Determinants of Korean Outward Foreign Direct Investment: How Do Korean Firms Respond to the Labor Costs of Host Countries?
Low cost of labor has been one of the major incentives that foreign firms invest in many developing countries. Yet, many developing countries including China and ASEAN have recently experienced a rapid increase in labor costs. Usi..
Hanbyul Ryu and Young Sik Jeong Date 2020.09.01Labor market , Foreign direct investmentContent
2. Literature Review
3. Data and Summary Statistics
4. Empirical Analysis
5. Main Results
5-1. Wage Trends
5-2. Asian Developing Countries
5-3. Developed Countries
Low cost of labor has been one of the major incentives that foreign firms invest in many developing countries. Yet, many developing countries including China and ASEAN have recently experienced a rapid increase in labor costs. Using the wage information provided by JETRO, this study examines how Korean FDI outflow is affected by the increase in labor costs of the manufacturing industry in host countries. The results indicate that the worker’s and engineer’s wages in Asian developing countries, who accumulated at least 3 and 5 years of work experience, have generally a negative impact on Korean FDI outflow. However, there exist positive relationships between the wages and FDI when the wages stay at very low levels. We do not find evidence that labor costs make a significant impact on Korean FDI outflow to European or Developed countries.
Bargaining and War: On the Communication Equilibrium in Conflict Games
We present a version of Baliga and Sjostrom’s (2012a) conflict games with two asymmetric players. The players contemplate whether to take an active engagement action to compel the leader of a neighboring state (an extremist) to g..
Youngseok Park and Colin Campbell Date 2020.08.10Political Economy , International securityContent
2. The Conflict Game with Two Asymmetric Players
2.1 The Conflict Game with Cheap-Talk Communication
2.2 Effective Cheap-Talk Communication
2.3 Ineffective Communication
We present a version of Baliga and Sjostrom’s (2012a) conflict games with two asymmetric players. The players contemplate whether to take an active engagement action to compel the leader of a neighboring state (an extremist) to give up his risky weapons. We show that a player with greater damage from the extremist is more likely to choose an active engagement action than a player with lesser damage. Furthermore, we examine cheap-talk communication equilibria with the extremist. The likelihood of both players choosing the active engagement action decreases by a hawkish extremist who can send a provocative message, if both players are coordination types. If both players are opportunistic types, a dovish extremist can send an appeasement message that causes one player to be more active while another to be more inactive. Lastly, we show that there does not exist any other communication equilibrium for either kind of extremist, for any other combination of player types.
Defined Contribution Funded Social Security and Labor Supply: Focus on Mexican Social Security Reform in 1997
Countries adopting a defined benefit pay-as-you-go (DB PAYG) regime have two options to solve the issue of financial unsustainability: (1) a parametric reform, which alters policies within DB PAYG regime, and (2) a structural r..
Sungwoo Hong Date 2020.07.03Labor market , Tax systemContent
2. Mexican Social Security Reform in 1997
4. Identification Strategy
Countries adopting a defined benefit pay-as-you-go (DB PAYG) regime have two options to solve the issue of financial unsustainability: (1) a parametric reform, which alters policies within DB PAYG regime, and (2) a structural reform, which changes the regime from DB PAYG to a defined contribution funded (DC) system. In this study, focusing on the structural reform of Mexico in 1997, I investigate whether structural social security reform affects labor supply. The findings suggest that the change in the social security regime increased both labor force participation and work hours per week. However, in the case of the elderly, the intensive margin effect on labor supply was not statistically significant.
Global Financial Imbalance: Firm-level Evidence from Korea
Since the global financial crisis, low interest rates have continued throughout the world. However, financial imbalance has deepened as much of the expanded investment during low interest rates did not lead to increased pro..
Tae Soo Kang et al. Date 2020.05.15Business management , Capital marketContent
2. Literature Review
3. International Comparison
3-1. Marginal Company
3-2. Share of Marginal Companies
3-3. Relationship between Marginal Share (10+) and Monetary Policy-Related Interest Rate
4. Determinant for Marginal Companies in Korea: 2013-2018
4-2. Empirical Methodology
4-3. Empirical Results
Since the global financial crisis, low interest rates have continued throughout the world. However, financial imbalance has deepened as much of the expanded investment during low interest rates did not lead to increased productivity. This study focused on the increase of marginal firms as a result of the adverse effects of financial imbalances on firms. The marginal firms were identified based on the company's financial statement, and the share of marginal firms by country was compared and analyzed using Worldscope data. As a detailed analysis on the marginal firms, the impact of borrowing interest rate on the possibility of becoming a marginal company was analyzed in the case of Korea with KED data. According to the international comparison, East Asia including Korea, China and Japan has shown a lower share of marginal companies than Europe, South Asia and Latin America. Empirical results through Panel Logit with Sector Fixed Effect Model show that the borrowing rate has a negative correlation with the probability the company will become a marginal company in the case of Korea. However, the impact of an increase in borrowing rates on the likelihood of becoming a marginal company depends on the degree of financial vulnerability. Specifically, an increase in the borrowing rate has a greater impact on the possibility to become ICR<1 in the companies with higher financial vulnerability indexes.
How Does Protectionist Trade Policy Interact with FDI?
In this study, we investigate the question whether importing countries’ implementation of protective trade measures, such as antidumping duties, leads to changes in foreign direct investment from trading partners. That is, we exa..
Jongduk Kim and Moonhee Cho Date 2019.12.30Anti-dumping system , Overseas Direct InvestmentContent
2-1. Identification Strategy
3-1. Import-restricting Measures
3-2. Antidumping Measure as an FDI Determinant
3-3. Robustness Check
4. Concluding Remarks
In this study, we investigate the question whether importing countries’ implementation of protective trade measures, such as antidumping duties, leads to changes in foreign direct investment from trading partners. That is, we examine the prevalence of “ADP-jumping FDI” across countries. We use more recent and organized non-tariff measure data provided by the WTO I-TIP and Ghodsi et al. (2017), which can be matched with other trade-related variables. Using econometrically sensible identification strategies, the Tobit and the Heckman two-stage selection models, we find out that ADP-jumping FDI to importing countries prevails rather consistently around the world. These results are also consistent with those using Poisson and linear fixed effects models.
Trump Tariff and Firm Relief: Winners and Losers from Steel Tariff Exclusion Request
On March 2018, the Trump administration introduced 25 percent tariffs on steel and 10 percent tariffs on aluminum imports. To minimize the adverse effects of these tariffs to downstream US producers who import these p..
Yeo Joon Yoon and Wongi Kim Date 2020.03.16Trade policy , Free tradeContent
2. The Exclusion Request
3. Data and Estimation
3-2. Model Specification and Estimation
4. Estimation Results
4-1. Main Results
4-2. Additional Analysis
5. Concluding Remarks
On March 2018, the Trump administration introduced 25 percent tariffs on steel and 10 percent tariffs on aluminum imports. To minimize the adverse effects of these tariffs to downstream US producers who import these products, the exclusion request that grants tariff exemptions has been also established. In this paper we examined the determinants of the authority’s decisions on the exclusion requests. Our analysis focuses on the political factors. Specifically, we ask whether companies operating business in states where Trump won the majority vote (Trump state) in the 2016 presidential election were more likely to get tariff exemptions. Our estimation result suggests that firms located in Trump states were more likely to be granted exemptions. Especially it appears that the decisions were made based on a dual standard. While firms with lower sales to employment ratios were more likely to be approved for the exclusion requests in Trump states, it was the opposite for firms in non-Trump states.
The Effects of US Sectoral Shocks through the World Input-Output Network
In this paper, I estimate the global effects of hypothetical 1% changes in US sectoral productivity. To do that, I formulate a multi-sector Armington trade model with import tariffs, trade in intermediate goods, sectoral heterogen..
Minsoo Han Date 2019.12.30Economic opening , productivityContent
2. Model and Equilibrium
2-3. Solving for an Approximate Equilibrium
3. The Results
4. Final Remarks
In this paper, I estimate the global effects of hypothetical 1% changes in US sectoral productivity. To do that, I formulate a multi-sector Armington trade model with import tariffs, trade in intermediate goods, sectoral heterogeneity, and input-output linkages. Because a closed form for changes in welfare is not available in the model, as opposed to Ossa (2015), I solve for equilibrium to conduct the counterfactual exercises. In particular, knowing that the gravity equations in this model are identical to Caliendo and Parro (2015) once we calibrate the trade elasticity and industry level productivity to the corresponding data, I modify their computation approach to estimate the counterfactual productivity changes. The model predicts that the primary channel through which the sectoral shocks affect welfare is terms of trade. I also find that both US productivity’s direct effect and effects through export prices are substantial for countries such as the US, Canada, Chile, and Mexico. On the other hand, changes in volume of trade are small and their directions of changes are also mixed across countries.
The Effects of Technological Similarity and Diversity on Merger and Innovation
This paper examines drivers of merger partner selection and impacts of those factors on post-merger innovation outcomes analyzing 1,432 merger transactions in U.S. ICT industries. Throughout the paper, technological similarity bet..
Gu Sang Kang Date 2019.12.13ICT economy , Industrial policyContent
II. Two-Sided Matching Model
III. Empirical Strategy
1. Data Description
2. Estimation Methodology
IV. Empirical Results
1. Determinants of Merger Partner Selection
2. Model Goodness-of-Fit
3. The Impacts of Technology Similarity and Diversity on Post-Merger Innovation
V. Conclusion and Discussion
This paper examines drivers of merger partner selection and impacts of those factors on post-merger innovation outcomes analyzing 1,432 merger transactions in U.S. ICT industries. Throughout the paper, technological similarity between merging firms and technological diversity of an individual firm are important factors affecting firms' merger partner choice. In order to show their impacts on merger partner selection, we use a two-sided matching model as a theoretical framework and employ a maximum score estimation as an empirical methodology. With these empirical strategies, our findings are summarized as follows. First, technological similarity between merging firms has positive effects on merger value creation. This implies that similar technologies between merging firms plays an important role in choosing their merger partners. Second, technological diversity of an individual firm increases expected merger values. This means that firms tend to choose their deal partners with diverse technologies for the purpose of maximizing their expected merger values. Lastly, we estimate post-merger innovation impacts for actual merger transactions. As a result, estimated merger values created by technological similarity and diversity increase the number of merged firms' patents after merger. This implies that expected merger values are realized through the channel of post-merger innovation outputs.
Stakeholders’ Interest Relations in Korea’s Services Trade Liberalization: A Political Economy Analysis
This paper seeks to analyze the major factors behind why each stakeholders in the legal, health, educational and audio-visual service sectors in Korea op-pose liberalization in a qualitative political economy context as well as to..
June Dong Kim Date 2019.11.20Trade policy , Political EconomyContent
2. A Sectoral Analysis
2-1. Legal Services
2.2. Health Services
2.3. Educational Services
2.4. Audio-Visual Services
3. Conclusion and Policy Implications
This paper seeks to analyze the major factors behind why each stakeholders in the legal, health, educational and audio-visual service sectors in Korea op-pose liberalization in a qualitative political economy context as well as to pro-vide alternative strategies for further liberalization in these four service sectors. In legal services, the foreign equity ceiling of 49 per cent for joint venture law firms may be lifted as long as the present regulation against the number of FLCs in a joint venture law firm exceeding the number of Korean lawyers is maintained. In health services, as a step-by-step approach, we can first con-sider a system where incorporated hospitals can be established and liquidated more freely by deregulating current limitations placed on the disposal of re-maining properties, while an overly distribution of dividends is restrained. In educational services, in order to deregulate limitations regarding the disposal of remaining properties, it will be necessary to enhance the transparency of management and operation of private schools. In this regard, allowing school foundations to take the form of a limited liability company could be considered, since they would then become subject to external financial audit. In audio-visual services, it will be necessary to improve monitoring and im-plementation of intellectual property rights as well as competition policy when considering further liberalization.
The major factors compelling each stakeholder in the legal, health, educational and audio-visual services to oppose further liberalization can be summarized as a general mindset towards uniform equity and control, cultural factors pre-venting discussion on rational alternatives, insufficient government budget for universal services, lack of administrative capacity in policy implementation and monitoring, absence of a proper system to evaluate the quality of ser-vices, asymmetry of information, and persistence of acquired rents.
In order to correctly identify and understand the nature of problems, the highest priority should be placed on reducing the mistrust among the con-stituents. This is because mistrust among the constituents acts as the most important impediment when attempting value-creating negotiation strategies among each of the stakeholders. Meanwhile, to build trust among all constit-uents, free flow of information works as an important factor.
Therefore, the problems of mistrust and lack of free flow of information are the most important impediments to improve those constraints that were analyzed in the selected service sectors. In addition, they are interlinked with each other, so that dealing with these problems simultaneously is a rational solution. In order to accomplish this, it is utmost important to develop the capability of each constituent to allow them to interpret specific pieces of information without distortion. In this regard, upgrading research and educa-tion of economics also becomes imperative.
Institutional Quality, Trade Costs and Comparative Advantage
Earlier works derive empirical implications that institutional quality is very influential as a source of comparative advantage in industries requiring relationship-specific investment from the supplier. However, as earlier studie..
Sangkyom KIM and Soon Chan Park Date 2019.10.04Economic reform , Trade policyContent
II. How Does Institutional Quality Matter for Trade Costs?
III. Empirical Model and Data
1. Country Level
2. Industry Level
3. Trade Costs Measure
IV. Estimation Results
1. Country Level
2. Industry Level
V. Robustness Check
1. Alternative Samples
2. Alternative Measure of Trade Costs
VI. Summary and Concluding Remarks
Earlier works derive empirical implications that institutional quality is very influential as a source of comparative advantage in industries requiring relationship-specific investment from the supplier. However, as earlier studies focus on investigating the impact of institution on the efficiency of the producer, only the exporter’s institution is considered. In contrast, we attempt to identify the impacts of the quality of institution, of both exporters and importers, on trade costs, that are different across country-pairs. To check the problem of measuring trade costs, we use two alternative measures of trade costs, i.e. CIF/FOB ratio and the relative measure of trade costs proposed by Novy (2013). Using the Eora global supply chain database covering 187 countries for 11 primary and manufacturing industries and four years, 2000, 2005, 2010 and 2015, we calculate a CIF/FOB ratio and the relative trade costs suggested by Novy (2013) which are used as a proxy variable for trade costs. At the country level, we find that the institutional quality of exporter and importer is negatively associated with trade costs and trade costs increase as disparity between two countries’ institutional quality increases. At the country-industry level, we find that a country-pair with better legal institution has lower trade costs in industries for which a hold-up problem is important. This result is robust to the alternative measure of trade costs suggested by Novy (2013). However, an analysis on the impact of institutional differences on trade costs yields mixed results. Therefore we do not conclude that the similarity of institutional quality between two countries is associated with lower bilateral trade costs.
Keywords: Trade Cost, Institutions, Comparative Advantage
JEL Classification: F14, F20