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  • 전략지역심층연구 논문집 I: 동남아시아
    Studies in Comprehensive Regional Strategies Collected Papers I : South-East Asia

      

    Date 2015.12.30

    competition policy, economic relations
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  • 전략지역심층연구 논문집 II: 러시아·유라시아
    Studies in Comprehensive Regional Strategies Collected Papers II : Russia,Eurasia

      

    Date 2015.12.30

    competition policy, economic relations, trade structure
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  • 아프리카 민간부문개발(PSD) 현황 및 한국의 지원방안
    An Analysis of Private Sector Development(PSD) in Africa and Opportunities for the Korea-Africa Development Cooperation

    While Africa’s economic performance since the 2000s has indeed been a highly notable success, it has not managed to solve the problem of poverty as such economic success has not translated into job and income creation. The Africa..

    PARK Young-Ho et al. Date 2015.12.30

    economic development, economic cooperation
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    While Africa’s economic performance since the 2000s has indeed been a highly notable success, it has not managed to solve the problem of poverty as such economic success has not translated into job and income creation. The African economy is still trapped within the confines of a monocultural economy, relying on an inefficient system built on a limited inventory of primary goods; it is not only failing to produce added value but also suffering from de-industrialization with the aim of settling into the normal process of economic turnabout still far on the horizon. The Millennium Development Goals (MDGs), an international initiative to eradicate poverty, are nearing their conclusion in 2015 after starting in 2000, and contrary to the initial expectations, the lack of tangible effects on Africa has given weight to the argument that big changes to the paradigm of aid giving are inevitable.
    Nearly 15 million young people join the job market in Africa every year but the industries’ absolute lack of capacity to assimilate these people has resulted in youth unemployment levels reaching near-crisis levels. The private sector is arguably the most effective sector in terms of contribution to the eradication of poverty, and job creation through private sector is increasingly seen as the new paradigm of international development cooperation. Development cooperation has hitherto been focused on social developments like education or public health; recently, however, the emphasis has increasingly shifted to economic development through the development of the private sector, and from it, the goal to eradicate poverty. Stemming from this context, this study is about private sector development (PSD) in Africa, which is a sector of increasing importance and necessity as a target of development cooperation.
    This study aims to propose viable options for an increase in the variety and effectiveness of development cooperation efforts being undertaken by Korea. The private sector and poverty can be said to be directly linked to each other in that the private sector can be said to be the most effective agent in the eradication of poverty, either through a microeconomic approach (jobs → increase in income → alleviation of poverty) or a macroeconomic approach (increase in tax revenue → increase in public investment such as education or infrastructure → increase in productivity or the capacity of the poor). Many nations in Africa have already established national visions of achieving middle-income group status by 2025, and to realize this, economic development must be attained through PSD. The private sector―being a practical leading agent of economic transformation, increase in productivity, and added value through the strengthening of private firms―can be said to be of paramount importance in bringing about economic development.
    In this aspect, this study first reviewed the status and characteristics of the private sector in Africa and analyzed its details and limitations from various angles. Next, this study provided qualitative and quantitative analyses of the significance of support to the PSD of Africa with a focus on job creation and increase in income. Afterward, the status and characteristics of PSD support from various donor nations were analyzed, with implications for Korea as well. Finally, priorities for Korean cooperation with Africa were drawn from the exploration of needs in Africa and the capability of support from Korea. Co-operative options for individual items were presented as well. The summary of chapters, thus, would be as follows: Chapter 2 analyzes the status and characteristics of the private sector in Africa from multiple angles and defines the structural limitations that prevent further development of the private sector. Also, the role and importance of the private sector in bringing about inclusive growth,  such as job creation, and change in economic structure, is highlighted as well as its role in development cooperation. The private sector in Africa can be said to be the “engine” that drives the growth of the economy as 80% of gross production, 67% of gross investment, 75% of gross credit, and 90% of employment all stem from the private sector. However, the private sector in Africa is currently incapable of propelling the development of its countries’ national economy as it suffers from a number of problems including lack of productivity and competitiveness.
    Most private firms in Africa are micro-enterprises, barely operating on a subsistent level within the informal sector. With this, most of the poor in Africa work in microenterprises, which are usually small-scale enterprises with less than ten employees, often made up of family members or relatives. Nevertheless, the private sector plays an important role in the national economies of African countries. While small-scale enterprises (including micro-enterprises) contribute only a small part to gross production, the sheer number of these enterprises means that they play the greatest part in job and income creation. Factors that deter the growth of the private sector in Africa range from financial exclusion to lack of infrastructure, deep-rooted corruption, excessive corporate regulation, and the emigration of a professional workforce. However, the prospect of PSD is not always hopeless. In fact, the rampant problems in Africa can be said to present an abundance of opportunities.
    In Chapter 3, a cross-sectional analysis is conducted to assess private sector development (PSD) quantitatively and the effect of PSD on per capita GDP and unemployment rate focusing on inclusive growth in Africa. By considering inclusive growth with the distinctive features of Africa’s PSD such as the informal sector, PSD is defined more broadly than simply the enhancement of investment climate and business environment, and the purpose of Chapter 3 is to assess PSD and areas of focus for PSD in Africa; furthermore, inclusive growth is considered with small business ownership, financial system inclusion, and intermediation of business investments. The sources of data are The Inclusive Growth and Development Report 2015 and The Global Competitiveness Report 2014-2015 of the World Economic Forum along with “Informality and Development” by La Porta and Shleifer(2014). The analysis employs a linear structural equation model to account for the endogeneity of GDP per capita and unemployment rate, and an unstructured covariance matrix is assumed to reflect complicated relationships among selected variables. The results of analysis indicate that, in Africa, small business ownership is the only significant factor of inclusive growth that causes high income levels and low unemployment rates.
    Provided that the model specification is correct, we can conclude that small business ownership should be considered a priority in Africa’s PSD. Higher income level is related to stronger technological readiness and larger market size, and lower employment rate has relationships with more higher education and training and more efficient labor markets. Yet the employed model has several limitations as follows: the number of observations is too small and standard deviations are fairly high; due to the limited inclusive growth indicators, panel data are not available, thus long-term analysis is not allowed; selected independent variables are indicators obtained from numerous sources, so correlations among variables are hard to determine; and a supposed unstructured covariance matrix, due to the high complexity of indicators, might cause weak validity of the inference of the chosen model. Variables including financial inclusion, informal sectors, infrastructure, and social security as focus areas of PSD in Africa, therefore, should be considered to achieve higher income level since the aforementioned variables show correlations with GDP per capita in diagnostic scatter plots.
    Chapter 4 analyzes the approaches, policies and practices of private sector development for Africa in the cases of three bilateral donors―the United Kingdom, Germany, and the United States―in order to draw policy implications for the Government of Korea. In terms of intervention sectors and themes, the three donors had commonality in PSD work encompassing macro approaches for regulatory and policy reform, mid-level interventions for market development, and micro-level support to micro- and small-sized enterprises with a limited level of differences. All three donors had the whole-of-government PSD strategies stating guiding principles, purposes, and areas of intervention.
    Highlighting the issue of fragmentation and lack of co-ordination among various aid agencies and ministries in PSD interventions of Korea, it was advised to first design a government-wide PSD strategy including a results framework and budget allocation plan. It was recommended to then incorporate this PSD strategy into the upcoming Mid-term ODA Policy for 2016-2020. Drawing upon the experience of Germany, diversifying PSD approaches was emphasized depending on the development status and fragility level of partner countries. As Korea’s African priority countries―Ghana, Ethiopia, Mozambique, Rwanda, Uganda, Tanzania and Senegal―consist of nations at different stages along the developmental path of private sector development, it was stressed that the design of PSD approaches and programs should be diversified for each country and reflected in Country Strategy Papers. It was also outlined that each of the three donors has PSD approaches focusing on their own strengths and experiences. For instance, the United Kingdom has an advanced financial industry focus with support for financial inclusiveness whereas Germany, with a strong Technical and Vocational Education System, emphasizes linking job creation and private sector development; and the United States, with competitive market mechanism, has a strong public and private partnership scheme.
    In that context, Korea, drawing upon its own development experience, could consider a focus on appropriate technology, industrial zone development, and human resource development for PSD in Africa. Chapter 5, the core part of this study, discusses the priorities and options for cooperation between Korea and the private sector in Africa, based on the discussions and results of the previous passages. While Korea’s PSD support to African countries remains limited, the recent growth of its importance has led to recommendations for cooperation in four areas: entrepreneurial support, industrial complex development, professional or industrial workforce development support, and agricultural development. These areas are further elaborated as follows: First, entrepreneurial support is a viable possibility. Entrepreneurial boom remains active in Africa, perhaps to a greater degree than in any other place; however, the success rate of new businesses remains low because of various factors such as inadequate entrepreneurial support. From Korea’s point of view, providing entrepreneurial support to African countries may seem slightly far-fetched but the example of Rwanda shows that entrepreneurial support is a highly feasible option. African countries, having a drastically different context compared to Korea, necessitate above all an entrepreneurial support tailored to the local environment and entrepreneurs. Such entrepreneurial support can be said to be centered on “demand-centered technological development,” and as such, entrepreneurial support tailored to each of the target nations in Africa should take into consideration the ease of usage by locals and the feasibility of maintenance and continued development through the usage of appropriate technology.
    The list of appropriate technology can be primarily drawn from a survey of the local populace, and a primary survey should be followed by an “appropriate technology database (D/B),” which then should be shared with relevant organizations. This database should involve the participation of not only the government aid agencies but also as much of the other actors as possible such as the local Korean population, corporations (local branches), nongovernmental organizations, social enterprises, and academia. This database can then be used as an important source of future entrepreneurial support and development cooperation at the grassroots level.
    Second, the construction of industrial complexes should be a consideration. African countries’ popularity as an investment option for the light industry, such as textiles and clothing, has been on the rise, and coupled with the rise in interest of Korean firms, it is enough to warrant the need for light industrial complexes to be built through a public?private partnership (PPP). Considering the various circumstances of African countries and the lack of experience on the part of Korea, small- to medium-scale urban industrial complexes should be prioritized instead of large-scale industrial complexes. In this respect, funding is one of the most important issues. Funding should be based on a joint venture between Korean aid agencies (i.e., Korea International Cooperation Agency, known popularly as KOICA, Korea Eximbank, etc.) and enterprises (both public and private), with the possibility of financial cooperation with multilateral development banks (MDBs), such as the World Bank, the International Development Association (IDA), the International Finance Corporation (IFC), the Multi-lateral Investment Guarantee Agency (MIGA), or the African Development Bank (AfDB), or co-financing with bilateral development banks. The industrial complexes themselves can focus on the light industry, which has greater demand in the development process, i.e., with greater job creation and import substitution effects and the possibility of being integrated into the global supply chain. Some consideration of light industry areas can be textile, apparel, agro-processing, detergent, plastic (consumer and industrial), plywood and furniture, paper, and agricultural machinery and equipment. The demand for these products in Africa is constantly on the rise because of the increase in income and changes in living conditions; however, the lack of a manufacturing basis means that most of these products are imported. Technological transfers should be accompanied by psychological initiatives akin to the example of Saemaul Undong, or New Community Movement, motivating the workers to “work hard” and minimizing product defects through the “3-P Movement” (precision, probity, perfection), thereby raising the competitiveness and productivity of the firms through the “New Enterprise Movement.” Third, professional and industrial workforce development should be included in the support package. The primary education system in African countries has managed to achieve astounding levels of success through initiatives such as the MDGs, but tertiary and vocational education have not yet achieved nearly the same level of success. The level of higher education (especially tertiary education) remains low among the populace, and even the existing higher education institutions suffer qualitatively, causing alarming levels of job mismatch. Vocational education suffers from the same ailments. While various vocational programs are churning out a constant stream of trainees, some statistics indicate that the percentage of personnel with actual skills in demand by the corporations hover barely around 1% of the total. These observations indicate that Korean co-operative efforts should prioritize educational support to strengthen the basis and the qualitative capability of the workforce and ultimately resolve the job mismatches that plague the job market. Korean development cooperation in this regard has hitherto focused on hardware-based support, providing buildings to house vocational schools, or educational materials.
    However, future endeavors should shift focus to demand-driven or market-oriented modes of cooperation, with the goal of reducing the discrepancy in the labor market. Any attempts to solve the discrepancy between the workforce supply and demand should focus on the synchronization of industrial demand (labor demand) and workforce supply (labor supply), and this attempt should be based on a precise survey of what technological skills are currently in demand by the industrial base. Such a survey can be followed by the determination of labor demand per individual industries (or sectors), which, in turn, can serve as basic data in formulating the blueprints of educational or vocational training policies. The magnitude of this task makes it unsuitable for a single aid organization to undertake it on its own and instead a partnership involving the government agency of that nation, or the AfDB, or aid organizations from developed nations could be considered. Other options for alleviating the job mismatch can include providing support to educational capabilities through partnerships between the universities, tailored education programs according to industrial development stages, and implementing national skill qualifications.
    Fourth, support can be provided to realize a value chain in agriculture. African nations have abundant, farmable land, but the lack of infrastructure has resulted in the demand for agricultural goods surpassing the supply. Investments made on a massive scale are necessary to achieve a tangible increase in agricultural production, but neither poor farmers nor governments of the nations are able to provide such investments. Hence, agricultural development support could focus on developing agro-industrial complexes by establishing a locus of development in a certain area and focusing on the development in that area and thereby realizing a value chain in agriculture. The ultimate aim of an agro-industrial complex is to realize an economy of scale and value chain (increase in productivity → storage/processing → selling) and through it create added value, and such options could prove to be a suitable co-operative model considering the agricultural status of African countries and their needs. Such agro-industrial complexes should be focused on areas that enjoy superiority in market access, considering the situation of most African countries at present (especially the lack of infrastructure and, consequently, the isolation from the market). These projects should be preceded by an increase in productivity through seed developments and fertilizer provisions. Korea has a number of technologies regarding food crops, fruit and vegetables, and dairy farming, and has provided these technologies to developing nations as part of its development cooperation efforts. Agricultural storage areas and processing plants could also be an area of support.
    The absolute lack of processing plants or storage sites often results in the harvested crops being thrown away in Africa, resulting in levels of postharvest loss (PHL) reaching up to 30%?50% of the total production. Next, support could also be provided in agricultural or rural development capabilities. To ensure sustainable development, psychological initiatives, such as diligence, self-help, cooperation, and a sense of ownership are equally important to material provisions or support. In order for comprehensive development projects, such as the agro-industrial complex, to successfully take root in the area, voluntary involvement of the local populace is of great importance in ensuring this goal. The experience of Saemaul Undong can prove to be instrumental in providing additional support through training rural leaders and organizing the populace. This study has narrowed down the prospective options for development cooperation into four areas, with the goal of providing a definite option of development cooperation in mind, but the size of the discussion has regrettably resulted in a surface-level theoretical exploration of policy options. However, this study can be said to be a pioneering work in PSD cooperation in Africa, and successive studies are anticipated to capitalize on the basis of this study to achieve greater scale and utility in the future. Conclusions drawn from this study can be applied to co-operative efforts between Korea and the designated target nations to achieve greater economic success and, in turn, impact poverty eradication. 
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  • 저성장시대 일본 정부의 규제개혁에 관한 연구
    A Study on Japan's Regulatory Reform in the era of low growth

    This report analyzes the Japan’s regulatory reform, which constitutes the core of the Growth Strategy of Abe Cabinet, to present policy implications toward the Korean government. Chapter 2 examines the significance of social regu..

    KIM Gyu-Pan et al. Date 2015.12.30

    economic reform, regulatory reform
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    This report analyzes the Japan’s regulatory reform, which constitutes the core of the Growth Strategy of Abe Cabinet, to present policy implications toward the Korean government. Chapter 2 examines the significance of social regulation reforms conducted by the Koizumi Cabinet in the early and mid-2000s and figures out that the regulatory reform of the Abe Cabinet is composed of ‘General’ regulatory reform, regional-level regulatory reform, and enterprise-level regulatory reform. Chapters 3 and 4 examine the progress made in these three types of regulatory reforms. And Chapter 5 analyzes the regulatory reforms of the Korean government in terms of the framework of regulatory reform in Abenomics. Chapter 2, “The Development Process of Japan’s regulatory reform” outlines
    why the Koizumi Cabinet emphasized social regulation reform as a policy tool to overcome low growth. The results can be summarized as:
    First, since the early 2000s, the government became aware that the reform of social regulations with strong economic characteristics, prevailed in agriculture, medical and welfare, education and jurisdiction areas was essential to revitalize the markets. However, they did not simply intend to deregulate or abolish the regulation but to transform the regulations, which were arbitrary in nature, to Ex post facto regulation or rule-based regulation. Second, regulatory reforms of the Abe Cabinet focus mainly on three sectors:
    medical and health care, employment and agriculture which followed up on reforms of the Koizumi cabinet. The government strived to reform several areas in each sector, for example, expanding the scope of mixed medical treatments (kongoshinryou: A combination of insured and uninsured medical treatments) and allowing retail and online sales of OTC (Over-the-Counter) drugs in the medical sector, improving worker dispatch system in the employment sector, and allowing enterprises to buy farmland in the agricultural sector. 
    Third, the regulatory reform presented in Abenomics has promoted the regional and enterprise levels of regulatory reforms as social experimentation. The National Strategic Special Zone system has been introduced as a regional-level reform to make up for the weaknesses of the general regulatory reform such as difficulties in reaching a consensus among stakeholders. And in the enterprise-level reform, the government promoted the Corporate Special Regulatory Exemption system (Kigyouzissyoutokurei seido) which introduces special ordinances and enforcement acts rather than a full revision of the law, in order to effectively support the companies’ new business plans. 
    Chapter 3, “The Japanese government’s regulatory reform(1): General regulatory reform” examines regulatory reform in medical care, employment and agriculture, selected as major areas for regulatory reform of the Abe Cabinet. The results are as follows: 
    First, in the medical sector, its main achievements would be allowance of online sales of OTC drugs, improvement of the government approval system on regenerative medical products, expansion of the scope of mixed medical treatments, and permission of the establishment of medical corporations in the form of holding companies, and so on. 
    Second, regulatory reforms still follow from the existing regulatory framework that protects permanent employees and restricts hiring of temporary workers, and has been criticized as main contributors to inflexibility of the labor market. Third, in the agricultural sector, the government revised the Agricultural Land law to expand the farmland ownership by enterprises via agricultural production corporations. However, the revision of the law in August 2015 only raised the investment limitation for agricultural production corporations owned by enterprises to 50 percent, and there are still institutional limitations for enterprises to become a real owner of farmlands. 
    Chapter 4, “The Japanese government’s regulatory reform(2): regional-level and enterprise-level regulatory reforms”, analyzes the National Strategic Special Zone system as the regional-level regulatory reform, and the Corporate Special Regulatory Exemption system and the system to Remove Gray Zone as the enterprise-level regulatory reform. The results can be summarized as: 
    The characteristics of the National Strategic Special Zone system are; firstly, it has well equipped with centralized implementation system-the Advisory Council which is under the Prime Minister’s direct supervision. Secondly, it adopted a batch method which lists the provisions for regulatory exemption actions on the National Strategic Special Zone Law enacted in December 2013. Thirdly, it selectively applies regulatory exemption actions that reflect regional and industrial comparative advantages of each zone. Its tangible achievements-urban renewal projects in the Tokyo zone, development of the medical industry in the Kansai zone, and corporate entry in agricultural sector in Niigata and Yabu zones-should be acknowledged. 
    In the enterprise-level regulatory reform, despite the government’s goal to support creating new businesses in new growth engine industry, the application of the Corporate Special Regulatory Exemption system for Japanese enterprises still falls short of their expectations. 
    Chapter 5, section one of “The current state and tasks of regulatory reform, in Korea” analyzes general regulatory reforms of Korean government, by focusing on three sections corresponding to Japan’s regulatory reforms: medical care, employment and agriculture. The Korean government selected five service sectors of health and medical care, education, banking, tourism, and software as the main reform sectors. However, the progress in related legislations such as Service Industry Development Act has been poor; though their legalizations are important to respond high demands from the market. The results are summarized into three parts. 
    First, the would-be achievements of Korean regulatory reforms from easing of medical regulations: allowing commercialized medical care, attracting foreign patients, and deregulating telemedicine treatment has been delayed due to strong resistances from rent seekers. The progress in medical regulation reform has been slow and requires backup plans. 
    Second, the government has promoted labor reforms on application of the wage peak system and general dismissal requisites etc., which would be significant as an initiation of earnest labor market reform. However, the government needs to provide supplement policies for the agreement between labor and management and to achieve labor flexibility and employment stability at the same time. 
    Third, although the government has eliminated obstacles for agricultural corporations, more is required to improve the quality of agricultural enterprises and induce more enterprises’ participation. And as a reform of the National Agricultural Cooperative Federation, the government separated the federation into finance and economic sectors. However, the federation’s economic sector faces challenges to compete with other agricultural distributors and improve management efficiency. 
    Section 2 “Regional-level regulatory reforms: Special Zone system” and Section 3 “Enterprise-level regulatory reforms” in Chapter 5, outline the present condition of the regulatory reforms at the regional and enterprises levels. Firstly, the results of the regional level regulatory reform can be summarized as: 
    First, special zones are basically being promoted to create good business environments focusing on introducing education institutions, foreign medical center and etc., to encourage more foreign direct investment. Also in the local special zones, regulatory exemptions for land-use and authority transfer are introduced with consideration of each region’s own characteristics.
    Second, challenges that special zones face are: first, due to overlapping designation, there is insufficient differentiation among the zones. Also the lack of governance system, delays in development work and sluggish foreign direct investment are being pointed out as problems. Impediments, in particular, to development in the Special Economic Zones include phase-in development restrictions, provision of lands to enterprises below the cost, and resistance to establish foreign medical corporations. Also, the impacts and the utilization of regulatory exemptions by enterprises in Special Economic Zones are still low. 
    As for results of the enterprise-level regulatory reform, they can be summarized as follows:
    First, Korean government also has enterprise-level regulatory reform system, so called Conformity Verification System and Fast Track-and-Temporary Licensing System while these systems can be applied only to new products and services of industry convergence.
    Second, substantial time has passed since the introduction of Conformity Verification System and Fast Track-and-Temporary Licensing System, established in 20011 and 2014, respectively, however, still the utilization is low.  

     

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  • 국제금융시장 변동성 증대에 대응한 거시건전성정책 연구
    Macroprudential Response to Increased Global Market Volatility

    Volatilities of price indicators have remained extremely stable during the period of low interest rates since the Global Financial Crisis (GFC) of September 2009. Low volatility pushes down the risk premium which could cause globa..

    KANG Tae Soo et al. Date 2015.12.30

    financial policy, monetary policy
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    Volatilities of price indicators have remained extremely stable during the period of low interest rates since the Global Financial Crisis (GFC) of September 2009. Low volatility pushes down the risk premium which could cause global investors’risk appetite to increase. There has been a big change in global liquidity flows since 2009. Emerging market economies (EMEs), with relatively high credit risk, received huge capital inflows backed up by the increased risk appetite of global investors. US Federal Reserve is now trying to normalize its monetary policy by increasing the policy rate tied at zero low bound for about seven years. This will bring asset price volatility and risk premiums to normalize. We remain concerned about the downside risk to the capital outflows from EMEs, including Korea. And it may well potentially cause a decrease in asset price and a growth contraction in EMEs. Accordingly, we provide an overview of the volatility of financial market and new trends in capital flows, and identify the determinants of capital flows to/from EMEs. We also review the use of capital flow management policies in EMEs including Korea, and examine the effectiveness of Asset?Based Reserve Requirements (ABRR) as an alternative macro-prudential policy measure to manage capital flows. First, we provide an overview of volatility of financial markets and recent trends in capital flows in Chapter 2. The continuation of low volatility and ample funding at low rates has encouraged market participants to take increasingly speculative positions. Thus, many large EMs have experienced a surge in capital inflows in the aftermath of the GFC. In addition, the composition of capital flows has changed significantly over the past few years. Prior to the GFC, banks’short-term loans mainly took the large volume of capital inflow to EMEs. After 2009, however, portfolio investment (equity and fixed income debt) has taken a larger share. It would be dubbed ‘the second phase’ of global liquidity. And we assess the impacts of push (global) and pull (country-specific) factors on capital inflows to EMEs. According to the results, push factors are more significant for capital inflows to EMs. This implies that domestic policy tools are limited in terms of addressing the macroeconomic and financial stability risks driven by capital inflow surges from abroad. There is concern that the US Fed’s imminent lift-off in policy rates may have a significant impact on capital flows and economic growth in emerging market countries. Thus we may need to find policy tools to respond to these important issues. Against this backdrop, we conducted empirical research to better understand the effects of price volatility (VIX) and interest rate spreads on the capital flows of emerging economies in Chapter 3. In the study, we chose to utilize fund flow data from EPFR (Emerging Portfolio Fund Research) whose data has higher reporting frequency than conventional capital flow data sources. The implications from our empirical results are threefold. First, an increase in volatility is associated with net outflow of funds from emerging economies. Second, our results do not unconditionally support the textbook effects of widening of interest rate spreads leading to capital inflows in emerging economies. Lastly, interest rate spreads had opposite effects on the capital flows of emerging economies depending on the level of volatility. In times of heightened volatility, widening interest rate spreads were associated with positive (+) capital inflow. In contrast, the widening of interest rate spreads was negatively (-) associated with capital inflows when volatility was low. This particular empirical result on the effect of interest rate spread suggests that it may be difficult to address issues of volatile capital flows using monetary policy alone. The results also suggest it is important to consider the effect of volatility when conducting monetary policies in emerging economies. In Chapter 4, we review the use of capital flow management policies in emerging economies including Korea.  A surge in capital inflows to EMEs may deepen volatility and vulnerability of the macro-economy and financial markets. The IMF provided a clear and consistent perspective with respect to capital flows and policies. Policymakers should take into account appropriate macro-economic policies at first, and then need to employ Capital Flows Management Measures (CFMs) and Macro-prudential Measures (MPMs) to respond to capital flow surges. Several emerging economies introduced CFMs to address side effects from the high volatility of capital flows. Beginning in June 2010, Korea introduced a series of Macro-prudential measures (MPMs) aimed at building resilience against external financial shocks, especially against vulnerability to capital flow reversals in the banking sector. These MPMs succeeded in reinforcing the banking system’s soundness by improving the structure of foreign debt of the banking sector, and reducing capital inflows in short-term portion and stabilizing volatility of capital flows. There are, however, limitations that MPMs in Korea are placing more emphasis on consolidating foreign liquidity soundness of the banking sector. In addition to the above, it is imperative that Korea make preparations to reduce volatility of capital flows in equity and debt. In chapter 5, we discuss asset-based reserve requirement policy as an instrument to cope with financial systemic risk. Specifically, we compare the effects of asset-based reserve requirement and Basel III-type countercyclical capital buffer using a DSGE (dynamic stochastic general equilibrium) model. Asset-based reserve requirement forces financial institutions to set aside a certain portion of their assets as reserves. In this sense, it contrasts with the current reserve requirement system that is imposed on the liability side of the banks. In particular, it can be used to alleviate credit overheating in a particular sector of the economy, such as the household mortgage market. We introduce heterogeneity into the credit market by assuming two types of entrepreneurs, and a bank that allocates lending to both entrepreneurs. Given common external shocks that has identical effects on both credit sectors, both asset-based reserve requirement and countercyclical capital buffer perform equally well to mitigate the credit cycle. However, given sector-specific shocks that generate sector-specific credit cycles, an asset-based reserve requirement performs better than the countercyclical capital buffer. The reason is that the former can adjust the asset return of the sector where credit cycle arises while leaving the other sector unaffected, but the latter affects the profitability of the entire bank as well as credit to the other sector that is unrelated to the shock. Also, accumulated reserve can be used to cover liquidity shortfalls when financial conditions deteriorate, as in periods of sudden capital outflows. In this paper, we find the evidence that capital flows to Korea are more sensitive to global factors (push factors). This gives an appropriate prominence to  the recipient countries introducing CFMs and MPMs in response to global liquidity expansion. We have seen that effect of interest rate spreads on capital flows vary according to the degree of volatility. Accordingly, monetary policy alone cannot address problems posed by capital flows surges. Many papers suggest that MPMs in Korea are effective in controlling capital inflow and would strengthen external stability. However, these measures are limited to simply responding to surges in capital outflows, expected as the consequence of normalization of US monetary policy. A broader policy package should be introduced to address the macroeconomic and financial stability risks to which capital outflow surges can give rise. In the short term, accumulation of foreign currency reserves, financial safety net, IMF’s special drawing rights (SDR) could be effective as a first aid measure. In the medium term, expanding the scope of application of MPMs from banks to non-banks (i.e. shadow banking) might be the way forward.

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  • The Distribution of Optimal Liquidity for Economic Growth and Stability
    The Distribution of Optimal Liquidity for Economic Growth and Stability

    This research paper intends to redefine and extend the concept of ‘optimal li-quidity’ discussed in Han and Lee (2012). For this purpose, we have distinguished between liquidity held by households and liquidity held by firms fol..

    PYO Hak K. and SONG Saerang Date 2015.12.28

    monetary policy
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     CONTENTS


     Executive Summary


     I. Introduction


     II. A Model of Optimal Liquidity and Consumption-Investment Decision
     1. Representative Firm
     2. Representative Consumer
     3. Credit Bank
     4. Government
     5. A Liquidity Growth Rule
     6. Solution and Calibration
     7. Impulse Responses


     III. Empirical Implications from the OECD Flow-of-funds Data
     1. Summary Statistics from Selected OECD Countries’ Data (1995-2012)
     2. A Regression Analysis


     IV. Summary and Conclusion


     References


     Appendix 
     

    Summary

    This research paper intends to redefine and extend the concept of ‘optimal li-quidity’ discussed in Han and Lee (2012). For this purpose, we have distinguished between liquidity held by households and liquidity held by firms following Levhari and Patinkin (1968) and Yoo and Pyo (1986). Han and Lee (2012) have revised the ‘money-in-utility’ model by Walsh (2012) and derived the relationship between liquidity and consumption. In the present paper, we have extended Han and Lee (2012) to a ‘money-in-utility-and-production’ model. We have specified a DSGE model in which liquidity serves for both household utility and production input and have conducted the impulse-response analysis. The impulse-responses of most of important variables from the shock of TFP increase are consistent with the results of Bhattacharjee and Thoenissen (2007). On the other hand, the policy interest rate shows a hump-shaped impulse-response, which is consistent with the impulse response of monetary expansion in the cash-in-advance model. In addition, the increase in money supply has produced a kind of crowding-out effect reducing the share of liquidity held by firms. The main policy implication of our model is that not only the absolute level of optimal liquidity but also the relative distribution of the liquidity between households and firms are important determinant for economic growth and stability. In order to validate this proposi-tion, we have conducted a panel regression analysis and have empirically verified the proposition that the relatively higher share of liquidity held by firms would contribute to both GDP growth and its stability.  

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  • WTO Discussions on Technical Barriers to Trade and Implications for Asia-Pacific..
    WTO Discussions on Technical Barriers to Trade and Implications for Asia-Pacific Regional Economic Integration

    As tariff barriers, of traditional and typical policy instruments in international trade, have been reduced significantly under preferential trade agreements as well as the multilateral trading system, non-tariff measures (NTMs), ..

    NAM Sang-yirl Date 2015.12.18

    APEC, economic integration
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    Contents 

     

    Executive Summary  

     

    I. Introduction
    1. Literature Survey
    2. Sources of Information on TBT  

     

    II. TBT: Characteristics and Multilateral Cooperation
    1. Technical Measures as Potential TBT
    2. Proliferation of Technical Measures
    3. Multilateral Cooperation, the WTO TBT Agreement
    4. Information and Characteristics of TBT  

     

    III. WTO TBT Notifications: Trends and Characteristics
    1. WTO TBT Notifications of WTO and APEC Members
    2. By Technical Regulation and Conformity Assessment Procedures
    3. By Stated Objectives of Regulation
    4. By Product
    5. Average Comment Period of TBT Notifications 

     

    IV. Specific Trade Concerns
    1. TBT and STCs
    2. Aggregate Number of STCs Raised
    3. By Type of Concerns Raised 
    4. By Technical Regulation and Conformity Assessment Procedures 
    5. Number of TBT Committee Meetings Raise the Same Concern 
    6. By Stated Objectives
    7. By Commodity   

     

    V. Dispute Settlement Cases 
    1. WTO Dispute Settlement Procedure
    2. Dispute Settlement Cases Related to the TBT Agreement 
    3. By the Date of Consultation Requested and Current Status 
    4. By APEC Member 
    5. By Commodity or Related Technical Measure 
    6. By Article of the TBT Agreement   

     

    VI. Summary and Implications   

     

    References  

     

    Appendix   

    Summary


    As tariff barriers, of traditional and typical policy instruments in international trade, have been reduced significantly under preferential trade agreements as well as the multilateral trading system, non-tariff measures (NTMs), especially those of technical barriers to trade (TBT), become more and more important as means to control international trade. This study is to analyze and better understand TBT or more accurately, technical measures. Based on the analysis, it will attempt to identify some implications and ways to reduce TBT or to facilitate international trade, and ultimately contribute to enhancing economic integration in the Asia-Pacific region.
    The characteristics and trends of technical measures can be best identified and evaluated by the notifications of WTO members according to the Agreement on Technical Barriers to Trade (TBT Agreement), discussions in the WTO TBT Committee - especially specific trade concerns (STCs), and dispute settlement cases in TBT related issues. In fact, the number of TBT notifications have surged as various and comprehensive legitimate objectives of technical regulations were allowed and on other backgrounds since the launch of the WTO in 1995. It is noted, however, that TBT notifications are not regarded as TBT itself but as “potential” TBTs in this study.
    To analyze the trends and characteristics of TBT measures, this study utilizes the information in the WTO TBT notifications, STCs, and dispute settlement cases related to the TBT Agreement. Focus will be on the APEC member economies. Some trends and characteristics of TBT measures by the objective of regulation, by commodity, and by the country notified (e.g., developed and developing economies) will be analyzed and identified. Some of implications from the results are as follows. Due to the fact that technical measures are mostly domestic regulations but controlled at the border to restrict market access, there needs to be consultation, cooperation and harmonization of regulation rather than competition and retaliation.
    There also needs to be developed a system for information and experience exchange, capacity building including on development and implementation of standards, technical regulation, and conformity assessment procedures, especially for developing economies. APEC is well positioned to lead international cooperation in TBT with its diverse members and related specific institutions.

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  • 중국의 내수용 수입구조 변화와 한국의 대응
    The Structural Changes in China’s Import Market for Domestic Demand and its Implications for Korea

    In response to the change of internal and external conditions such as the pursuit of sustainable growth and global financial crisis, China is switching the economic growth method to domestic demand-led growth. For this purpose, it..

    JUNG Jihyun and JIN Furong Date 2015.12.10

    economic cooperation, trade structure
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    Summary
    In response to the change of internal and external conditions such as the pursuit of sustainable growth and global financial crisis, China is switching the economic growth method to domestic demand-led growth. For this purpose, it is promoting various plans to boost domestic demand such as the improvement of income distribution, expansion of social security system, promotion of new urbanization, and development of service industry, and it is also encouraging the suppression of processing trade, enhancement of domestic companies’ import-substituting capacity and productivity, and industrial upgrading. As a result, the imports for processing trade has been reduced while the general trade targeting China’s internal consumption (domestic demand) is rapidly increasing.
    On the other hand, Korea is trying to improve access to China’s domestic market which is showing a rapid growth through the Korea-China FTA and the bilateral economic cooperation between the two countries; however, with the current downswing in Korea’s exports of petrochemical products, displays and general machinery to China, there is a growing need to check its export strategy to China. Thus, this study aims to seek ways to expand Korea’s exports to China by analyzing the structural changes in China’s import market for domestic demand, Korea and other major countries’ export status and competitive relationship. In particular, the characteristics of the import market for domestic demand was analyzed by the processing steps (18 detailed steps) and the type of industry (24 detailed industries), and the competitive relationships between Korea and other major countries (Taiwan, Japan, United States, Germany) in China’s import market for domestic demand were identified through the analysis of market share, market comparative advantage, and export similarity.
    This study reveals that slowdown of Korea’s exports to China is because the importance of the areas (processing trade, intermediate goods, electronics and chemistry) where Korea’s exports are concentrated have decreased in China’s import market for domestic demand, and because Korea’s competition with Taiwan and Japan is deepening in the areas where demand is increasing due to the lack of China’s own production capacity. Korea need strengthening of export competitiveness of parts and components for China’s domestic demand; expansion of the market entry for China’s consumer goods such as household food and beverage, electrical equipment, cosmetics whose demand is soaring; value addition and product differentiation in the electronics and chemistry areas with comparative advantages; diversification of export industries; and devising countermeasures against competition with Taiwan (electronic parts and computers related parts and components) and Japan (chemical product related semi-finished products). 
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