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  • 포스트 코로나 시대 해외 주요국의 경제체제 중요 요소 변화: 기후위기, 디지털플랫폼..
    Major changes in economic system in the post-corona era: Focusing on climate crisis, digital platform, human resources and fiscal sustainability

    This study reviewed what kind of institutional improvements are needed in the following four areas amid the changes in economic conditions that are accelerating due to the COVID-19 crisis.First, theoretical analysis was carreid ou..

    Deokhyeon Ryu et al. Date 2021.12.30

    Economic reform, Economic development
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    This study reviewed what kind of institutional improvements are needed in the following four areas amid the changes in economic conditions that are accelerating due to the COVID-19 crisis.

    First, theoretical analysis was carreid out to reflect the principle of equal rights and historical responsibility in the allocation of obligations between countries to reduce greenhouse gas emissions, which is likely to become a fundamental constraint on future economic activities. Specifically, four apporached were reviewed and compared with the Kyoto Protocol: equal distribution per capita (EPC), historical equal distribution per capita (HEPC), proportional distribution (EPE), and proportional distribution (HEPE) per capita. As a result, a large gap between Kyoto Protocol and the HEPC principle, which is satisfies the principle of minimum equality (‘if historical and BAU responsibilities are the same, everyone should be guaranteed equal rights to common resources regardless of their country of origin’) and historical responsibility (‘standard that all countries are free from historical responsibility’). Existing international agreements such as the Kyoto Protocol were found to be most similar to the EPE, which respects vested interests and does not consider historical responsibility. Korea, which achieved rapid growth in a short period of time, has a very low historical responsibility compared to other advanced countries. Therefore, it is between the position of a developing country that demands historical responsibility and the position of a developed country that demands vested interests, and there is an advantage of being able to adopt a flexible strategy between the two sides in the climate agreement.

    Second, we reviewed how to establish competition rules in the field of online platforms, whose importance in economic activities has dramatically increased during the COVID-19 crisis. It was concluded that ex post regulation on a case-by-case is desirable considering and that ex-ante and non-discriminatory regulation can hinder competition and innovation activities. Online platforms have the characteristics of a multi-faceted market that can lead to a winner-takes-it-all market, but in reality there are factors that can offset such a tendency. In order to effectively implement such regulations on a case-by-case basis, it is necessary to revise the review guidelines reflecting the characteristics of the online platform and to upgrade the economic analysis method. To this end, it is necessary to actively refer to the economic analysis methodologies developed for online platforms, in particular, academic studies and judgment cases on market definition methods, and the price increase pressure analysis method, which is measures competition restrictions in business combinations. In addition, measures such as disclosure of data for pre-monitoring or shifting the burden of proof may be considered in order to perform monitoring and regulation more effectively.

    Third, taking into account the accelerated spread of new technologies due to Corona 19 crisis, the necessary policy tasks were reviewed to respond to the advancement and fluctuations in skills required in the labor market due to the progress of the 4th industrial revolution. The conclusion of a comparative review of the current system of Korea and major foreign countries is as follows. ① Administrative, financial, and integration of the higher education and lifelong education functions of the Ministry of Education and the vocational training functions of the Ministry of Employment need to be integrated. Also in major foreign countries, government agencies in charge of adult competency development are dispersed among the Ministry of Education, the Ministry of Employment and the local government. However, it is observed that there is a key institution that plays the role of a control tower for adult competency development policies. ② The academic system should become more permeable so that universities can play a key role in the lifelong competency development system. Currently, the university’s undergraduate system is mainly designed for full-time students in their mid-20s. It is necessary to reorganize the university’s academic system so that universities can expand from educational institutions for full-time students in their 20s to lifelong educational institutions that cover the needs of adults for lifelong ability development. ③ A personal learning account system that financially supports people’s lifelong ability development should be introduced. Personal support for skill improvement has been focused on low-skilled workers so far, but in the era of the 4th industrial revolution, the need for skill development will expand to middle-skilled workers and above. Therefore, it is necessary to devise a personal learning account that accumulates a certain amount of support for individuals to use for skill development throughout their lifetime. ④ Labor reform that strengthens the upward mobility of the labor market is necessary. 

    Fourth, an international comparison was made on the ability to bear national debt and its implications were drawn. It is important to check whether the debt is repayable with revenue, that is, the condition that it is sufficiently possible to repay interest through revenue so that it is not necessary to cover it with another debt to pay interest. Considering this, the credit default swap spread (CDS) was selected and analyzed as an indicator of fiscal sustainability. The estimation of regression models to explain CDS as a function of various variables showed that, in addition to the ratio of national debt to GDP, the maturity structure of government bonds, the ratio of short-term government bonds, and the ratio of foreign government bonds were important factors. The result implies that the national debt-to-GDP ratio is one of the important indicators to be considered in fiscal management, but it is not appropriate to overly emphasize the ratio or insist on a specific level of it.

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  • 중국인의 삶의 질 분석: 전면적 소강사회에 대한 경제학적 고찰
    Moderately Prosperous Society in All Respects: An Economic Study of Chinese People’s Quality of Life

    China’s per capita GDP surpassed $10,000 in 2020 as a result of its rapidly conducted 40 years of opening and reform (gaige kaifang). The Chinese government emphasized that Chinese people all moved above the “absolute poverty le..

    Wonho Yeon et al. Date 2021.12.30

    Labor market, Chinese social structure
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    China’s per capita GDP surpassed $10,000 in 2020 as a result of its rapidly conducted 40 years of opening and reform (gaige kaifang). The Chinese government emphasized that Chinese people all moved above the “absolute poverty level” in 2021 and announced that it has achieved a Moderately Prosperous Society in All Respects (quanmian xiaokang shehui). In contrast to Deng Xiaoping’s original proposal, which sought to escape absolute poverty. the proposal to build a Moderately Prosperous Society in All Respects, set forth in 2002, aims to resolve both absolute poverty and relative poverty for social cohesion. This is also evident from the Chinese government’s official checklist.

    In light of this, Chapter 2 examines the definition, indicators, conceptual change, and development of the Chinese government’s “moderately prosperous society,” and evaluates China’s moderately prosperous society in all respects by comparing the quality of life in various nations. In particular, from the perspective of China, this research investigated the change in the quality of life of Chinese people using the white paper “China’s Epic Journey from Poverty to Prosperity.” Also, from a global perspective, we compared the quality of life in China and major countries with the UNDP’s Human Development Index (HDI) and the UN’s Happiness Index (HI). In terms of eradicating poverty, the quality of life for Chinese citizens appears to have been improved in general. However, China is still yet to reach its target in some areas, including the average number of years of education and productivity per capita. In addition, in terms of social integration, the gap in Chinese society has widened further. Based on the analysis framework presented by the OECD’s Better Living Index (BLI), in terms of income inequality, wealth inequality, and fertility rate, it is hard to conclude that China has achieved its own set of goals.

    Within the general framework laid out in Chapter 2, Chapter 3 investigates the quality of life of Chinese people by analyzing the Chinese Family Panel Survey (CFPS) data from 2012 and 2018. Our study discovered that the rapid income growth of the Chinese people has raised life satisfaction, solved fundamental concerns of livelihood, and lowered the Engel’s coefficient in China. However, this has also made Chinese people become more interested in social problems. Today, Chinese people worry about China’s difficulties with education, environment, healthcare, and social security far more seriously than they did in 2012. In fact, during this time, the gap in personal income between urban and rural areas, the eastern coast and the western interior, males and women, and those with high and low levels of education expanded. Our research also revealed that the income disparity below the median income level has been getting worse in terms of household-level income and consumption. Additionally, the cost of housing more than quadrupled between 2012 and 2018, which makes the problem highly likely to aggravate in the future. Assortative matching between people whose incomes are homogeneous has been proven to occur in cities, where the level of inequality is further exacerbated. The situation in which increasing inequality and assortative matching among households occur simultaneously is a serious social problem in that the gap between the rich and the poor can be transferred to the next generations.

    The intergenerational study we conduct in Chapter 4 reaffirmed the likelihood that China’s inequality problem will be passed down from generation to generation. In particular, not only the inheritance of tangible assets like wealth but also the inheritance of intangible investments like education are expected to worsen China’s inequality issue. In addition, in Chapter 4, we developed a new economic model to analyze and explain the conflicting phenomenon of improving income inequality in cites at individual level and the expansion of income inequality at household level. Household level inequality appears to be growing as a result of the assortative matching, which refers to the marriage among similar income and educational attainment levels. This suggests that, from a dynamic perspective, the passing down of wealth and education between generations may cause China’s inequality problem to worsen and eventually develop into a permanent problem.

    The final chapter, along with the overall summary of this report, provides key implications. In particular, based on our findings presented in previous chapters, we tried to explain why the Chinese government took “common prosperity (gongtong fuyu)” as ​​a new task after the declaration of achieving a moderately prosperous society in all respects, what “common prosperity” actually means, and predict the major tasks for the Chinese government. The Chinese government aims to address the problem of relative poverty by resolving the economic and social inequality that has accumulated since reform and opening up (gaige kaifang), and furthermore, to improve the quality of life at a higher and multidimensional manner. In August 2021, the Chinese government announced the six major directions for common prosperity: improving balanced, harmonized, and inclusive development; expanding the middle and upper-middle-income class; strengthening basic public services; tightening regulations for overly high incomes; promoting spiritual prosperity; and promoting the common prosperity particularly in rural areas. From now on the Chinese government’s policies can be expected to focus on the areas of: ① forming a middle class by resolving inequality, and ② improving the quality of life by solving social problems such as medical care, education, marriage, and childbirth. 

    When considering the difficulties associated with resolving inequality in China, the Chinese government is likely to tighten regulations to protect the relatively weak. For example, in 2021, the Chinese government implemented a series of regulations on internet platform, real estate, private education, and entertainment businesses.These regulations seem to be highly related to keywords such as “relative inequality” and “common prosperity.” As the recovery trajectory from the COVID-19 pandemic appears to be K-shaped, it is believed that aforementioned industries are taking unfair profits by putting pressure on households and became the subject of government regulations. While various regulations are expected to be implemented when “common prosperity” policies are fully promoted in the future, we will be able to predict the areas of interest and regulation of the Chinese government based on an objective understanding of the current Chinese society. This is why we have conducted this research, which can help us to understand changes in the Chinese government’s policy stance, to analyze opportunity and threat factors, and to establish a new strategy for China.
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  • 디지털 부문 혁신과 신북방 주요국의 구조 전환: 신북방 중진국과의 IT 협력을 중심으..
    Development of the IT Industry and Structural Transformation: Focused on IT Cooperation with Russia, Kazakhstan and Uzbekistan

    This study is designed as a primary study to objectively analyze the economic meaning and potential of digital sector cooperation with Russia, Kazakhstan and Uzbekistan to derive implications for presenting new directions for prom..

    Minhyeon Jeong et al. Date 2021.12.30

    ICT economy, Economic cooperation
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    This study is designed as a primary study to objectively analyze the economic meaning and potential of digital sector cooperation with Russia, Kazakhstan and Uzbekistan to derive implications for presenting new directions for promising cooperation. With the advent of the so-called “fourth industrial revolution era” just around the corner, the goal of the study is to discuss what the development of the digital industry means to the economies of the three countries, examine the characteristics of individual countries, and get policy clues on how cooperation with Korea should proceed in the future. To this end, this study performs the following four main analyses. First, the economic meaning of IT technology cooperation with three countries, Russia, Kazakhstan, and Uzbekistan, is viewed from the perspective of industrial transformation. Second, the effect of IT technology cooperation between Korea and Russia on the Russian economy is quantitatively estimated through the analytical framework of the structural transformation. Third, to supplement the limitations of theoretical discussions and derive customized cooperation directions for each country, we examine the current status and policies of the IT industry in the three new northern countries in detail. Fourth, we identify as objectively as possible which IT technology will have a high cooperation effect between Korea and Russia.

    Chapter 2 is the first chapter of the main topic and was conducted to achieve the first and second research objectives. Section 1 briefly discusses the traditional characteristics of the structural transformation based on the experience of high-income countries. Section 2 discusses why the traditional structural transformation is not well represented and often delayed, centering on the recent middle-income countries’ experiences. Section 3 examines the structural transformation of the three countries in the New Northern Region. Section 4 examines how IT technology innovation can play a role in solving the delay in the structural transformation. In order to analyze this economically, a theoretical model is constructed based on the intuition that IT technology innovation has a positive effect on improving productivity in the service sector. Furthermore, by numerically approximating the theoretical model for Russia with available data, we quantitatively estimate how helpful IT technology innovation can be to the problem of delay in the structural transformation that Russia has to solve.

    The conclusion of the analysis is positive. This is because the economy can naturally move from the “bad equilibrium” to the “good equilibrium” through technological innovations in the IT sector. According to the new structural transformation model considered in this paper, we can theoretically prove that the proportion of production in general manufacturing, including the IT sector, increases when IT technology innovation helps improve service industry productivity. Here, the increase in productivity of the service industry with advances in IT technology is based on the intuition that IT technology innovation can alleviate search and matching friction existing in the service industry. The quantitative analysis of how positive IT technology cooperation with Korea affects the long-term growth rate of resource-dependent middle-sized countries showed that if the positive effect of current productivity improvement in the Russian manufacturing sector rises by 173%, Russia’s long-standing delay in industrial structure can be resolved. 

    Chapter 3 is the second chapter of the main topic and was prepared to achieve the third purpose of this study. In other words, it is a chapter prepared to compensate for the limitations of generality and universality of the theory. The individual characteristics of the three New Northern countries dealt with in this paper are analyzed in-depth. In the last section, by briefly comparing and analyzing the status of IT industry development and the governments’ development strategies, we derive the individual characteristics of these countries in the IT industry and development strategies as much as possible.

    As a result of comparing and reviewing the current status of the IT industry in the three countries using the best data available, we conclude that the level of development in the IT industry is similar to that of Russia and Kazakhstan, while  Uzbekistan is relatively lagging. These differences in industrial development are reflected in differences in transition strategies to the digital economy and IT industry development strategies of the three countries. In particular, Russia and Kazakhstan, which are highly dependent on natural resources, are considered to be more interested in transforming the economic structure through the development of the IT industry. Specifically, Russia’s policy focus is on improving existing IT infrastructure and related systems and enhancing the practical competitiveness of the Russian IT industry in the global market. On the other hand, Kazakhstan has a policy focus on improving existing IT infrastructure and related systems, but no specific policy has been prepared to develop the IT industry. Finally, in Uzbekistan, the establishment of IT infrastructure should be prioritized, and accordingly, this becomes the most important policy goal. There is still no national policy for developing the IT industry like Kazakhstan. Both Kazakhstan and Uzbekistan have yet to have IT companies to secure competitiveness in the global market, so national strategies and policies for developing the IT industry are expected to differ from Russia’s.

    In Chapter 4 we objectively identify which IT technology field can maximize the effectiveness of cooperation between Korea and Russia. We statistically analyzes technology patent data registered by Korea and Russia over the past five years. Chapter 4 examines which technological cooperation has a strong synergy effect and a positive propagation effect, and infers the immediate “need for technological cooperation” based on this. As a result of patent citation analysis, we find that the cooperative synergy between Korea’s semiconductor-related technologies and Russia’s digital computing or data processing will be prominent, reflecting each country’s technological comparative advantage. In addition, when using the network analysis method, we find that such technological cooperation has a high scope of the propagation effect and immediate influence of cooperation as well as synergy effect of cooperation.
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  • 한ㆍEU FTA 10주년 성과 평가 및 시사점
    Ten Years of Korea-EU FTA: Achievements and Way Forward

    The year 2011 marked the 10th anniversary of the free trade agreement (FTA) between Korea and the European Union (EU). The Korea-EU FTA was Korea’s first FTA with a major trading partner and the first case of the EU’s “next gen..

    Dong-Hee Joe et al. Date 2021.12.30

    Economic relations, Economic cooperation
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    The year 2011 marked the 10th anniversary of the free trade agreement (FTA) between Korea and the European Union (EU). The Korea-EU FTA was Korea’s first FTA with a major trading partner and the first case of the EU’s “next generation”FTAs.At the 10th anniversary of its entry into force, this report looks back on the meaning of the Korea-EU FTA and analyzes its impact on the bilateral economic relationship between the two economies.

    Followingthe entry into force of the FTA, Korea’s export to the EU stagnated, while Korea’s import from the EU increased, particularly during the eurozone crisis in 2011-2013. Among the EU member countries, Korea’s major export partners include not only large Western European countries such as Germany, United Kingdom and the Netherlands, but also the Central and Eastern European Countries (CEECs) such as Poland, Slovakia and Czech Republic.In particular, Korea’s export to the latter countries increased substantially after the FTA enteredinto force.Also, Korea’s import from the CEECs more than tripled after the entry into force of the FTA, though Western Europe’s share still remained much larger. Industrial products take a large share both in Korea’s export to and import from the EU, while consumer products and high-tech equipment also take a big share in Korea’s import from the EU. Both Korea’s export to and import from the EU diversified after the entry into force of the FTA.

    The EU is the second largest (about 14 percent) foreign investor in Korea and the largest destination (about 41 per cent) of Korea’s investment abroad. The EU’s investment in Korea was larger than investment the other way around before the FTA, but the opposite becametrue after the FTA. Western Europe receives most of Korea’s investment in the EU, but Poland and Hungary’s share is rapidly increasing in recent years. The EU’s investment in Korea comes mostly from Western Europe and Malta. While Korea’s investment in the EU is concentrated in services (about 62 per cent), manufacturing’s share is rapidly increasing in recent years. The EU’s investment in Korea is more balanced between services (about 53 per cent) and manufacturing (about 44 per cent).

    This report’s econometric analyses show that the FTA increased Korea’s aggregateexport to and investment in the EU, especially in the CEECs. The FTA is estimated to have reduced Korea’s export to the EU in some industries, which can be explained by Korean manufacturers’ relocation abroad, including to the EU.As for Korea’s import from the EU, the FTA is estimated to have increased the volume from western Europe and diversity from the CEECs. This latter effect is likely to have lowered the import price and strengthened the supply chain of Korea.

    This report presents four industries as showcases of the FTA’s role in strengthening the bilateral economic relationship between Korea and the EU, namely the automotive, battery for electronic cars, semiconductor and pharmaceutical industries. In the automotive industry, intra-industry trade has increased substantially after the FTA. Korea’s import of final products (e.g., cars) has increased, and Korean car makers’ production in the EU, especially in the CEECs, has increased, which is reflected in the increase of Korea’s intermediate goods, resulting in an increase of Korean car makers’ market share in the EU. In the electronic-car battery industry, where the rapidly increasing demand and short supply in the EU leaves a substantial excessive demand, Korean manufacturers fill the gap, not only by exporting the final product, but also building production facilities in the EU. This likely contributes to the European Green Deal. In the semiconductor industry, where Korea’s sourcing of capital goods and inputswas heavily concentrated, suppliers from the EU helped Korea to diversify its supply chain. In pharmaceuticals, Korea’s fast reaction to the surge in demand for the necessary equipment in the EU during the COVID-19 pandemic helped the EU’s fight against the pandemic.

    To shed some light on the future development of the Korea-EU FTA, this report analyzes three recent trade agreements entered into bythe EU, namely the EU-Canada Comprehensive Economic and Trade Agreement (CETA), EU-Singapore FTA and EU-Japan Economic Partnership Agreement(EPA). CETAtook a balanced approach in market liberalization in agriculture, abolished tariffs on manufactured goods and liberalized services and public procurement. Unlike in Canada’s other trade agreements which adopted investor-state dispute settlement(ISDS) clauses, CETA adopted the EU’s Investment Court System (ICS) as its investment dispute settlement mechanism. During the ratification process of the EU-Singapore FTA, the European Court of Justice decided that investment is a shared competence, not the EU’s exclusive competence. This led to separate agreements for trade and investment. The EU-Singapore FTA allows for cumulation of ASEAN in its rules of origin. It is also the first of the EU’s FTAs to include provisions on corporate social responsibility (CSR).The main interest of the EU in the EU-Japan EPA was to lower the non-tariff barriers (NTBs) withinJapan.The EPA took a gradual approach in market liberalization in agriculture, abolished tariffs on manufactured goods and substantially reduced the NTBs. It is also the first trade agreement to incorporate the Paris Agreement. As for investor protection, it failed to come to an agreement due to the difference in preference between the EU (ICS) and Japan (ISDS). The two parties also agreed to continue discussion on digital trade and data protection. Considering the features of these agreements, the Korea-EU FTA may, in the future, include more normative features such as the Paris Agreement, CSR and ESG (Environment, Social, Governance). Also, the EU is likely to push for the ICS as the investment dispute settlement mechanism.

    This report also analyzes some of the EU’s requests for revision of the FTA, namely on direct transport and re-entry after repair. On direct transport, the EU requested to change the current, single consignment criterion to non-manipulation criterion to allow separate transport from third countries. The EU requested to abolish tariffs on goods re-entering after repair, especially for aircrafts. The EU argues that Korea will benefit from the increased competition in the market for such services. These issues are likely to be raised again in the future.

    Within the framework of the TSD chapter of the FTA, the EU argued that Korea’s domestic legislations violated the ILO principles and that Korean government did not makedue efforts to ratify the ILO core conventions. The two sides started official discussions on this issue in January 2019, and an expert panel was requested in July 2020. To resolve this issue, Korea made major changes in the corresponding legislations and ratified the ILO core conventions.

    This report finishes with proposals infour areas for further deepening the economic cooperation between Korea and the EU beyond the FTA, namely hydrogen economy, digital economy, start-up and audio-visual co-production.
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  • 디지털세가 다국적기업의 해외 투자에 미치는 영향
    New International Tax System and its Impact on Investment of MNE

    As digitalization of the economy accelerates, tax avoidance by multinational enterprises (MNEs) becomes a more serious and sophisticated issue to address. The issue can be attributed to several characteristics of firms in the digi..

    Sangjun Yea et al. Date 2021.12.30

    조세, Overseas Direct Investment
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    As digitalization of the economy accelerates, tax avoidance by multinational enterprises (MNEs) becomes a more serious and sophisticated issue to address. The issue can be attributed to several characteristics of firms in the digital economy, these being: discrepancy between the permanent establishment where the corporate income tax is levied and the location where substantial business activity is performed, high reliance on intangible assets in production that are movable across jurisdictions, and the intricacy of applying transfer pricing rules to new business activities. Due to these features, MNEs have been able to easily shift earned income from a country with high corporate income tax (CIT) rates to one with low CIT rates and lessen their tax burdens by taking advantage of extant principles of the international tax system and bilateral tax treaties between countries.

    In order to tackle the base erosion and profit shifting (BEPS) issue of MNEs under the digital economy, the OECD and G20 launched an inclusive framework (IF) joined by 141 countries and has conducted discussions on a new international tax system. As a result, in October 2021, two major revisions on the current international tax system – the Two-Pillar solution on BEPS – were agreed upon by 139 IF member countries, including G20 members, to take effect in 2023.

    The IF’s final agreement on the Pillar 1 and Pillar 2 is as follows. Pillar 1’s scope is limited to a group of MNEs whose annual revenues exceed 20 billion euros with above 10% profitability. This allows market countries to levy a portion of MNEs’ profits net of the 10% of the revenues, in proportion to each country’s size of revenues sources. The tax base alloted to eligible countries is called “Amount A.” Pillar 2 intends to impose global minimum CIT rates above 15%, under which MNEs’ affiliates are obliged to pay top-up taxes up to 15% if affiliates in other jurisdictions pay low taxes that amount to the effective CIT rates in short of 15%. Pillar 2 applies to a group of MNEs whose annual revenues exceed 750 million euros. The introduction of this new international tax system will clearly have a major impact on MNEs’ investment and value chain decisions.

    This study mainly focuses on the Two-Pillar solution on BEPS, exploring how this affects the investment and production decisions of MNEs, and provides implications on Korea’s FDI policy.
    In Chapter 1, we briefly explain the background of the OECD BEPS projects and the main schemes of the Two-Pillar solution finally agreed upon by the IF.

    In Chapter 2, we identify which MNEs are encompassed within the scope of Pillar 1 and Pillar 2, and look at the firms’ locations and distributions across industries. Using Orbis financial data on MNEs, we find that Pillar 1 applies to MNEs whose headquarters and affiliates are located mostly in the US, China, and the UK. Also we find that the MNEs in the scope of Pillar 1 are distributed among varied industries uniformly. It also features that more consumer facing businesses are included in the scope of Pillar 1 than automated digital services companies. In the case of Pillar 2, we find that MNEs in the scope of Pillar 2 are located in broader jurisdictions including the US, China, Japan, the UK, Cayman Islands, British Virgin Islands, Hong Kong, and the UAE. We also show that MNEs in the scope of Pillar 2 are distributed among various industries uniformly.

    In Chapter 3, we document the evidence of MNEs’ profit-shifting through intangible assets by testing empirical models with Orbis financial data. Our findings indicate that, firstly, as subsidiary companies face higher CIT rates in their jurisdictions, they tend to have less amounts of intangible assets; secondly, in jurisdictions with low CIT rates, the subsidiaries are more likely to have a higher level of profits than those with high CIT rates; thirdly, companies’ profits are likely to be more responsive to the difference between the CIT rates of a parent company and its subsidiary when the industry relies more on intangible assets in production; and lastly, MNEs’ profit-shifting occurs more in the service industry and tax havens than in the manufacturing industry and non tax havens.

    In Chapter 4, inspired by Wang (2020)’s profit-shifting model, we newly develop a multi-country general equilibrium model featuring firms’ decisions on profit-shifting to minimize tax burden, as well as making location choices for multinational production and exports given the Two-Pillar solution on BEPS. We consider three scenarios where either Pillar 1 or Pillar 2 are introduced or where they are both introduced to disentangle the economic impacts of Pillar 1 and Pillar 2, separately. From these exercises, we find that CIT rates and an increase in IFDI (OFDI) due to introducing the Two-Pillar solution are positively (negatively) correlated. Korea is expected to benefit from introducing Pillar 1 because MNEs with conduit firms located in other jurisdictions with low CIT rates for tax-planning might relocate their production sites to Korea when the tax advantages are partially offset by Amount A. However, these benefits may be diminished when Pillar 2 is introduced because setting global minimum CIT would increase the overall tax burden of MNEs and thereby reduce the return on R&D investment, FDI incentives for production, and exports. For the case of Korea, the former effect slightly dominates the latter effect; thus, the IFDI in Korea increases after the Two-Pillar solution is introduced.

    Based on these results, in Chapter 5, we suggest unleashing regulatory interventions in FDI policy could be more effective than reducing CIT rates to attract foreign investment. Also we suggest the Korean government may play a supportive role in MNEs’ reorganizing value chains when Pillar 2 is introduced and the tax burden imposed on MNEs harms their competitiveness. 
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  • 디지털 플랫폼의 활용이 중소기업의 국제화에  미치는 영향과 정책 시사점
    The Internationalization of SMEs via Digital Platforms: Findings and Policy Implications

    The global e-commerce market has been rapidly expanding due to the development of digital platforms. When compared to traditional methods, internationalization via digital platforms has significantly reduced the cost of entering o..

    Kyong Hyun Koo et al. Date 2021.12.30

    Trade policy, electronic commerce
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    The global e-commerce market has been rapidly expanding due to the development of digital platforms. When compared to traditional methods, internationalization via digital platforms has significantly reduced the cost of entering overseas markets, which is expected to open up new opportunities for small- and medium-sized enterprises (SMEs) with limited capital or manpower. However, few studies have been conducted on domestic SMEs internationalization via digital platforms. Furthermore, little is known about the effects of relevant policies on SMEs’ use of digital platforms and internationalization.

    Aiming to fill this research gap, this study collects data on Korean SMEs’ online exports (i.e., exports via e-commerce), the most representative type of SMEs’ internationalization through digital platforms, establishes stylized facts, and investigates the effects of Korean SMEs’ online export support policies. Based on the findings, we also provide policy implications.

    In Chapter 2, we first conduct a survey on domestic SMEs’ online exports using a sample representing domestic SMEs registered as official e-commerce firms as of June 2021. Based on survey results, we document basic descriptive statistics on SMEs’ online exports behavior and investigate their main issues and policy demands.

    Chapter 3 outlines Korea’s online export support policies for SMEs and explores the effects of five major online export assistance programs on SMEs’ online exports. For the estimation of the effects, we combined the survey data from Chapter 2 with information on the firms participating in the programs, which are provided by the Ministry of SMEs and Startups and Korea Enterprise Data (KED).

    Chapter 4 analyzes the characteristics of the e-commerce market and major digital platforms for major partner countries of Korean online exports. Furthermore, the characteristics and challenges of SMEs who export online are investigated in greater depth per partner country. The United States and China are the first countries to be studied, respectively representing developed and developing countries with substantial domestic online markets and super-sized digital platform firms. Among the emerging countries in the ASEAN region, Vietnam and Indonesia are chosen since the former has the highest imports from Korea and the latter has the largest population in that region.

    Lastly, we provide policy implications in Chapter 5 based on the findings above, such as assisting SMEs in improving their online export capability, removing new-type trade barriers arising from cross-border e-commerce activities, protecting domestic SMEs from abuse of major foreign digital platforms’ monopoly status, and so on.
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  • 신남방 국가의 중소기업과 현지 한국  중소기업간 상생 협력 방안
    A Mutual Cooperation Between Local SMEs and Local Korean SMEs in the New Southern Countries

    This study attempts to suggest the way of win-win cooperation between local small and medium-sized enterprises (SMEs) and local Korean SMEs in the New Southern country. For this purpose, it first investigates the theoretical backg..

    Choong Lyol Lee et al. Date 2021.12.30

    Economic cooperation, Business management
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    This study attempts to suggest the way of win-win cooperation between local small and medium-sized enterprises (SMEs) and local Korean SMEs in the New Southern country. For this purpose, it first investigates the theoretical background, current their mutual relationship and cases of previous cooperation of major companies. 

    The motivation for this study started with the following observational motivations. First, Korean SMEs in the New Southern countries have been marginalized from the local government’s policy support. In general, SMEs in most countries face many difficulties compared to large enterprises. As a result, their governments carry out various policies to support them. They may give financial support or technical assistance. Governments of the New Southern countries are not exceptions. They manage many programs to support them. Despite this fact, Korean SMEs in the New Southern countries have a difficulty to receive them. Mainly, the governments of the New Southern countries recognize them not as their owns companies but as Korean companies.

    Second, Korean SMEs in the New Southern countries are excluded from the support of the Korean government. Legally, they are locally registered companies and the promotion and development on Korean company are not an assignment of Korean government. 

    Third, Korean SMEs in the New Southern countries have been unable to utilize their opportunities to cooperate with local companies. For example, they may reduce their costs by procuring parts and raw materials from local companies or to create new customers by using local sales channels. They may get some advises during the labor dispute. Frankly, these activities are very limited.

    This study, starting from these problems, presents a theoretical analysis and examines the recent activities of local SMEs as well as Korean SMEs in New Southern countries. Four countries of Indonesia, Thailand, Vietnam, and India of were selected as main analysis target countries. The economies, business environments, and the current activities and policies of SMEs of these countries were examined. It tells that the economies of these four countries are growing very rapidly, and their governments have been implementing various policies to revitalize their SMEs.

    Meanwhile, in order to examine the status of Korean companies of these four countries, their business activities were examined by country and by industry. It shows several interesting facts. For example, the number of Korean companies in Vietnam has increased rapidly in recent years, while that of Thailand has been stagnant. It is shown that Korean companies in Indonesia and Vietnam are mainly in the labor-intensive industries such as clothing and textiles, whereas those in Thailand and India are centering on industry of electronic parts or automobile parts. It is because wages in Vietnam and Indonesia are still relatively low while per capita income and wages in Thailand have already reached a considerable level in 아세안. It was also interpreted that the reason SMEs entered India centered on the automobile and electronic parts industries was because they were partners of Samsung Electronics' factories near Delhi and Hyundai Motor's factories around Chennai.

    It also checks the previous cases of the win-win cooperation relationship between foreign companies and local companies. Surprising, very little win-win cases were observed between local SMEs and Foreign SMEs. However, the win-win relationship between foreign global companies and local SMEs appeared in various forms. In other words, many foreign companies have provided various types of assistance to local SMEs such as management consulting or training for employees of local SMEs. It is because cooperation with local companies that provide raw materials and parts locally is essential for foreign companies to improve their productivity or their product quality. Also, they recognized that cooperation with local companies played a very important role to raise the local sales.

    Based on these analyses, this study recognized the possibility of cooperation between Korean SMEs and local SMEs and suggested several policy measures. At this time, the role of the government was included because both Korean SMEs and local SMEs lack the financial and business capabilities to implement them. In other words, it is to suggest a method of promoting cooperation between Korean SMEs and local SMEs led by the government. Here are some of major conclusions.

    First, several win-win cooperation models were presented. In this win-win cooperation model, Various organizations and agents such as local SMEs, local Korean SMEs, local central and regional governments, the Korean government and local embassies, public institutions of both countries such as KOTRA, Korean development cooperation organizations, SME promotion and consulting organizations, university research institutes, etc. will participate to carry out the policies and programs.

    Second, major policies and programs include (1) a network establishment project between local Korean companies and local companies, (2) a local manpower capacity building program, and (3) a corporate consulting program etc. In the process of carrying out these, administrative tasks such as financing for win-win cooperation projects and selection of institutions in charge of win-win cooperation projects had to be resolved. In addition, some examples of win-win cooperation programs of Indonesia, Vietnam, Thailand, and India are presented. It should be reminded that all of these programs must be customized to be implemented in the New Southern Policy counties because their economic and culture environments are quite different. Finally, the principles and precautions to be observed by the government are presented
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  • 아시아-유럽 정상회의(ASEM) 25주년 평가와 한국의 활용전략
    The Asia-Europe Meeting (ASEM) at 25: Background, Main Achievements and Policy Implications

    This study was conducted to analyze the background factors and achievements of the ASEM process over the past 25 years since its establishment and to draw policy implications for Korea.After the Introduction, Chapter 2 reviewed, i..

    Date 2021.12.30

    Economic cooperation, Multilateral negotiations
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    This study was conducted to analyze the background factors and achievements of the ASEM process over the past 25 years since its establishment and to draw policy implications for Korea.

    After the Introduction, Chapter 2 reviewed, in a detailed manner, the background factors of and the roles assigned to the ASEM process. Especially, ASEM was identified as an inter-regional cooperation mechanism between the two continents – Asia and Europe – that was established in order to fill the ‘missing link’. The intention of European countries to intensify cooperative relationship with Asian countries that had been increasingly recognized as ‘the potential center of global economic growth’ was a mian background factor that led to the establishment of ASEM. Also crucial was the desire of Asian countries to diversify their diplomatic relationship and to cultivate the biggest internal market provided by the European integration process. In addition to its traditional role to foster and enhance the cooperative relationship between Asia and Europe, the ASEM process also contributed to strengthening the intra-regional cooperation within Asia by providing them with motivations to establish the ASEAN+3 and the East Asia Summit (EAS), which can be regarded as a very positive by-product.

    Chapter 3 was fully devoted to the evaluation of ASEM cooperation. First of all, the study looked into the agenda items of twelve summit meetings held until October 2021 in order to identify the main direction of cooperation in the ASEM process. Also, the study thoroughly investigated the cooperation agenda discussed and the frequncy of ministerial meetings, and found out that the ASEM process has been well-balnaced between political and economic policy areas. As a result of qualitative evaluation of the ASEM process, the study brought into discussion the following five main weaknesses of the ASEM process, especially compared to other internaitonal cooperation bodies, such as the APEC process. (i) unclear long-term vision; (ii) very low degree of institutionalization with no physical secretariat; (iii) too much comprehensive cooperation agenda leading to a low degree of concentration and focus; (iv) non-binding characteristics leading to no meaningful commitment of members; and (v) low visibility of the whole process.

    Chapter 4 examined the trends and characteristics of the ASEM enlargement through indicator analysis. The European Commission’s Joint Research Center created a sustainable connectivity indicator and analyzed the degree of connectivity between Europe and Asia by collecting basic data from ASEM member countries. As a result, it was confirmed that significant achievements were made between the two regions in terms of trade, investment, movement of people, institutional and political connectivity, and joint research between the Asian and European regions. However, the European Commission’s Joint Research Center’s Sustainability Connectivity Indicator is not only Europe-centered, but the data is collected at a specific point in time. In order to supplement weakness of the Sustainability Connectivity Indicator, we created a new governance indicator that shows the degree of connectivity between the three pillars of ASEM. New indicator clearly illustrates trends and characteristics within and between the two regions in the process of ASEM enlargement. Furthermore we examined changes in Korea’s status in the process of ASEM enlargement using the governance indicator. According to analysis results Korea showed a high growth rate far exceeding the average of ASEM member countries in all areas including the public sector, market, and civil society. And compared to the early days of ASEM, Korea’s relative standing of nowadays has risen significantly. In particular, the degree of improvement in areas such as pulic administration, market environment and welfare was remarkable.

    Chapter 5 presents Korea’s strategies for the upcoming 25 years of ASEM based on Korea’s achievements within ASEM. The future strategies will be was proposed focusing on areas where Korea can demonstrate intellectual leadership within ASEM. Indicator studies have shown that within ASEM, Korea has set a best practice in the areas of market opening, social security and deregulation. In addition, the Asia-Europe education cooperation program is also a major area in which Korea can demonstrate its intellectual leadership in the future. Future strategies proposed by Korea, such as market opening, social security, deregulation and education, are expected to make a significant contribution to the process of overcoming the challenges ASEM member countries are facing in the post covid-19 era.

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  • 환율과 기초여건 간 괴리에 대한 연구: 시장심리를 중심으로
    Exchange Rate Predictability Based on Market Sentiments

    Central bankers, policymakers, and market participants need to predict the future exchange rate movement. However, a well-known puzzle is that exchange rates are difficult to forecast using observable macro fundamental variables. ..

    Hyosang Kim et al. Date 2021.12.30

    Financial policy, Exchange Rate
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    Central bankers, policymakers, and market participants need to predict the future exchange rate movement. However, a well-known puzzle is that exchange rates are difficult to forecast using observable macro fundamental variables. Meese and Rogoff (1983) report that the random walk model is better at predicting exchange rates in out-of-sample forecasts than models reflecting changes in economic fundamentals. A large body of literature has found that, in attempting to solve the Meese‐Rogoff puzzle, the random walk beats fundamentals-based models for periods up to a one‐year forecasting horizon.

    This study intends to examine whether the market sentiment index of the foreign exchange market, along with the standardized fundamental-based models, helps predict the exchange rate. Based on the market sentiment index data, we try to predict the exchange rate based on the contrary opinion investment strategy used by foreign exchange market dealers. We also examine whether machine learning models incorporating a wide range of economic data and market sentiment indices can improve exchange rate forecasting.

    This study mainly consists of four parts. Chapter 2 re-examines whether fundamental-based models can have prediction power on exchange rates. We examine developing market currencies, including the Korean won, in addition to major currencies. The Taylor-rule model has short-term predictability on the Canadian dollar, Swiss franc, and British pound among major currencies. For most models we analyze, emerging market currencies tend to show higher long-term and short-term predictability than major currencies. However, there is a significant variation in the predictive power of fundamental models over currency and period.

    In Chapter 3, the market sentiment index and Bloomberg’s exchange rate forecast are tested in terms of their ability to predict exchange rates. To compare the exchange rate predictability fundamental-based models in Chapter 2, we make them in identical conditions: the data is transformed to monthly, and a single linear equation model is used. Both the market sentiment index and the Bloomberg exchange rate forecast demonstrate high short-term exchange rate predicting power against the Euro. However, they have lower exchange rate forecasting power to other major currencies than the random walk model.

    Chapter 4 examines the exchange rate forecast based on the contrast opinion investment strategy used by foreign exchange market dealers. The exchange rate is predicted based on four indicators (daily sentiment index of futures market participants, the distance between the spot exchange rate and the maximum exchange rate, the yield of the past exchange rate, and the volatility of the past exchange rate). Those indicators are made based on the imperfect market theory. Among the indicators, the distance between the exchange rate and the maximum exchange rate has the best predictive power. For forecasting horizons ranging from one week to five years, we find that it outperforms the random-walk model in both in-sample and out-of-sample projections.

    As various machine learning algorithms have been developed and the quantity and quality of data accessible for analysis have improved, there have been an increasing number of studies that seek to market analysis based on machine learning algorithms in recent years. Chapter 5 uses fundamental variables and a market sentiment index to predict exchange rate fluctuations using machine learning algorithms. As a result of the analysis, we find that the exchange rate predictions based on the machine learning models are generally superior to the linear model. Among the machine learning models, the convolutional neural network has the best exchange rate forecastability.

    Chapter 6 summarizes the research results and suggests implications. Although this study examines the predictive power of exchange rates of various models, it is difficult to explain and identify the cause. Thus, more studies are necessary for discussing the causality. In sum, we test various models for predicting exchange rates and find some empirical results that could beat the random-walk model. 
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  • 포스트 코로나 시대 사회 안정성과 포용성 제고를 위한 국내외 정책 분석: 출산ㆍ보육..
    Analysis of domestic and foreign policies to enhance social stability and inclusion in the post-corona era: Focusing on public health, childbirth and childcare, real estate, and taxation of financial

    This study aims to examine the negative impact of the COVID-19 crisis on social and economic stability and inclusiveness, and to suggest the necessary policy direction to deal with it. To this end, the historical experiences of pa..

    Myungheon Lee et al. Date 2021.12.30

    Economic reform, Economic development
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    This study aims to examine the negative impact of the COVID-19 crisis on social and economic stability and inclusiveness, and to suggest the necessary policy direction to deal with it. To this end, the historical experiences of pandemic diseases were reviewed, and the relationship between the effects of the COVID-19 crisis on the labor market by gender and the effect of family-friendly policies were analyzed. In addition, the causes of the instability in the housing market and the direction of policy improvement were discussed. Finaly, the current situation of taxation policies on financial assets were reviewed and the theoretical analysis and internatinal comparison were carried out. 

    First, according to studies on the epidemic of infectious diseases in the past, pandemic diseases caused greater socio-economic costs by impeding the formation of human capital beyond direct costs such as casualties. Therefore, it was confirmed that an active response is required to minimize the damage caused by such diseases, and the implementation of an intensive quarantine policy was effective in alleviating the long-term economic stagnation. However, as the recent COVID-19 pandemic has been continuing for a long time, it is becoming difficult to sustain a high-intensity quarantine policy. The current policy is difficult to maintain because the individual’s marginal cost is likely to increase rapidly due to the economic damage accumulated over a long period of time. Therefore, compensation for losses to the self-employed and small business owners, where the cost of quarantine is concentrated, is an urgent issue. In particular, the main tasks are to prepare a rational basis for assessing the amount of damage and to ensure prompt payment.
    Second, by examining the gap in gender labor market performance by country due to the COVID-19 health crisis and analyzing the relationship with family-friendly policies, it was attempted to suggest what constitutes an appropriate family-friendly policy in the post-COVID-19 era. As a result of empirical analysis, it was found that the effect was different depending on the type of family-friendly policy. It was estimated that the existing cash grants to families had a positive effect on the employment of men and women during the health crisis. However, it was found that service support for the family and the period of maternity and paternity leave had little effect on the employment of men and women during the health crisis. The result that the cash support system acts as a buffer against economic shocks during a catastrophic crisis implies that it is important to support households so that they can respond flexibly. On the other hand, if social distancing is enforced, the use of childcare services or the use of the parental leave system may be limited. When a catastrophic crisis occurs in the future, it is necessary to establish a policy response strategy in consideration of the function of such family-friendly policies.

    Third, it was attempted to suggest a desirable policy direction by analyzing the instabilities in the housing market in Korea after the outbreak of the COVID-19 crisis and comparing the real estate policy system in Korea with major foreign countries. First of all, in the short term, the housing market of major countries is changing significantly due to the anxiety caused by Corona 19. However, from the perspective of the housing system, it is not considered as a shock enough to fundamentally change the housing system. From a longer-term perspective, Korea’s housing system has a transitional character in which productionism, liberalism, and even conservatism and social democracy are mixed. In the mid- to long-term, the government-led mass production method has considerabel drawbacks, so it is inevitable to change to a supply method that utilizes the creativity of the private sector to meet various private housing demands. Considering the direction of housing policy in relation to housing finance, housing welfare, rental market, and taxation in the housing system in relation to these housing systems, the following tasks are derived. ① A system that supports loans, taxes, and rentals centered on home buyers for the first time in their lives is needed. ② It is necessary to prepare a plan to build a new public housing support system, including housing benefits, by raising the public rental inventory ③ It is necessary to transform the individual-oriented rental market into social lessors (social enterprises, non-profit organizations such as cooperatives, or publicly supported rental housing), rental companies, and lessors who can contribute to society as professional and capable as REITs. ④ Regarding taxation, it is desirable to minimize the tax burden on one house per household and institutionalize the property tax as a financial resource that can be used for procurement of local financial resources and regional development rather than from the viewpoint of housing price stabilization.

    Fourth, in relation to the issue of income and property inequality, which became more prominent during the Corona crisis, from the perspective that the overhaul of the financial asset-related taxation system can act in the direction of reducing the disparity in asset allocation by income class. Theoretical considerations and comparisons with major foreign countries lead to the following conclusions. First, it can be concluded that it is necessary to lower the deduction limit set at 50 million won per year. Second, it is necessary to expand the scope of taxable income to increase the effect of total profit and loss. Third, it does not seem necessary to maintain the existing securities transaction tax with the imminent imposition of taxation on the gains on transfer of listed stocks by small investors. Fourth, it is necessary to give preference to long-term holding by imposing a lower tax rate on transfer gains obtained by trading stocks held in excess of this for one year.
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