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 
 

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.  

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   

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.

 

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). 

 

 

 

 

About KIEP
President’s Message
About KIEP
Vision & Mission
Organization
History
KIEP 2014

 

Infographics
KIEP in Policy
KIEP in the Media
KIEP in the World

 

Highlight 2014
Projects Noted for Excellence in Policy Contribution for 2014

 

Bright 2014
Research Goals in 2014
Project Composition & Performance for 2014
Research Achievements by Category for 2014
International Macroeconomics & Finance
International Trade
International Cooperation Policies
Asia-Pacific Studies
Europe, Americas and Eurasia Studies

 

Flight 2015
2015 Research Goals
The Way Forward in 2015

 

Settlement of Accounts for 2014
Statement of Revenues,Expenditures, and Changes in Fund Balance

The 2014 annual report is a compilation of our in-depth studies and reports to give readers clear information on what we have done over the year. KIEP’s research spans a broad range of economic issues - i.e. the Korean economy and its increasing relevance to the global economy; new global challenges, such as climate change,
development aid, and global commons; economic integration in East Asia and in Asia-Pacific; Korean economic paradigm and income disparity; and country comparison of issues, such as employment and population aging.
KIEP’s work will gain importance as a reliable source of information and analysis in shaping public policies. KIEP remains committed to supporting the government in its economic policy development. On behalf of KIEP, I extend my heartfelt gratitude to all for the support and keen interest in our work.

Executive Summary

1. Introduction

2. Benchmark Model
2.1 Preferences
2.2 Production and Learning Technology
2.3 Entrepreneur
2.4 Worker
2.5 Occupational Choice
2.6 Competitive Equilibrium
2.7 Accumulation Thresholds

3. Two Regimes of Growth Paths
3.1 Endogenous Growth Regime
3.2 Neoclassical Growth Regime
3.3 Tax Policies for Regime Change

4. Small Monitoring Costs
4.1 Worker-Capitalists
4.2 Occupational Choice

5. Income Distribution Policy and Growth
5.1 Model with Imperfect Competition
5.2 Market Distortion and Income Distribution Policy

6. Conclusion

References

This paper develops a model which allows us to analyze the effect of policies that influence income distribution between capitalists and workers (such as taxes and market imperfections) on the log-run growth path of an economy. More specifically, we present a heterogeneous agent model where some agents choose to be capitalists to specialize in accumulating physical capital and others become workers accumulating human capital. An important feature of this model is that it can be reduced to either an endogenous growth model or Neoclassical growth model. For a range of the parameters of technology and policy variables, the model generates a balanced growth path where capitalists continue to accumulate physical capital and workers human capital, as in AK model of endogenous growth. For a different range of parameters, the model generates a steady state along which both capitalists and workers do not increase physical or human capital any longer as in Neoclassical growth models. This model, therefore, can be viewed as a synthesis model of endogenous and neoclassical growth.
An advantage of this synthesis growth model is that it allows us to explain the shift in the growth path in response to policy shocks that affect the capital-labor income distribution. This growth model explains the change in the path from sustained growth to zero growth as a regime change from endogenous growth to Neoclassical growth regime, and that from zero to sustained growth as a regime shift of the other way around. Based on the synthesis growth model, we show that changes in labor income share or government policies that make such changes may induce a shift in the growth regime and subsequent change in the balanced growth path. The policies of capital-labor income distribution include those of changing labor and capital income tax rates and regulations on monopoly or monopsony. The monopolist firms which have monopsony power in labor market can choose the wage rate rather than take it as given. Thus they may drive the wage rate down below labor productivity, which would induce a decline in labor income share and zero growth. We show that in this situation the government policy of regulating monopoly/monopsony or raising wage rates may raise labor income share, and by doing so, trigger human capital accumulation and an ensuing shift to a path of sustained growth.

Acknowledgements 

Notes on the Contributors 
 
1. Diversification of Bilateral Foreign Economic Relations between Uzbekistan and Korea / Ibrohim Umarov
Introduction 
Analysis of Economic Development of Uzbekistan 
Perspectives of Further Development of Uzbek-Korean Economic Relations 
Conclusion 
References 

2. Political Economy of SAARC and Regional Trade Integration: The Recent Ontogeny and Future Prospects / Khalid Ahmed
Abstract 
Introduction and Background 
Regional Cooperation to Free Trade Agreement 
Trade Integration in View of Political Economy 
Regional and Intra-Regional Trade in South Asia 
Collective Challenges and Conflict Resolution 
Future Perspective: Some Concluding Remarks 
References 

3. India-Korea CEPA: Analysis of Industrial Competitiveness and Environmental Implications / Sudhakar Yedla
Introduction 
Pattern of Trade between India and the Republic of Korea 
Cmprehensive Economic Partnership Agreement (CEPA)？Basic Constructs and Key Features 
Impacts of CEPA on Trade between India and Korea 
Qualitative Analysis of CEPA's Impact on the Environment and Natural Resources Base in India and Korea 
Concluding Remarks
References 

4. Iranian Economic Policy after the Election (2013) / M. H. Mozafari
Introduction 
Various Aspects of Iranian Economic Policies 
Conclusion 
References 

5. Research on Counties' Economic Development of Jilin Province / Ni Jinli
Introduction 
Body 
Conclusion 
References 
Appendix 

6. Industrial Policies: A Comparison between Korea and Turkey / Murat A. Yulek
Introduction 
Turkey's Industrial Strategy in Historical Perspective 
Korean Industrial Strategy in Historical Perspective 
Assessment of Industrial Policies in Turkey and Korea in Historical Perspective 
Conclusion 
References 
Appendix. Turkey's Industrial Strategy Documents 

7. The Arab Spring: Facts and Illusions / Moaness Tahoun
Abstract
Introduction 
Political Stagnation as Causal Force 
Corruption and Rule of Law 
Conclusion 
References

Korea Institute for International Economic Policy (KIEP) has expanded its cooperative relations with the world since it took the role of the hub of regional studies in public research areas of Korea. As a part of our systematic efforts to foster international exchanges and build the knowledge based through interdisciplinary collaboration, The Center for Regional Economic Studies (CRES) initiated a researcher-exchange program called CRES Visiting Fellows Program in 2008. The program brings together influential professionals from academia and the public sector to advance individual, institutional and national understanding of regional economic matters and to improve international cooperation on related research. This volume is a part of our achievements through the program and we hope this proceeding would work as another channel to deepen the understanding of regional economies in Korea.

 

North Korea’s trade amount has been gradually increasing since the global financial crisis of 2008, and its economic conditions are also improving after Kim Jong Un’s rise to power. However, in order to prepare for unification, we first need to understand the underlying causes for change in North Korea’s economic conditions so that we can explore challenges that await us and find solutions to them.
This study aims to investigate the factors regarding the fluctuations in North Korea’s trade and the relationship between trade and economic development by using North Korean trade data. Using UNCTAD Comtrade’s data ranging from 1990 to 2013, we analyzed North Korean trade by year, by industry, by application, and by region, and analyzed change in North Korean trade by dividing it into factors that facilitate trade and those that obstruct trade; and based on this analysis, we also analyzed the correlation between trade and economic development by using the gravity model and production function.
First of all, regarding the current state of North Korean trade, its volume is showing an increasing trend, but is highly concentrated in primary industrial products such as iron ore or anthracite coal, and highly dependent on China as its major trade partner and therefore is vulnerable to changes in external trade environment.
Through the analysis of the factors of change in North Korea’s trade, this study found that trade fluctuation can be explained primarily by internal margins (effect of changes in price and quantity) than by the external margins (effect of introduction of new items and exit of old items), and by quantity more so than the price within the internal margins.
We also analyzed changes in North Korea’s economic policy and neighboring countries’ North Korean policies as factors contributing to North Korea’s trade facilitation. The approach to North Korea’s economic policy was made in three aspects ？ decentralization, foreign investment, and the establishment of trade infrastructure. Decentralization is implemented through gradual expansion of the number of trade entities and establishment of legal and institutional infrastructure related to trade. Foreign investment and establishment of trade infrastructure is being encouraged through concurrent designation of economic development zones and renovation of railroads. The year 2011 is noteworthy in that it indicates that after Kim Jong Un’s rise to power, North Korea is generating its own economic growth momentum through trade facilitation by internal efforts.
Regarding neighboring countries’ economic policies for North Korea, although China has been the primary motive force in eliciting and facilitating North Korean trade based on its ‘special’ historical relationship with North Korea, current circumstances now influence China-North Korea relations just as much as the hsitoric legacy, which leads to the conclusion that it may be unclear whether China’s North Korea policy may continue to facilitate North Korea’s trade.
In case of Russia, due to recent strengthening of ties between Russia and North Korea, it seems that Russia will implement economic cooperation centered around the Russian Far East and North Korea’s Northeastern area including the Rason special economic zone, facilitating North Korea’s trade in diverse ways. As for Japan, which is constantly imposing strict sanctions, North Korea will not likely engage in any trade relationship unless Japan lifts the sanctions. However, most outcomes of Japan’s sanctions are already substituted by North Korea’s trade with China, meaning there will not be any new negative effects.
According to the analysis of the effect of tariff barriers in the North Korea-China trade and the international society’s sanctions against North Korea on North Korean trade as obstacles to trade, our results show that it is difficult to regard tariff barriers between North Korea and China as well as international sanctions as obstacles to North Korean trade. In case of tariff barriers, while China’s total imports were negatively correlated with tariff rates, China’s imports from North Korea had a positive correlation with tariff rates. This is because China’s tariff policy did not act as a trade barrier impacting the China-North Korea trade, and because most of North Korea’s export to China consist of primary industry goods which usually have low tariff rates.
However, we found through field research that recently, due to the increase in the share of North Korea’s clothing exports to China, which has comparatively high tariff rates, more diverse forms of trade emerged, such as consignment processing trade and China-based processing by sending North Korean labor into China. Our quantitative analysis on the effects of international sanctions on North Korean trade show that sanctions had a negative effect on its intensive margins of trade, but due to North Korea’s response, which involved diversifying the range and types of items, the sanction's impact on the number of items was negligible.
Lastly, by using the gravity model to analyze the direct effects of economic development on trade, we found that economic sizes of North Korea’s trading partners had a statistically significant impact on its trade. When we used the result of the gravity model to predict the scale of North Korea-China trade, we found that if China’s economy grew by 7.2% in 2015, there would be a 10.4% increase in trade between North Korea and China. In terms of trade facilitation index, the trade facilitation index for China-North Korea in 2013 was expected to be 3 times the normal level, indicating the intensification of their already close relationship.
Meanwhile, when we analyzed the indirect effects of trade on North Korea’s economic development using the production function, the result was that the import of intermediate goods had a statistically significant, positive effect on North Korea’s GDP, which implies that North Korea’s economy is import-driven, in addition to the expansion of the production base through importation of capital goods, raw materials and transportation. Based on the production function, we also derived the total factor productivity of North Korea which revealed an improving trend for North Korea’s productivity after 2010.
From our findings, we derived the following implications for inter-Korean economic cooperation. Firstly, North Korea must develop labor-intensive secondary industry by taking advantage of its productive and cheap labor force in order to improve its trade situation which is vulnerable to changes in the external trade environment. South Korea should indirectly support North Korea through a multilateral framework such as those involving the two Koreas and China, two Koreas and Russia, and finally, the two Koreas and Russia/China, respectively. Also, with the establishment of the AIIB, joint efforts involving both Koreas, China and Russia have become more important for the development of infrastructure in Northeast Asia; not to mention the increased importance of improving investment efficiency through cooperation on development of trade infrastructure among neighboring countries, which would be difficult for one single country to undertake on its own. It is also important to share South Korea’s and China’s economic development experiences and development model with the gradually reforming North Korea, and expand opportunities for programs for the exchange of experts on international law and trade-related contracts, which would induce economic reform. Moreover, we also would like to suggest that North Korea itself needs to work on improving its infrastructure for trade facilitation.