differed slightly by product category such as grocery, cosmetics, clothing/fashion products and home appliances, while the use of online channel was also active. The respondents valued quality, followed by the price, in making the final purchase decision, while relying mostly on the Internet in collecting information on the products. And they were interested in ‘green’ and well-being products as much as in other products. After analyzing the eight different tendencies that are related to consumer psychology including conspicuous consumption, impulsive purchase, pursuit of the latest trends, price sensitivity, curiosity toward new products, preference for imported brands, preference for specific brands and level of trust in advertisement, the consumers in the emerging cities valued practicality and self-satisfaction, and their sensitivity to price increases was not high though they did respond somewhat to price increases. They displayed significant interest in new products and did not place much importance on whether they were imported or Chinese brands. And they would easily switch to other brands even though they did have established preference toward certain brands, while they did not put much trust in advertisements. They showed the greatest amount of interest toward purchase of Korean products though their perception on South Korean products was lukewarm, at best. The deciding factors in purchasing the South Korean products were quality and design. They also had an interest in buying such Korean products as clothing/fashion, digital products and cosmetics. When other competing foreign products are compared with the South Korean counterparts in terms of quality, design, price, and brand, the South Korean products were evaluated to be competitive in design, price and brand, but these consumers answered that South Korean products were just so-so in terms of quality and service. Such consumption patterns and tendencies as well their perception and assessment of South Koreans products differed depending on cities and demographical characteristics (sex, birth year, income level and others).
Meanwhile, an empirical analysis performed to identify the impacts product characteristics had on the consumers’ purchase behavior proved that such characteristics do have an influence on their purchase of South Korean products, thereby validating the consumer buying behavior theory.
When the marketing cases of the companies from South Korea, Japan, and Taiwan that entered such emerging cities were analyzed along with consumer characteristics in the emerging cities from the perspective of 4P and STP, the companies from each country strove to attract customers by differentiating their products and services (Product aspect). And South Korean companies were utilizing ‘green’ and Korean Wave actively, while attempting to differentiate their products and brand image by developing new products customized for each region. Also, companies from various countries were pricing their products in accordance with the product characteristics and competitiveness (Price aspect). In terms of Place, companies from various countries selected store locations by considering the product attributes and convenience of customers in visiting the store. Regionally, Japanese and Taiwanese companies entered the first-tier cities followed by expansion into second-tier and third-tier cities, thereby closing on their target region. In terms of Promotion, Taiwanese companies were utilizing various methods of competition related with their business, whereas South Korean companies were not up to that level.
Next, in terms of STP, companies from various countries segmented their customers in accordance with their respective income level, tastes, age level and life style (Segmentation aspect), before narrowing down their customer group by their product type with their target focused mainly on the middle income class or over (Targeting aspect). And they were positioning themselves among the customers by highlighting country-specific product images and through provision of unique services (Positioning aspect).
Based on the results of such analysis, this study came up with recommendations regarding the strategies required to enter the emerging cities as below:
1. Some of the promising areas companies may enter are - clothing/fashion, cosmetics, digital products, general home appliances and processed foods in the consumer products, and eating out, culture/entertainment, beauty/health and medical care in the service sector. 2. Companies are required to improve product competitiveness in terms of 4P perspectives and utilize the green/well-being marketing actively while utilizing the psychological factors as well such as pursuit of the latest trends and curiosity towards new products (Product & Price strategy). With regard to placement strategy, the store location should be selected by considering various factors comprehensively such as commercial supremacy, parking convenience, entrance of similar and related competitors to the market and target segment, while the establishment of the distribution channel would be more effective when implemented through indirect sales channel such as commercial agents. And the distribution channel should be selected depending on the item; active use of online channels is also recommended. In terms of Promotion strategy, it is also recommended that products be publicized via WeChat and utilize the recent popularity of Korean Wave. Third, it is necessary to come up with customized market entrance strategy by segmenting the customers according to their sex, birth year and income level. And it is recommended to target women, those born in the 1980's and 1990's and income brackets higher than the middle-income group. Fourth, as there are differences among those emerging cities in terms of consumption patterns and characteristics, perception and assessment on the South Korean products, it is also required to come up with customized entrance strategy by identifying the characteristics of each emerging city.
Meanwhile, it is necessary for the government to expand its R&D investments to strengthen product competitiveness and enhance the country image, while also laying the groundwork for entering the online and offline distribution networks. And the government needs to provide PR support and settlement in the local cities for Korean companies while also expanding their effort to achieve overseas expansion.
An Analysis on the Services Trade Agreements of the TPP Members
This report intends to investigate the level of liberalization in services sectors of countries participating in the TPP(Trans-Pacific Partnership) by analyzing revised offers in the WTO DDA and regional trade agreements the..
Jong Duk Kim et al. Date 2014.12.30Economic opening, Multilateral negotiationsSummary
This report intends to investigate the level of liberalization in services sectors of countries participating in the TPP(Trans-Pacific Partnership) by analyzing revised offers in the WTO DDA and regional trade agreements they have agreed upon, and then suggest possible strategies for Korea regarding the ‘schedule of commitments’ negotiations in the services area of the TPP.
In order to achieve the aims stated above, the following four aspects of services agreements are investigated in this report: TPP-relevant issues and topics in services provisions, revised offers to WTO in the Doha Development Agenda, reservations list of TPP members’ FTAs after their DDA revised offers, and services trade restrictiveness index published by the OECD. The first chapter briefly overview the overall report. The second chapter introduces and examines the major issues of provisions in recent services negotiations, especially ones frequently raised after GATS, inter alia, most favored nations, national treatment, local presence, market access and progress requirement. The third chapter analyzes revised offers of TPP members submitted for the Doha Development Agenda negotiation in 2005, which indicate the general level of liberalization in services sectors of the TPP members. The analyses of revised offers elicit useful insights showing that commitments in national treatment are more liberalized than those in market access, commercial presence is generally the more preferred method of liberalization than cross-border trade, and the level of liberalization of Korea ranks around the middle among TPP members. The fourth chapter investigates FTA services agreements of major TPP members (Australia, Canada, Japan, and the United States), focusing especially on their reservations lists offered following the negative list approach. These countries have already liberalized services markets at a high level in the WTO DDA (or NAFTA in the case of the U.S.) and hence have not shown much progress in those sectors already recognized in subsequent FTAs. However, attention needs to be paid to their positions regarding the liberalization in ‘new services’. The United States have reserved the rights to adopt measures specified only for market access in new services and hence remain relatively flexible to further liberalization. On the other hand, Japan placed the ‘new services’ in Annex II and hence maintained their rights to adopt new discriminatory measures, in attempts to delay further liberalization in newly emerging services. The fifth chapter investigates the level of services liberalization in a more synthetic and holistic fashion by analyzing services trade restrictiveness index (STRI) published by the OECD in 2014. The results show that the restrictions in market access have remained the single largest obstacle to services trade. Especially, sectors showing low levels of liberalization tends to have more market access restrictions. In addition, restrictions on the movement of natural persons tend to appear more in professional services. Finally, based on those analyses, the last chapter suggests sectoral negotiation strategies and policy implications. In professional services, Korea still remains relatively restrictive on mode 4 (the movement of natural persons) issues than others; however, since the United States who leads the TPP negotiation has not been active in this matter, Korea is not expected to face pressures for further liberalization. Regarding courier services, Korea needs to clarify the scope of universal/monopoly postal services. In telecommunication, it is expected to properly respond to new provisions such as ‘net neutrality’ or 'flow of information.' Also in audio-visual services, the Korean government needs to think about the domestic responses regarding market access in newly emerging services through TPP agreement.
A Study on State-Owned Enterprises Reform in China
The pace of reform of China's state-owned enterprises and industrial restructuring is currently accelerating under the leadership of Xi Jinping. This research, through the analysis of enterprise competitiveness,..
Ik Joon Moon et al. Date 2014.12.30Industrial policy, Chinese legal systemSummary
The pace of reform of China's state-owned enterprises and industrial restructuring is currently accelerating under the leadership of Xi Jinping. This research, through the analysis of enterprise competitiveness, business diversification, and industrial concentration, aims to forecast the direction of reform of state-owned enterprises in China and draw implications for South Korea.
This research is comprised of six chapters. Following the introduction, chapter two summarizes the current status regarding the progress of the reforms. Firstly, types and current status of state-owned enterprises are described, and events after the Chinese economic reform are arranged chronologically. Though greatly reduced in number, state-owned enterprises still have less total industrial enterprise operating income and profits compared to private enterprises, meaning the efficiency of management has yet to be improved. The new government under Xi Jinping stated their decision to promote state-owned enterprise reform in the Third Session of the Eighteenth Central Committee of the Party and the two sessions (National People's Congress and Chinese People's Political Consultative Conference）of 2014. From this, central focus of state-owned enterprise reform can be summarized as aggressive pursuit of mixed ownership. Cautious and gradual methods are expected to take place through various trial measures, and reform at the level of provincial government is likely.
Chapter three contains the analysis of relations between Chinese corporate governance and performance, using scales such as productivity and profits. Database used for the analysis was from 571 enterprises listed in stock market A from 2004 to 2013. The result of the analysis is as follows. First, human capital makes significantly greater contribution to productivity in private than in state-owned enterprises. On the other hand, state-owned enterprises show greater contribution from physical capital to productivity relative to private enterprises. Second, Chinese enterprises listed in stock market A were found to have a higher ratio of shareholders; and lesser the supervision by State-owned Assets Supervision and Administration Commission, greater its profits.
Chapter four assesses how well China's state-owned enterprise have promoted business diversification, among different types of businesses, and whether promotion of diverse business has led to sufficient profitability. First, this study shows that the level of diversification and especially relevant diversification has shown to be increasing, but not irrelevant diversification. Irrelevant business diversification is actually declining rapidly Second, the number of unprofitable, non-profit fields with sales is higher in relevant fields of both private and state-owned enterprises. Third, analysis of sales versus profitability reveals that state-owned enterprises have greater irrelevant fields, while private enterprises have greater relevant fields. In summary, the number of profitable fields and sales are proportional in state-owned enterprises, where as in private enterprises, the relationship is inversely proportional.
Chapter five contains a brief analysis of the correlation between state-owned enterprise reform and industrial policy. Generally, the level of integration in Chinese industries is low and unidentical industry-wise, industrial restructuring such as Mergers and Acquisitions(M&A) are found to be in tune with policies aimed at promoting state-owned enterprises. Likewise, five industrial fields including petrochemicals, automobile, retail business, steel and shipbuilding industry are selected for analysis on 1) current status and future directions, 2) competitiveness based on industrial concentration, 3) directions of private enterprise within industries and 4) implications for South Korea.
This research proposes that the key to state-owned enterprise reform is mixed ownership, and when executed successfully, would bring forth tremendous change in China’s ownership system. State-owned sectors made open and accessible to private capital would disperse management risk, followed by optimization of management and investment policy. Moreover, both business diversification and industrial concentration of state-owned enterprises are expected to occur. As far as diversification of state-owned enterprises is concerned, irrelevant fields of state-owned enterprises would more likely to experience diversification than relevant fields.
Nevertheless, limitations and shortcomings of state-owned enterprises are as follows. First, directions of mixed ownership differs by industrial field and mixed ownership might appear only in some industries. Second, state-owned enterprise reform may place heavy emphasis on state-owned enterprises and possibly favor state-owned enterprises. Generally, limited private capital is rarely considered to be used in taking over absolute share of a state-owned enterprise. In fact, state-owned enterprise is more likely to merge with and acquire (M&A) an internally stable private enterprise during the transition to a mixed ownership.
Implications for South Korea are that opportunity for both intense competition and cooperation coexist. Firstly, South Korean enterprises already in China would enter into more intense competition not only in the Chinese domestic market, as competition with Chinese enterprises would also become more intense in the global market, thereby requiring Korean enterprises to be prepared. Therefore, the need to make provisions for strengthening regulations and enforcement of laws regarding state-owned enterprise reform is very high. Secondly, globalzation of Chinese enterprises could provide an opportunity for South Korean enterprises for cooperation and as a consequence, would lead to enlargement of the market. Within the industry, growth of Chinese enterprises has led to increased cooperation and it may have a positive impact through bilateral trade and investment expansion.
Effect of India's Expansion of FTA on the Korea-India Trade
Korea and India established their diplomatic ties in 1973 but economic cooperation between the countries began in earnest after India’s economic reform in 1991. In particular, the economic cooperation was intensified as the India..
Woong Lee et al. Date 2014.12.30Economic cooperation, Trade policySummary
Korea and India established their diplomatic ties in 1973 but economic cooperation between the countries began in earnest after India’s economic reform in 1991. In particular, the economic cooperation was intensified as the Indian economy was opened up further and experienced high economic growth since 2000, which led to remarkable success of the Korea-India CEPA (Comprehensive Economic Partnership Agreement) implemented in January 1, 2010. India has aggressively expanded its FTAs as it concluded 13 RTAs (Regional Trade Agreements) with 25 countries and has been negotiating or reviewing agreements with several countries including the EU. Narendra Modi government inaugurated in 2014 has given priority to the quality aspect of FTAs rather than the quantity aspect that was emphasized by the previous government. Prime Minister Modi announced that the FTAs signed by the previous government in the last ten years have benefitted the partner countries but not India in terms of quality and volume of trade. Therefore, it is expected that the Indian government will further pursue its actual benefits with its practical FTA strategies.
This report analyzes the effects of India’s FTA enlargement on the trade between Korea and India. Especially, it focuses on the Korea-India CEPA and the Japan-India CEPA while giving consideration to high competition in the Indian market between Korea and India.
In Chapter 2, this report examines the Indian government’s trade policies including FTA policy. It also compares and analyzes ‘pillars’ including background, merchandise, service, investment, and others among FTAs already implemented by India. Next, it compares the Korea-India CEPA and the Japan-India CEPA in greater detail and presents similarities and differences between the two FTAs, focusing on disadvantages that Korea faces or will face.
In Chapter 3, simulations are performed using the World Bank SMART to analyze how expansion of FTAs by India affect the Korea-India trade and shows changes in import, tariff revenue and consumer surplus of India as well as changes in export by Korea. The report performs simulations not only for the entire economy but also for specific items (HS 2 or 6) and provides estimates for each case.
Using the results from the chapters 2 and 3, the report suggests a method for setting priorities among the list of items in the future Korea-India CEPA upgrade negotiations. The authors hope that the results from this report will be utilized as a useful resource to upgrade the Korea-India CEPA.
Study on the Financing for Development in Post-2015 Era: Policy Implications for Korea
With only a year left on the timeframe set for the conclusion of the Millennium Development Goals(MDGs), the international community is actively in the process of developing a new framework which will set the tone for the internat..
Jione Jung et al. Date 2014.12.30Economic development, Economic cooperationSummary
With only a year left on the timeframe set for the conclusion of the Millennium Development Goals(MDGs), the international community is actively in the process of developing a new framework which will set the tone for the international development scene after 2015. Centering on the values of human rights, equity, and sustainability, the Post-2015 Development Framework is expected to show a mid- to long-term vision in tackling global challenges and environmental changes in line with the establishment of the Sustainable Development Goals (SDGs).
One of the most significant features of the current discussion on the Post-2015 development agenda is its particular focus on the means of implementation for the new goals in the Post-2015 era. As a means of implementation, financing for development is deemed central to achieving the goals. Considering the current circumstances where the international environment is changing rapidly while new challenges arise, additional financing is absolutely necessary in the pursuit of renewed development goals. As a consequence, Korea must expedite progress in expanding the development agenda as well as increasing finance for development.
In this regard, this policy paper aims to review the discussion on increasing financial resources for development and seeks to draw implications for Korea in order to respond appropriately to the issue. For these purposes, this report first provides an overview of the chronology of discussions on SDGs and analyzes international observations on the scale of finance necessary for achieving the SDGs. Then we further explore some technical details on financing for development, including the modernisation of the ODA definition and new measure of total official support for sustainable development. The paper moves on to seek various ways of utilizing public support to stimulate private sector resource mobilization. By conducting case studies on development finance mechanism of the German KfW Development Bank and France Development Agency (AFD), the report provides insights on additional types of financing, such as blended financing, guarantees, capital subscription, and mezzanine finance.
In conclusion, the paper suggests some policy measures to efficiently raise resources to finance the Post-2015 development framework; First, greater emphasis should be placed on expanding and utilizing other official flows(OOF) as well as ODA instruments from the view point of private resource mobilization. This effort should not become a way to avoid the pledges to increase ODA volumes, but rather an additional form of effort to effectively incentivize and leverage private sector investment for financing sustainable development goals. Also, domestic financial institutions for development such as the Economic Development Cooperation Fund (EDCF) need to propose and share various financial instruments and wide-ranging expertise to strengthen public-private partnership for international development cooperation programs. Lastly, the paper suggests measures to connect climate finance with financing for development, which is imperative to the post-2015 framework.
Labor Market Flexibility and Different Job-Matching Technologies across Regions in India: An Analysis of State-Level Disaggregate Matching Functions
This paper examines the relationship between labor market flexibility and matching function efficiency in India. With state-level disaggregated data, the matching function in India is estimated to investigate differences in the ma..
Woong Lee Date 2014.12.30Economic development, Labor marketContent
II. Literature Review
III. Brief Overview of Labor Market Regulations in India
IV. Overview of Matching Function
V. Employment Exchange in India and its Data
1. Public Employment Services in India
2. Data Description
VI. Labor Market Flexibility and Matching Functions in India
1. A Simple Explanation on Labor Market Flexibility in Search-Matching Model
2. Econometric Specifications
3. Matching Function with all States
4. Matching Function with Labor Market Flexibility
5. Robustness Checks
6. Matching functions by Groups in terms of labor market flexibility
VII. Concluding Remarks
This paper examines the relationship between labor market flexibility and matching function efficiency in India. With state-level disaggregated data, the matching function in India is estimated to investigate differences in the matching function efficiency across regions of different labor market flexibility. In addition, matching parameters are estimated in the respective regions that categorized by the degree of labor market flexibility. It is the first original work that uses state-level data to estimate matching function in India. The data are drawn from Employment Exchange in India, the only public job centre in this country. The results show that there is no link between labor market flexibility and matching function efficiency. The evidence indicates that regions having inflexible labor markets reveal entirely vacancy-driven job matching process, which implies lack of labor demand. For these regions, it is recommended that policies to boost labor demand such as employment subsidies are appropriate to create more employment.
Strengthening U.S. Manufacturing Competitiveness and Its Implications
Following the 2008 global financial crisis, the U.S. government acknowledged that the explosive growth of the financial sector and weakened competitiveness of manufacturing threatened the whole economic system and failed to contri..
Bo Min Kim et al. Date 2014.12.30Industrial policy, productivitySummary
Following the 2008 global financial crisis, the U.S. government acknowledged that the explosive growth of the financial sector and weakened competitiveness of manufacturing threatened the whole economic system and failed to contribute to creating quality jobs. In this context, the Obama administration introduced a number of policies to enhance manufacturing competitiveness with particular emphasis on high-tech and high value-added. The recent U.S. policies to strengthen the manufacturing sector will consequently influence Korea’s manufacturing and export performance as well as the global production network. Based on the analysis of the U.S. government’s efforts to revitalize manufacturing competitiveness since 2009, this report is intended to provide recommendations for relevant policies of Korea.
U.S. manufacturing, which accounted for over 30 percent of global manufacturing production in the 1990s, now contributes only 18 percent. Hence, the share of U.S. manufacturing value-added to domestic GDP fell sharply from mid-20 percent in the 1970s, then 15 percent in the early 2000s and to 11.9 percent recently in 2009. In order to examine the causes behind the recent trend of weakening U.S. manufacturing and whether this trend has changed since the Obama administration took office, relevant indicators such as TFP, TSI, input-output and value-added are reviewed. First of all, the Total Factor Productivity(TFP) of U.S. manufacturing recorded significant increases until the late 1990s, driven by remarkable development of information technology, but TFP began to grow at a slower rate after the IT bubble burst and recently reported a minus growth rate for 2 consecutive years since the 2008 financial crisis. Although the growth rate of the TFP between 2009 and 2012 still remained nearly half (0.6 percent) of the average rate for the last 24 years, or 1.2 percent, it is worth noting that the declining trend in the TFP growth rate came to an end after the Obama administration took office. In terms of Trade Specification Index(TSI), the fact that TSI in steel, chemical, general machine, scientific·medical equipments, semiconductor and so on fell both before and after 2009 indicates that Obama’s manufacturing policies has not yet made significant impact on international competitiveness of several manufacturing sub-sectors. Meanwhile, analysis of the international input-output tables in this report confirms the shrinking share of U.S. manufacturing in global production network after the early 2000s, and a review of value-added shows that most of the U.S. trade deficits resulted from the manufacturing sector.
Increasing unemployment triggered by the global financial crisis as well as worsening productivity and global competitiveness of U.S. manufacturing encouraged the U.S. government to pursue policies for revitalizing the manufacturing sector to increase exports and creating jobs. Therefore, from its early tenure, the Obama administration has highlighted the importance of advanced manufacturing in terms of its potential for innovation, export enhancement and greater economic and social spill-over effects than other industries. Other factors such as decreasing energy costs led by rising production of shale gas in North America, sharply increasing labor cost in developing countries, increasing awareness of intellectual property rights and increasing international transportation costs also contributed to the government’s actions to reinvent manufacturing.
The Obama administration chose to pursue a more proactive and practical policies to achieve its goal of enhancing the U.S. manufacturing sector. In particular, support for advanced manufacturing and tax incentives for reshoring firms are at the core of recent U.S. manufacturing polices. The specific policy measures include promoting exporting of manufactured products, encouraging R&D and PPP in advanced manufacturing, training skilled labor and incentivizing firms to move production bases back to the U.S.. Especially, the government is aiming to establish the ‘National Network for Manufacturing Innovation (NNMI)’, an initiative to promote commercialization of cutting-edge high technology, process and product innovation; and consequently nurture the high value-added manufacturing sector. With joint participation and cooperation among government, industry and universities, the NNMI initiative is designed to build up to 40 manufacturing innovation institutes in the U.S.. Meanwhile, the ultimate goals of policies to promote reshoring include not only reducing the U.S. firms’ operation costs but also reinforcing U.S. manufacturing competitiveness through innovation. There are an increasing number of U.S. companies moving their production facilities from overseas back to the U.S. in order to facilitate innovation in the production process and develop advanced technologies.
It is difficult to estimate the effect of the package in support of U.S. manufacturing by the Obama administration due to the short span of time since the implementation of the package. However, the qualitative, long-term effect of the package could be analyzed through the lens of the industry dynamics model, which represents the key features of U.S. manufacturing. In particular, the model, which features process innovation by incumbent firms and product innovation by entrant firms, allows us to analyze the aggregate effects of the policies related to process innovation and product innovation separately. The main lesson from the analysis of the model is that the policy that supports process innovation by incumbent firms would have a greater contribution to future GDP growth than the one that supports product innovation by entrant firms in a well-functioning, competitive market. The main mechanism is market selection: a surviving firm is more productive than the one that cannot survive in a competitive market. The policy that supports process innovation by incumbents forces the least productive firms to exit and reallocates resources from the less productive to the more productive firms. As a result, the policy would contribute to the aggregate productivity and output growth in that labor and capital would be utilized effectively by the more effective, surviving firms. On the other hand, entrant firms have not been tested by market and it is costly to examine their value added in advance. Without carefully analyzing the value of entrants, however, the policy that supports product innovation might have two opposing effects, e.g. the policy might introduce the new value added to an economy but it might also allocate resources to the less productive entrant firms. The model predicts that two opposing effects would cancel out and therefore the policy which supports product innovation would have less significant aggregate effects than the policy which supports process innovation by incumbents. The Obama administration's package in favor of manufacturing, e.g. tariff benefit for imported raw materials, subsidy for R&D, and reducing energy costs by development of natural gas, tends to strengthen incumbent firms’ productivity. As the U.S. manufacturing industry is a relatively competitive market, the package is expected to have a positive, long-term effects on the U.S. economy.
This report also includes the review of three sub-sectors of manufacturing: automotive, clean energy and IT industry, in which the Obama administration has continually put great emphasis on. To rescue the domestic automotive industry once under the threat of bankruptcy during the recent global financial crisis, the Obama administration introduced emergency relief loans, reward program for used cars and so on. As a result, consumers experienced improved purchasing power, automotive producers benefited from direct assistance to recover and the industry as a whole was able to reverse downward sales trends. Even after overcoming the near-bankruptcy of the automotive industry, the government consistently provided support for environmental-friendly and energy efficient technologies to enhance value-added of and develop new competitiveness in the industry. Meanwhile, despite Republicans’ opposition from concerns about increasing burden for industry, the Obama administration has strategically expanded clean energy industry such as renewable energy, energy efficiency improvement and carbon capture and storage. According to the government’s analysis, it is expected that support for clean energy industry would contribute to improving competitiveness of other sub-sectors of manufacturing through improved energy efficiency as well as creating quality employment. Lastly, the government’s roadmap for strengthening IT competitiveness led to the introduction of, "A Strategy for American Innovation in 2009" and specific measures for extension of broadband and education infrastructure, training IT-specialized labor, appointment of a national Chief Technology Officer(CTO) and so on. In particular, the newly introduced IT industry policies such as establishment of the CTO position which bridges manufacturing and IT divisions within the government, are aimed at promoting the convergence of manufacturing, service and IT industries and ultimately improving innovation and competitiveness of U.S. manufacturing.
Financial Cooperation between Korea and the Middle East in the New Industrial and Financial Environment
The aim of the research is to suggest policy proposals for financial cooperation between Korea and the Middle East in the changing industrial and financial environments after global financial crisis and 'Arab Spring' in the late 2..
Kwon Hyung Lee et al. Date 2014.12.30Economic cooperation, Financial policySummary
The aim of the research is to suggest policy proposals for financial cooperation between Korea and the Middle East in the changing industrial and financial environments after global financial crisis and 'Arab Spring' in the late 2000s and the early 2010s. Although it can be used in diverse frameworks, financial cooperation in the research means development of cooperative financing schemes for investment projects in the Middle Eastern countries and other emerging economies. It is expected that bilateral financial cooperation will help Korean companies including small and medium sized enterprises to make direct investments in the region with job creation. This will also contribute to expansion of the private sector and reduction of the unemployment rate in the Middle Eastern countries.
Recently, industrial diversification has been promoted in response to post-oil era to lessen the degree of dependency on the oil sector in the region. The size of plant construction projects has been growing with increasing demands for financing capabilities. In the process, the role of multilateral development banks (MDBs) and export credit agencies (ECAs) has been augmented while European commercial banks have weakened financing the projects after the Eurozone crisis. Thus, it is necessary to implement government policies to activate financial cooperation with the Middle Eastern financial institutions including sovereign wealth funds and Islamic banks as well as MDBs and ECAs as Korean companies are suffering from shortage of financing sources. In the research, policy proposals for financial cooperation is divided into three fields as follows.
First, financial capabilities for global cooperation should be improved in the finance sector. Korean ECAs can play a leading role in enhancing those capabilities as they have accumulated human resources and experiences since the 1970s. Commercial banks in the private sector should make their efforts to improve their capabilities for debt financing in overseas projects in cooperation with ECAs. It is also recognized that financial cooperation with the Middle Eastern institutions could be hampered by lack of experts in development finance with understanding of regional characteristics of the Middle East.
Second, financial networks between Korea and the Middle East should be strengthened for information sharing and experts exchange, encompassing all the stakeholders related to cooperative financing. This can be developed into an investment platform finding investment opportunity in accordance with industrial and technological demands in the region. It is also necessary for Korean banks to increase their presence in the region, building their brand values and mutual understanding.
Third, co-investment between Korean and GCC investors should be encouraged to develop new projects in the emerging economies in the Middle East, Africa, and Central Asia. Considering country risks in the emerging economies, it is necessary to establish legal and institutional frameworks for implementing various contracts in the public-private partnership projects. Moreover, co-financing models should be designed with help of multilateral development banks, which can play a significant role in financing from other commercial banks and mitigating country risks.
Analysis of the Changes in the Economic-Industrial Structure and Locational Competitiveness of Four Central-European States
The Visegrad Group is an alliance of four Central European states – Czech Republic, Hungary, Poland and Slovakia. There are three main reasons why interest in the Visegrad Group has been rapidly growing. First, the economic ..
Myeon Hoei Kim et al. Date 2014.12.30Economic development, Economic cooperationSummary
The Visegrad Group is an alliance of four Central European states – Czech Republic, Hungary, Poland and Slovakia. There are three main reasons why interest in the Visegrad Group has been rapidly growing. First, the economic one. Since political transition, which began in 1989, those four countries reached a much higher economic growth rate than other Central and Eastern European countries. After joining the EU (European Union) in 2004 and entering the European Single Market, the Visegrad Group countries have been regarded as a successful model of economic development. They are also evaluated as the most prominently potential region for further growth along with BRICs, and Turkey due to a satisfactory economic growth and prospect of investment. The second reason is that these countries have continued to stand as a bloc of 'Collective Action' within the EU through their strong political solidarity. Even after their accession to the EU, their collective action is expanding to include the fields of science and technology, education, border controls, and social development policy. Their collective action strategy is strikingly noticeable in the process of distributing the EU Structural Fund. This kind of strong cohesion qualifies them as an independent political actor. Finally, and perhaps most significantly, the Visegrad Group plays a special role in Korea – EU relations. However, there has not been much research carried out about this region in Korea. Hence, there is a growing need to conduct a research on the Visegrad Group.
Currently, 28 member states of the EU have exercised significant political and economic influence as a 'United Europe' in the last 25 years after the end of the Cold War. Therefore, it is impossible to understand today’s Europe without examining its integration issues. Research on the Visegrad Group should be also viewed from the context of the whole European integration process. Accordingly, this research focuses on how the Western Europe-led Integration order has affected the four countries in the Central Europe. Twenty-five years after the end of Cold War and ten years after the EU accession, this analysis adheres to the point of view that the changes in the economic and social structure in the four countries and their locational competitiveness should be understood within the 'United Europe'. Only such an approach can help to accurately explain the political and economic status and role of the Visegrad Group.
The European Integration process has been reflecting newly constructed elements following changes in the situation. It was very important to note that some countries in Central and Eastern Europe entered the European Integration order in 2004, 15 years after the end of the Cold War. And these new elements provided a positive mood in the process of the escalation of the European Integration. After an entry into the European Integration order, the political and economic status and the role of Central and Eastern Europe have significantly changed based on a 'United Europe' over the last 10 years. Current EU regional integration is something higher than just ‘Economic Union’. These four countries share their fate with the EU by mutual relationships. It is impossible, therefore, to explain the political and economic status and strategic value of Central and Eastern Europe by disassociating these regions from Europe as a whole.
Even since the four countries in Central Europe joined the European Integration order in 2004, they have been in the process of convergence to a 'Standard Model' of Western Europe through the continued macroeconomic policy changes. These four countries have consolidated their position as 'Factories of Europe' in the last 20 years of continued economic growth after the system transition. Assuming the average economic level of the 28 EU member states as 100, Poland scored from 43 in 1995 to 68 in 2013, Czech Republic scored from 77 to 80, Slovakia scored from 48 to 76, and Hungary scored from 52 to 67 in the same period. In 1995, an average GDP per capita of four countries was only ??3,305, but it increased about 3.6 times to ??11,895 in 2013. Also, there has been a remarkable change in industrial structure of the four countries after the system transition that included primary industries such as agriculture and fishery. Changes in trade structure consisting of the core of the four countries' external economic relations are also noticeable. Visegrad Group had mainly traded with countries in the Communist bloc before the system transition. However, currently main trade is carried on within other EU member states. It is impossible to consider the economy of these four Central European countries without the EU. AS a result of the integration, the four countries in Central Europe have been gaining importance in the European economy over the years.
Despite the growing homogeneities within the Western Europe-led integration order, the four countries in Central Europe still display some differences. These countries still have lower average income level than Western Europe, and their economic structures have not reached the level of those advanced countries yet. Nevertheless, these four countries proved that they have a significant strategic value with a high economic growth rate after the system transition. Furthermore, as the four countries entered EU, their strategic value has raised. This is because the status of these four markets has changed in the European Integration process. This situation also results from the strengthened locational competitiveness of these four countries.
In regard to the integrated Europe, locational competitiveness of four countries in the Central Europe is determined not only by economic factors, but also by political and geographical factors. Regarding the economic factors, the four countries have relatively lower wage levels than Western Europe, relevant size of domestic market, and economic dynamism compared to the neighboring countries. They also record only 32-44% of the EU's average labor charge per hour, while their total population is comparable to France and the United Kingdom. In addition, as the EU member states, these four countries accomplish a comparatively higher economic growth rate benefitting from the EU Structural Fund. Aside from the economic factors, these countries promote institutional cooperation amongst themselves through a strong political solidarity. Politically, they also tend to take collective actions. As far as geopolitical factors are concerned, they have advantages of locational competitiveness as they are positioned to connect the Western Europe to Russia in the continent. This locational competitiveness provides many advantages for the development of manufacturing as well as logistics industries. Thus, the mix of three factors determines the locational competitiveness of Visegrad Group.
Locational competitiveness of four countries in Central Europe is demonstrated by FDI inflow trend. Since the market economy was introduced after the system transition, increased FDI inflow in these countries has had positive effects to GDP, R&D, and an increase in employment rate. Even though their FDI inflow drew downward curve for a while due to 2009 Economic Crisis, their proportion of FDI inflow has risen approximately threefold from 2007 to 2012 in comparison to the all EU member states. Proportion of these countries in FDI inflow recorded double digits in the whole of EU. These are critical data to explain why the Visegrad Group is an emerging region with locational competitiveness. Of course, it is impossible to explain high level of locational competitiveness only with statistical data. It is true that they have endeavored to achieve goals autonomously. During the period of 25 years after the system transition and ten years of accession to EU, these countries have prepared particular strategies. They also have actively endeavored to attract foreign capital by cash grants, special taxation, and various incentive systems. In conclusion, the four countries in Central Europe have been experiencing changes in economic-industrial structure and locational competitiveness due to the objective factors such as the system transition of the last 25 years and accession to the EU in 10 years, as well as autonomous efforts of each country.
The auto industries of the four countries in Central Europe have been one of the most notable sector in regard to locational competitiveness since the 25 years of system transition and 10 years of accession to EU. During this period, the proportion of these countries have rapidly expanded among European automobile manufacturers. Automobile manufacturing has switched from former major automobile manufacturing countries such as France and Italy to Central Europe dubbed as an emerging market. Automobile manufacturing in these countries by multinational corporations of Western Europe has increased rapidly, and this helps the auto industries of the Central Europe to be integrated into the Global Value Chain.
The importance of this region has to be understood in a relationship with the EU member states because these four countries cannot be separated from Europe as a whole. Thanks to the Korea-EU FTA agreement in 2010, the bilateral relations were formally upgraded. At first, there were growing expectations that these bilateral FTA would bring economic growth, trade expansion, improved market rationality. However, against the initial anticipation, Korea's market share in the internal EU market dropped from 2.6% in 2009 to 2.1% in 2013 since the Korea-EU FTA formally went into effect in 2011. Contrary to the expectations, Korea had a ??4.1 billion trade deficit toward EU in 2013.
The Visegrad Group has a growing importance in Korea’s exit strategy from its trade deficit against EU. Korea could resolve itsproblems related to the EU by expanding trade and investment in these four countries in Central Europe as a detour.
Trade between Korea and the Visegrad Group has rapidly increased after the system transition, from the early of 1990s, and accession to the EU in 2004. Korea's total exports toward the four countries in the Visegrad Group recorded 9.1% of the total exports toward EU. This fell short for France (9.5%), but this was larger than the United Kingdom (8.9%) and Italy (8.5%). The four countries in Central Europe took 9% of Korea's import toward EU, and this was also the fourth largest volume following Germany, France, the United Kingdom, and the Netherlands. It clearly shows that Korea's trade policy toward four countries has changed after the system transition and accession to the EU.
The most notable point is that trade with the Visegrad Group has increased rapidly not only in terms of trade volume, but also in trade content which is in favor of Korea. Korea has had substantial trade surplus with these countries unlike trade with other EU member states after the Korea-EU FTA. This trade surplus is because export volume has steeply increased in contrast with the import volume that has stagnated at certain level after 2003. Korea had more than $9.8 billion trade surplus toward the four countries in Central Europe in 2013.
However, it is difficult to overcome structural problems of Korea's trade deficit with the EU as a whole because this trade surplus of relatively small size is only limited to a certain number of countries in Central Europe. Considering the fact that population of these four countries in the Central Europe constitutes 12.7% of the total EU population, and these four countries are demonstrating the highest economic growth rate among 28 EU member states, it shows that Korea's strategy vis-a-vis Visegrad Group certainly needs an amendment. In order to maximize the effect of Korea-EU FTA which came into force in July 2011, trade needs to be expanded to actively utilize these countries in the Central Europe. As a result, it will help Korea to diversify its trade partners, which are currently concentrated to the major Western European countries.
When it comes to the proportion of export items, trade structure between Korea and the EU, and between Korea and the four countries in Central Europe shows some similarities. This is because Korea's structural problem of export toward the whole EU is also reflected in its trade with the four countries in Central Europe. However, when considering trade with these four countries in detail, it turns out that daily supplies, plastic, rubber, leather products and other consumer goods take significant proportions as they are linked to their specific development level and needs. This shows that structural problems in Korea's trade with the EU as whole can be partially resolved by actively exploiting the current trade modus operandi with the Central European countries.
The expansion of local production through active FDI is also important in order to expand trade volume and maintain stable market share in Visegrad Group which still deems an emerging market. From 2004 to 2013, Korea invested ??3.2 billion in the Central and Eastern Europe. This figure takes only 11% against the ??28.8 billion of investment in all the EU member states. Among Korea's total FDI (??28.8 billion) in the EU, the top five countries are the United Kingdom, Netherlands, Germany, Ireland, and Belgium and these countries take 76% of total FDI (??21.9 billion). When considering the status of the Visegrad Group in the Europe as a whole, it is clear that more active investment strategy should be implemented in this region. Furthermore, it is necessary to fully understand the changes in the four Central European countries, to prepare suitable strategies in order to maximize the strategic value of the four emerging Central European countries.