The service industry has the largest share in India’s domestic production. While the Modi government has pursued various policies to grow the manufacturing sector, the role of services industry in the Indian economy still continues. IT sector has been one of the important sources for India’s service sector, but now software, internet services, and e-commerce have emerged as important sectors in India. This means that the services industry in India is undergoing structural changes in recent years. Responding to these structural shifts, many countries start to collaborate with Indian service sector. Yet, the cooperation between South Korea and India is mainly limited to the manufacturing sector. This research on India’s services industry aims to delve deeply into India’s ongoing industrial structural changes and related policies, analyze the changing demands within India’s service sector, and suggest a new direction for South Korea-India collaboration focused on manufacturing.

Based on quantitative and qualitative data analysis of India’s services industry, it is evident that a diverse range of service industries are emerging in India beyond the IT and software sectors. The productivity of Indian service firms and the share of skilled labor are increasing, and there’s a notable structural shift with a significant expansion in the opening up of the service sector to foreign direct investment. India’s service sector generates the most added value within the country, and its job creation is growing significantly compared to other industries. Additionally, there’s been an increase in exports, foreign direct investment, and integration with global supply chains. Traditionally, India’s services industry was dominated by retail and public services. More recently, however, corporate facility management and business support services, including R&D, equipment leasing, data management, and marketing, have emerged as key players. Financial and insurance services and educational services, are also on the rise. Indian domestic companies in retail, telecommunication services, transportation, cultural services, and financial services are experiencing an increase in their average total factor productivity, suggesting that various service domains within India are spearheading the growth of the country’s services industry. Additionally, the proportion of highly skilled workers in India’s service sector is steadily increasing.

At the heart of the growth in India’s services industry is the government’s policy of fostering technology-centric human resources and economic reform policies for the expansion of private sector participation and deregulation. Since its independence in 1947, the Indian government has consistently provided various support measures to cultivate technical workforce. Simultaneously, in 1991, the Indian government embarked on economic reforms centered on a market economy and subsequently opened up service trade and investment. Over time, the government has gradually expanded the scope of permissible FDI, and currently, it allows 100% FDI in most industries, barring a few such as insurance, distribution, and aviation industry. As a result of these measures, demand from abroad surged in the early 1990s to leverage India’s abundant and skilled IT workforce. This was followed by steady economic growth in India, and as individual incomes rose, diverse service industries such as law, accounting, and real estate flourished. Ongoing government support policies in the fields of telecommunications, IT, software, finance, and education continue to propel the growth of various service sectors in India. More recently, rapid growth of the manufacturing sector in India has led to an expansion in the demand for services, influencing the growth of India’s services industry.

However, amidst the structural changes in India’s services industry, South Korea’s integration into the Indian service market appears to be less than that of other major countries. The key external cooperation partners for India’s services industry are centered around the U.S., with other active players including European countries such as the U.K. and Germany, as well as China and Japan. The U.S. collaborates with India on visa facilitation to secure India’s outstanding technical workforce within its borders and is also operating programs for training Indian experts within the U.S. Japan is also cooperating to expand the use of Indian human resources and for Japanese companies to enter the Indian market. Japan, through its digital partnership with India, is promoting cooperation for digital transformation in both nations and supports employment of Indian IT professionals in Japan. In addition, they are strengthening financial technology exchanges and infrastructure cooperation through the Japan-India financial dialogues. Japan is also supporting the joint entry of service companies into India through the creation of industrial complexes. In particular, in Japan’s Neemrana Industrial Zone, various service sectors, including logistics, healthcare, telecommunications, postal services, finance, insurance, and retail, are actively operating alongside manufacturing companies.

In the past, cooperation between South Korea and India has focused primarily on manufacturing. Korean global companies in sectors such as electronics and automobiles are intensifying their expansion into the Indian market. However, in order to strengthen the relationship between South Korea and India, cooperation in various industries, including services, is essential. In particular, India’s service market is considered to have huge potential in terms of size and growth. With the opening up of various service sectors and improving conditions for cooperation, the need for Korea-India service cooperation is high. However, while South Korean investment and exports to India are expanding, the level of services industry cooperation lags behind that of other major cooperation partners. Specifically, in contrast to global investment, which tends to focus on service companies, South Korea’s investment in India’s services industry is characterized by a focus on manufacturing firms. These service investments in India tend to be sporadic and spread across different sectors each year. 

The main reason for the lack of cooperation in services between South Korea and India is the lack of information about the Indian market and the perceived risks involved in both the public and private sectors in South Korea. Useful details about India’s current market conditions, potential, challenges, and entry experiences are not effectively communicated to the Korean public sector or domestic private companies seeking to enter India, leading to heightened risk perceptions and stalled progress in cooperation. This problem has led to the current situation where there is little economic, diplomatic, and cultural familiarity between South Korea and India in both the public and private sectors. On the other hand, Korean companies that ventured into India were drawn by the potential and marketability of the Indian services industry. However, they commonly point to challenges such as differing regulations among Indian states, complicated establishment procedures, lack of highly competitive human resources, and recruitment difficulties due to low awareness of Korean companies in India.

To expand cooperation in the Korea-India services industry, this study emphasizes: ① strengthening the economic and diplomatic ties between South Korea and India at the government level, ② intensifying support for domestic private companies in India, ③ supporting policies that enhance linkages with local domestic manufacturing industries, and ④ the need to expand the exchange of human resources between South Korea and India, as well as encouraging domestic companies to utilize more Indian service personnel. To realize these objectives, this study proposes specific policy tasks such as △ establishing regular dialogue between South Korea and India at the government level, △ creating a Korea-India business support center, △ supporting entry by establishing Korean industrial complex in India, △ developing cooperative projects with public and private participation based on local Indian demand, and △ linking the ODA vocational training programs in India to the domestic labor market. 

Since the 2000s, service trade has steadily risen due to the progress in global science and technology, alongside the growth of each country’s service industry. Over the past two decades, countries have persistently worked on liberalizing service trade through negotiations and agreements within the WTO system, as well as through bilateral and multilateral trade agreements. The rapid acceleration of digital transformation, particularly since the onset of COVID-19 pandemic, is anticipated to further elevate the contribution of service trade to the economies of major countries worldwide.

Services and the global value chain are intricately interconnected. Services not only serve as a significant input in the manufacturing sector, which is the most complex component of the global value chain, but they also facilitate both forward and backward linkages in the production process. The recent movement undertaken by Latin American countries to open their service markets might be driven by a policy goal to increase involvement in the global value chain, especially focused on the manufacturing industry, while aiming to enhance the competitiveness of their service sector.

Currently, Korea’s exports remain predominantly centered on manufacturing-based product trade, posing challenges in enhancing competitiveness within the service sector. This pattern is notably reflected in Korea’s trade with Latin America. Exports from Korea to Latin America primarily revolve around manufacturing-oriented product trade, with limited engagement in service-related trade and collaboration between Korea and Latin American nations. As global economic recovery stalls due to increased protectionism and a sluggish export environment for Korea, there’s a shift in approach by both the government and companies. They are moving away from the previous Korea-Latin America cooperation model, which was primarily focused on manufacturing-centered product trade, to instead expand into service trade and innovate new solutions within the service sector.

While the expansion of global services trade and the movement to open service markets in Latin American countries offer opportunities for Korea to engage in trade and collaboration within the service sector, there is a dearth of comprehensive studies detailing the extent of service industry openness in these nations. This scarcity extends to both policy frameworks and academic research that could logically support trade expansion in the service sector and foster cooperative efforts with Latin America.

The anticipated opening of service markets in Latin American countries is poised to increase global value chain participation by enhancing the input of services both regionally and internationally in product trade. As these countries embark on this movement, it’s foreseeable that there will be structural changes in their global value chain participation. Given this impending shift, there’s a necessity to anticipate and plan for the future.

Against this backdrop, the primary aim of this study is to assess the level of service market openness in major Latin American countries and to establish the rationale for economic cooperation between Korea and Latin America within the service sector.

In Chapter 2, service import statistics categorized by mode are presented for eight Latin American countries. Among these nations, Brazil and Mexico, owing to their sizable economies, stand out in terms of Mode 1 and Mode 2 imports, with similar dominance observed in Mode 3 imports within the distribution and other business service sectors. Upon analyzing bilateral service imports across these eight countries, it was evident that the United States notably leads in Mode 1 and Mode 2 imports, particularly in usage fees related to intellectual property rights, finance, transportation, and other business services. Korea ranks among the top countries only in Mexico’s Mode 1 and Mode 2 imports, specifically in the transportation sector and intellectual property royalties. However, Korea contributes to a considerably lower proportion of service imports of Latin American countries.

In contrast to goods trade, China’s presence in Mode 1 and Mode 2 service trade within Latin America appears relatively low. While it is a leading country in construction, maintenance and repair, other business services, transportation, and financial services, this predominance is observed in a few Latin American nations. However, given the consistent rise in China’s investments in Latin America, there’s an expectation that China’s share of Mode 3 service imports is likely to increase substantially.

Chapter 3 identifies the level of service market openness and significant constraints within the Pacific Alliance and MERCOSUR member countries. This evaluation is based on an analysis of the STRI created by OECD, laws and regulations of each country, and the extent of concessions in both multilateral and regional trade agreements. Examination of the domestic laws in major Latin American countries reveals actively seeking inward foreign direct investment, resulting in a reduction of regulations in the service sector. For the most part, there’s no discrimination between local and foreign investors in most service sectors, with few areas prohibiting or imposing restrictions on investment, except for specific cases.

By contrast, in sectors such as coastal transportation, maritime transportation, air transportation, road transportation, and banking services, all eight Latin American countries restrict foreign investment. Consequently, the degree of investment liberalization is notably high in business services, construction services, and distribution services, excluding transportation services.

However, the analysis reveals that the level of service concessions in these countries is notably lower compared to the degree of investment liberalization based on domestic laws. According to the WTO service concession, seven countries (excluding Uruguay) exhibit low concession levels in the computer and related services sector. Notably, in the DDA service concession, only Mexico, Chile, and Peru demonstrate significant improvements in this area. Analyzing the changes in concession content between the Best FTA and the WTO service concession, a distinctive trait in the Pacific Alliance countries is a marked promise of significantly expanded openness, particularly in the business service sector.

Broadly, there are noticeable improvements in concessions, especially in other business services, real estate services, and rental/lease services. Among professional services, enhancements in concessions are evident in legal services, accounting and tax services, as well as architecture and engineering-related services. However, in MERCOSUR member countries, although some partial concession improvements are occurring in business services, the overall level remains very low. Similarly, in transportation and logistics services, while there’s gradual improvement, the level of concessions still lags significantly behind other service fields, indicating limited expectations for substantial improvements in the future.

Chapter 4 aimed to empirically address whether the establishment of additional services trade agreements, alongside the existing goods trade agreements, impacted the forward and backward linkages of Latin American countries. The analysis scope was also extended beyond Latin America to examine which sectors’ regulatory levels in the service industry significantly influenced GVC participation of the respective countries.

The empirical analysis revealed that when a Latin American country, either from the Global North or South, engaged in a bilateral service trade agreement with a Global North country, the backward linkages of Latin American exporting nations were notably reinforced. Moreover, among Latin American countries, when a Global North nation finalized a service trade agreement with another Global North country, the forward linkages of Latin American exporting nations also increased.

This trend suggests that the signing of service trade agreements between Latin America and developed country might have facilitated the entry of competitive service firms into Latin America. It’s possible that this enhanced connectivity between the service industry and manufacturing is likely to result in an increase in offshoring, thereby further fortifying forward linkages.

Based on the estimated results under the hypothesis that the impact of GVC might differ across various service sectors, it was observed that in the country’s textile and clothing industry, an increase in backward linkages occurred as regulations were relaxed in the telecommunication service, logistics service, and transportation service sectors. Similarly, in the crude oil, chemical, and non-metal industries, the easing of regulations within the logistics service sector contributed to reinforcing the country’s backward linkages in these specific industries.

Particularly within the crude oil, chemical, and non-metal industries, the relaxation of regulations in professional services led to a decrease in the forward linkage of the relevant country. Further analysis is necessary to understand why this outcome was notably evident in these specific industries. One plausible explanation could be that professional services, such as engineering services, play a more crucial role in these industries compared to others. Therefore, the effect of substituting services due to market opening might have been more pronounced, particularly as competitive professional services in these technology-intensive sectors are utilized. In addition, this shift might have prompted a tendency for exported goods to move closer to the downstream sector of the value chain, potentially leading to a rise in direct processing of these goods into final products consumed within the importing country.

For a significant duration, a trade structure has been established where Korea exports manufactured goods to Latin American countries, while these countries predominantly export primary products to Korea. This structure has led to heightened competition for Korea against other competitive manufacturing countries in Latin America, notably China, resulting in a continuous decline in Korea’s manufacturing exports to this region. Recognizing this challenge prompts the need for a new economic cooperation model between Korea and Latin America.

One potential avenue for such cooperation involves penetrating the national service markets in Latin America. This could offer a mutually beneficial model that not only enhances Korea’s exports to these regions but also supports Latin American countries in their efforts to strengthen participation in GVCs. Therefore, it’s crucial to identify areas where Korea can collaborate with Latin America in service sectors where Korean companies hold a comparative advantage. These areas include construction services, distribution services, logistics services, business services, and transportation services required across various stages of production.

The empirical analysis in this study indicates that the liberalization of information and communication, logistics, and transportation services bolsters the involvement of exporting countries in GVC within the textile and clothing sectors. This finding carries significant implications for certain Latin American nations with pivotal textile and clothing industries. Middle- and low-income countries in Central America are currently grappling with the challenge of establishing a stable and efficient textile and clothing supply chain. To meet the efficiency standards expected by global buyers, the provision of high-quality services that enhance the entire production process becomes essential. Consequently, the significance of logistics, transportation, and communication services utilized across the production process is growing. The rise in demand for services in the textile and clothing industry within Latin America may present an opportunity for Korean service companies.

Furthermore, continuous monitoring becomes crucial as investment opportunities in Latin America are anticipated to grow in the future. The empirical analysis results of this study suggest that the opening of the service market in Latin America or the signing of a service trade agreement did not significantly impact the forward linkages in the Latin American manufacturing industry. This outcome could be attributed to the situation where although the service market opening theoretically reduced offshoring costs to Latin America, it did not translate into increased offshoring practices in reality.

A significant reason behind this could be the persistently inadequate human and physical infrastructure in Latin America, a concern raised consistently in the past. Despite the increased potential for offshoring, the region’s participation in global value chains continues to remain below anticipated levels due to the longstanding issue of underdeveloped infrastructure.

Should Latin American countries collectively recognize this critical need, it’s highly probable they will prioritize enhancing human and physical infrastructure as an increasingly crucial task. Particularly, amidst the rising interest in Latin America during the ongoing global supply chain reorganization, addressing these challenges becomes even more imperative. Consequently, future investment opportunities in Latin America are likely to emerge, particularly in sectors such as education, construction, and communications. Consistent monitoring of these developments becomes more essential than ever.

This study outlines the Japanese government’s economic security strategy in response to the U.S.-led global supply chain reorganization, and analyzes the geographical risks of the Japan’s supply chain and the management policies on critical products. It also examines Korea’s supply chain management policy and provides policy implications for Korea-Japan cooperation in the following sectors: semiconductors, batteries, and critical minerals.

Chapter 2 analyzes Japan’s economic security policies, especially export control and the two measures included in ‘the Economic Security Promotion Act’ which are highly related to global supply chain reorganization or domestic supply chain reinforcement. This research also evaluates the policies from Japan’s perspective in the context of the US-led global supply chain reorganization. Based on the findings that Japan participates in multilateral frameworks, is careful not to directly provoke China, and is more interested in pursuing economic benefits through bilateral cooperation with the U.S., this chapter attempts to evaluate Japan’s strategy from two perspectives: Japan’s position on US-led multilateral global supply chain reorganization (IPEF, MSP), and US-Japan bilateral economic security cooperation.

Chapter 3 analyzes Japan’s supply chain risks, focusing on its geographical dependence on China. This study adopts Inomata and Hanaka’s (2021), Pass-Through Frequency indicators (PTF) an indicator of how often a high-risk country or industry appears in a particular supply chain. The results indicate the Chinese industry appears more frequently than average in the supply chain where Korea and Japan are the final producers and raw material exporters are the source countries. This feature is more pronounced in the transport equipment manufacturing industry for Japan and in the IT manufacturing industry for Korea. In addition, the findings show that the supply chain connecting the manufacturing industries of Korea and Japan is vulnerable due to heavy dependence on China, and the degree of dependence may be underestimated by the quantitative indicator than the frequency indicator. Finally, it is noteworthy that the supply chain between Korea’s and Japan’s IT industries and America’s public administration and defense industries, as well we health and social services industries, which are highly important from the economic security perspective, are heavily linked to China.

Chapter 4 delves into the Japanese government’s supply chain management policy for critical products under ‘the Economic Security Promotion Act’. Several supply chain reinforcement policies have been announced, starting with ‘the Economic Security Promotion Act’ in May 2022, laying the groundwork for the Japanese government to implement support measures by setting a budget and selecting private companies. However, among the 11 critical products designated by the Japanese government, the study examines the characteristics and tasks in the supply chains of 5 materials: semiconductors, batteries, critical minerals, permanent magnets and antibiotic substances. The study also covers the supply chain reinforcement support project, and other reinforcement projects other than the Economic Security Promotion Act. To understand the purpose of Japanese government, 11 materials are divided into two groups according to whether the purpose is to secure choke points from an economic security perspective (offensive strategy) or to strengthen industrial competitiveness (defensive industrial policy). Finally, the study evaluates an industrial policy that the Japanese government is carrying out to strengthen the competitiveness of the semiconductor sector.

Chapter 5 provides an overview of Korea’s supply chain management system and sectoral policies for semiconductors, batteries, and critical minerals based on the three laws (Framework Act on Supply Chain, Special Act on Materials-Parts-Equipment, Special Act on Resource Security). The analysis reveals several institutional differences between Korea and Japan in terms of disclosure of important items, budget allocation, method of business support policy, relationship between the framework law and the early warning system (EWS). The study deepens the analysis into sectoral level (semiconductors, secondary batteries, critical minerals) and compares Korea’s policies with those of Japan in order to provide detailed insights into direction of Korea-Japan cooperation. Chapter 6 not only summarizes and evaluates the discussion but also provides policy implications including policy recommendations for the topics covered in this study: △ Japan’s economic security strategy △ Japan’s supply chain risk analysis (including Korea-Japan comparison) △ Japan’s supply chain support policy △ Korea’s supply chain management policy (including Korea-Japan comparison) △ Korea-Japan industrial cooperation (semiconductors, batteries, critical minerals). 

In recent years, international efforts have been made to reduce fossil fuel-based energy subsidies as the energy transition has accelerated in response to climate change. As part of a social contract, energy subsidies have been used to stabilize domestic prices and stimulate the economy, especially in the Middle East and North Africa. As a result, per capita energy subsidies in the Middle East and North Africa (hereafter referred to as MENA) have reached the highest levels in the world, and excessive government spending has also been identified as a factor preventing the expansion of social services for the most vulnerable. In light of the decarbonization trends and research showing that energy subsidies contribute to air pollution, subsidy policies are at a critical crossroads between reduction and maintenance. However, the Arab Spring in 2011 occurred in countries that attempted to reduce energy subsidies and resulted in consumer prices rises contributing to political instability.  More recently, the overall increase in energy subsidies since 2020 was also an attempt to stabilize the domestic situation by overcoming the economic downturn through the successive outbreaks of the COVID-19 pandemic and the Russian-Ukrainian war. Despite its importance, there is little research on the impact and social perceptions of energy subsidy policies in the MENA region with coverage since thelate 2010s.

To fill this gap, this study focuses on the impact of energy subsidy policies on the economy and environment, and social perceptionsof energy subsidies in the MENA region. Using satellite data such as nighttime lights and air pollution concentrations, this study examines trends in energy subsidy policies and levels in the MENA region in the 2010-2021 period. Lastly, we conducted an online survey to examine awareness of energy subsidy policy and policy reform in the MENA. Based on these findings, this study proposed recommendations for energy subsidy policy reform, taking into account the the MENA context

Chapter 2 discusses trends in energy subsidies and policy changes in the MENA. Overall, the size of energy subsidies has declined significantly since 2010. In particular, the subsidy share of GDP in 2010 reached 9%, compared to only 4% in 2016 . However, the size of the subsidies has increased again since 2016, and it is generally on the rise, with the exception of 2020, when COVID-19 took place.

Six countries included in this study(Egypt, Lebanon, Jordan, Morocco, Tunisia, and Saudi Arabia) provided energy subsidies through social contracts under authoritarian systems of government . After reducing or suspending subsidies to ease the government's financial burden, the government budget was reduced by raising domestic fuel prices. Also, governments used their budget to support the poor, improve infrastructure, and expand social protection programs. Additionally, efforts have also been made to introduce a price indexation system for petroleum products. In several countries, including Egypt and Tunisia, this process led to anti-government protests and a return to government policies. In terms of subsidy reform, Morocco and Jordan have been considered successful. This is because Morocco, in particular, had a greater chance of success because it implemented subsidy reform in the mid-2010s, when oil prices remained low. MENA countries are constrained in their ability to reform energy subsidies because they must not only stabilize their domestic situation but also make sure that external shocks do not lead to price increases.

In Chapter 3, we examine the impact on energy subsidies on economic activities in the MENA region. Upon examining the impact of energy subsidies on nighttime illuminance, it was found that both the proportion of subsidies to GDP and their per capita subsidy affected the brightness of nighttime lights. Subsidies on electricity, in particular, have increased the brightness of nighttime lights. This shows that reducing electricity rates through the payment of electricity subsidies increases electricity consumption in the home and service sectors, as well as having a positive effect on the industrial sector.

Chapter 4 examines the impact of energy subsidies on air pollution. This study analyzed emissions data of three types of air pollutants, including NO2, CO, and PM25. Expansion of energy subsidies is contributing to an increase in nitrogen dioxide emissions, which can also be attributed to an increase in industrial production, electricity production, and road traffic. Specifically, electricity subsidies and natural gas subsidies contribute to nitrogen dioxide emissions, while oil subsidies contribute to ultrafine dust emissions. Previous studies have shown that energy subsidies have a relatively small impact on carbon monoxide emissions, but, a lot of carbon monoxide is produced by sandstorms, so it is unclear whether the expansion of energy subsidies has fully contributed to carbon monoxide emissions. Additionally, we found that electricity subsidies contribute to increased greenhouse gas emissions in the electricity/heating sector, as well as oil subsidies increase greenhouse gas emissions in sectors such as transportation, manufacturing and construction. Based on these findings, it is clear that energy subsidies in the MENA contribute to air pollution, and that it is necessary to gradually reduce subsidies for electricity and oil.

Chapter 5 examines respondents' perceptions of energy subsidies in four MENA countries (Egypt, Jordan, Tunisia, and Saudi Arabia). The results of the online survey s with a total of 2,040 respondents, indicate that respondents in the MENA region generally prefer policies that reduce energy prices to those that provide social security benefits. In addition, the MENA region is unique in that it tends to oppose improving social security services as an alternative to energy subsidies. There appears to be a difference in preferences between income levels when it comes to energy subsidy policies and social security benefits. The government system should expand social security services targeting vulnerable groups in order to attract middle-income citizens . This indicates that it is important not only to improve, but also to increase awareness of groups other than low-income groups. Residents of the MENA region are more likely to agree with reducing subsidies for global efforts to combat climate change and decarbonization than with reducing subsidies for government fiscal soundness or expanding social services . A campaign to reduce energy subsidies should take this into account.

Chapter 6 presents policy recommendations based on the previous discussion results. This study highlights the need for a gradual reduction of energy subsidies in the MENA region. Our recomendations also include 1) increasing subsidies for renewable energy, 2) improving energy efficiency policies and finances, and 3) supporting small and medium-sized enterprises that may be adversely affected by subsidy reform, 4) improving and expanding public transportation systems, 5) improving social security services, and 6) reducing fossil fuel energy subsidies as much as possible.