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The Economic Impact of the U.S. Export Controls on China and Its Implications
This report examines the status of U.S. semiconductor export controls and estimates their impact. We focus on two major areas of semiconductor export controls implemented by the Biden Administration: restrictions on certain semico..
Hyok Jung Kim et al. Date 2023.12.29
economic security, barrier to tradeDownloadContentSummaryThis report examines the status of U.S. semiconductor export controls and estimates their impact. We focus on two major areas of semiconductor export controls implemented by the Biden Administration: restrictions on certain semiconductor manufacturing facilities and AI chips.<
In Chapter 2 reviews the history of U.S. semiconductor export controls, which progressively became stronger and broader in scope during the Obama, Trump, and Biden administrations. In doing so, we confirmed that semiconductor export controls have become more frequent and in an effort to overcome the limitations of existing sanctions. Regarding export controls attempted by the Obama administration, American companies were able to circumvent them by assisting Chinese companies. The Trump and Biden administrations have closed such loopholes by expanding existing sanctions. The scope of the Trump administration’s sanctions against some companies, such as Huawei and SMIC, has been greatly expanded to include export controls targeting all of China under the Biden administration. Additionally, Chapter 2 reviews the concerns of various companies, associations, and organizations regarding these broader export controls and reviews key countries’ responses to the semiconductor supply chain.
In Chapter 3, we conducted an analysis of the semiconductor industry’s supply chain, encompassing equipment, materials, foundry, memory, and design sectors. For each sector, we scrutinized major companies and their relevance to semiconductor export controls, as well as the competitiveness of China’s semiconductor industry. By reviewing various public announcements and company disclosures, we investigated the potential impact of export controls on individual companies, particularly in the areas of semiconductor manufacturing equipment, memory semiconductors, and semiconductor design. It became clear that Chinese semiconductor companies were rapidly improving their technical capabilities with substantial support from the Chinese government in all areas.
In Chapter 4, we delved into the repercussions of semiconductor export controls on semiconductor manufacturing equipment and AI chips, the two main targets of export controls. Our analysis showed a statistically significant decline in China’s imports of semiconductor manufacturing equipment. Furthermore, Korea’s exports of semiconductor manufacturing equipment, which serve as a complement to American semiconductor manufacturing equipment, have also declined as a result of the impositionof semiconductor export controls. Additionally, the imposition of export controls on AI semiconductors could potentially lead to a modest decline in demand for high bandwidth memory (HBM). While the baseline estimate indicates a smaller decline in demand due to the export controls compared to the broader memory market, the long-term impact could be significant, depending on the evolution of future export control measures and the expansion of the AI semiconductor market.
In Chapter 5, we projected possible extensions of semiconductor export controls to encompass heterogeneous integration technology and next-generation power semiconductors. Furthermore, we also considered the possibility of broadening the scope of countries involved in semiconductor manufacturing equipment. In addition, this report outlines policy implications, including the need to ensure the competitiveness of semiconductor manufacturing equipment, to establish alternative production facilities to mitigate risk exposure, and to enhance the competitiveness of fabless companies. -
The Effects of Outward Foreign Direct Investment on Firm’s Innovation Activities and Financial Performance: The case of Korea
In general, negative discussions and impressions regarding outward FDI, such as capital outflows, job losses, leakage of trade secrets, and hollowingout of domestic industries, seem to dominate. The controversy, which focused on g..
Jong Duk Kim et al. Date 2023.12.29
industrial policy, overseas direct investmentDownloadContentSummaryIn general, negative discussions and impressions regarding outward FDI, such as capital outflows, job losses, leakage of trade secrets, and hollowingout of domestic industries, seem to dominate. The controversy, which focused on greenfield investments in the past, seems to be widely applied to recent mergers and acquisitions (M&As). Against this backdrop, the purposeof this report is twofold: first, to improve the understanding of how the increase in Korean firms’ FDI through M&As and related innovation activities in the U.S. market affects the performance of the investing Korean firms and their domestic affiliates; and second, to provide objective long-term policy directions on outward FDI and firms’ innovation activities based on the results found using firm-level data. The following results and findings in each chapter of this report are presented as follows.<
On the theoretical side, based on the theoretical model developed by Akcigit, Ates, and Impullitti (2018), Chapter 2 examines the mechanisms through which FDI can affect the incentives to innovate and the financial performance of investing firms. Market integration through M&As creates a scale effect and a competitive effect. The cost of innovation also plays a role in firms’ innovation incentives and financial performance. A spillover expected from knowledge sharing resulting from access to a new market is an additional channel. Regarding the scale effect, access to large, developed markets is one of the reasons why direct investment is a rational choice for a firm’s innovation. Large markets tend to have more intermediate resources to use and a larger pool of information to share. However, access to a new market through FDI can change the competitive structure that the investing companies face. Direct access to a foreign market creates higher expected profits if an investing firm’s innovation is successful. Still, if it is not, the firm may face stiffer competition or be forced out of the market. The degree of monopoly power is indeed the main factor determining the profits of successful innovations. However, the firm’s current profit only lasts until the next innovation occurs, and if there is no subsequentinnovation that is better than that the competitor’s, the company’s profit will decrease or it will be exited from the market. To survive, companies need to continuously invest and work on innovation. The spillover of technologies and the knowledge embedded in the R&D performed or in the patents filed as part of these efforts are another channel through which companies strive for better quality and innovation.
Based on the theoretical discussion, empirical analyses from two perspectives are conducted using firm-level data such as patent data from the USPTO, M&A data from Eikon, and the financial data of Korean firms from KED: changes in innovation activities (the number of new patent applications, the number of patents cited (backward citation), and the sum of patent applications and patents cited) and financial performance of the investing firms in the U.S. The analyses in Chapter 4 show that the innovation activities of Korean firms have improved statistically significantly after an M&A with a U.S. firm. The results show that the effect of an M&A on the number of backward citations is positive (statistically significant at the 5% level). In other words, the citations of Korean firms to innovations (patents) in the U.S. increased after the M&As compared to firms without successful M&As, confirming that M&As play a positive role in the utilization of innovations generated in the U.S. by Korean firms. We also find short-term improvements in an innovation outcome indicator of patents held by the merged firm after M&As. This suggests that the M&A investment in the U.S. by Korean firms has a positive effect on the innovation activities and innovation quality of the integrated firms.
Chapter 5 examines whether the acquisitions of U.S. patents by Korean firms affected the financial performance of their Korean parent firms (acquirers) and first-tier suppliers. The results show that the financial performance of the parent firms in terms of total sales and operating profits starts to improve two to four years after the U.S. patent acquisition. The longer the period of the patent acquisition, the better the financial performance, in terms of both magnitude and statistical significance. Specifically, an additional unit increase in the number of U.S. patent citations four to six years prior is associated with an average increase of KRW 4.3 billion in sales and KRW 1.5 billion in operating profits for Korean parent firms. It is important to note that most of the significant results come from acquirers in high-tech industries. For high-tech acquirers, U.S. patent quality, as measured by patent citations also improves the financial performance of the acquirer’s domestic first-tier suppliers. However, it appears that it takes an additional one to two years to be reflected in the subcontractors’ financial performance. Specifically, the total sales of a high-tech acquirer’s first-tier subcontractors began to show a significant positive relationship with the acquirer’s U.S. patent citation after three to five years and an even stronger positive relationship with U.S. patent acquisition after four to six years. -
Enhancing the Private Sector Participation in Development Cooperation - through PPP financing with the MDBs
Asia’s infrastructure needs are estimated to exceed $1.7 trillion annually by at least 2030. However, the country’s or MDB’s financing is unlikely to meet even half of this demand. For this reason, PPP projects, which can lever..
Insoo Kang et al. Date 2023.12.29
ODA, foreign aidDownloadContentSummaryAsia’s infrastructure needs are estimated to exceed $1.7 trillion annually by at least 2030. However, the country’s or MDB’s financing is unlikely to meet even half of this demand. For this reason, PPP projects, which can leverage private capital to finance infrastructure development in emerging markets have become increasingly important internationally. In the case of Korea, it is also necessary to expand support for PPP projects in order to revitalize the participation of domestic companies in infrastructure development in recipient countries and to reduce the financial burden on recipient countries. To this end, it is necessary to leverage the expertise of the network of international financial institutions such as MDBs and DFIs to secure opportunities to enter regions where it is difficult to find direct business. In this study, we analyzed Korea’s PPP-related ODA policies and cases, as well as the PPP operation methods and cases of MDB, and derived MDB utilization plans centered on Korea’s PPP.<
Chapter 2 examined how MDBs operate PPPs. Based on the analysis of PPP types, business structures, and stakeholders, the role of MDBs in the PPP business was analyzed in depth. This study examined the specific services that MDBs provide to create an enabling environment for PPP promotion and to build PPP capacity in developing countries, as well as how they participate directly in PPP projects through equity investments, loans, and guarantees to reduce credit and political risks are carried out. The analysis of the PPP operations of the MDBs, such as the Asian Development Bank (ADB) and the World Bank Group (WBG), provides some important lessons.
First, this report finds that the MDBs operate their PPP programs and specific projects based on exactly defined procedures and processes. More specifically, it is found out that the MDBs develop and operate PPP projects through five stages that can be divided into upstream and downstream stages. Therefore, it is one of most important recommendations of this study that the Korean government, related institutions and private companies interested in participating in the international PPP projects must pay policy attention to the entire project cycle of PPP programs, and not only to specific PPP projects tendered by the MDBs.
Second, this study recommends that the Korean government to more ativiely participate in the trust funds established by the MDB, such as the AP3F of the ADB and the GIF of the World Bank Group, as they often function as a vehicle for transferring relevant information on PPP projects. Countries that provides financial contribution to such trust funds can have a seat in the steering committee, where relevant information flows and important decisions are made. More active participation will lead to an increase in Korean voice and influence. After committing USD 5,000,000 to the AP3F in 2023, the Korean government is well advised to look into the possibility of financiallly contributing to the GIF, as well.
Third, the Korean government is recommended to make every possible effort to increase project influence by rapidly increasing the number of regular Korean staff in MDBs. Indeed, Korea is counted as a country with a comparatively large gap between the financial contributions and the number of regular staff of Korean nationality. It is also important to strengthen the human capacity and capabilities of the local offices of MDBs established in Korea, as they are the first point of contact for private-sector actors when interested in international PPP projects tendered by the MDBs.
Fourth, by establishing a ‘PPP Focal Point’, the effectiveness and efficiency of policy efforts to increase Korean companies’ participation in international PPP projects can be strengthened substantially. The PPP Focal Point, which can be established in cooperation with related public institutions such as the KIEP, the KOICA and the KOTRA, should serve as a center for gathering PPP-related information and for formulating operational strategies related to international PPP projects, with the ultimate goal of stimulating the private sector participaton.
Chapter 3 analyzes the cases of MDBs and PPPs in major donor countries. This study examined the current status of MDB and co-financing in public development cooperation projects, and analyzed the PPP cases of MDBs with a focus on climate change-related projects. Through the case studies of hydroelectric power, solar power generation, wind power generation, waste-to-energy, and green power transmission upgrades, the background and purpose of each project, business structure and financing, and business characteristics were analyzed. In addition, through the case of Proparco, a French development finance institution (DFI) that supported the biomass power plant in Ivory Coast, was used to analyze how a French company won the PPP project. The following implications derived from the analysis of the MDB PPP cases will help Korea derive ways to participate more effectively in MDB PPP projects.
First, the amount of private finance mobilized for blended development finance projects is steadily increasing. Most PPP development finance projects involving private finance are led by MDBs. In the future, the role of bilateral development finance institutions (US DFC, Proparco, BII, FMO etc) in mobilizing private finance is expected to increase.
Second, when an MDB leads a development finance project, the MDB assists the recipient country’s government in preparing a master plan and development plans for the project area well in adavance of the project. Based on this, the project structure, financing plan, and risk mitigation plan are derived. Korea’s aid and development cooperation agencies need to be involved from the pre- and early stages of project formation, which will help Korea’s private companies get more opportunities for project participation.
Third, in the World Bank Group’s Scaling Solar program, the one-stop package of advisory services, investment and guarantee played a decisive role in attracting private investment and securing favorable electricity rates. Korea’s aid agencies and development finance institutions could adopt the one-stop package approach and improve the performance of PPP projects in which they participate.
Fourth, bilateral development finance institutions in developed countries actively participate in PPP projects by providing loans to SPCs. Korea needs to strengthen the role of the EDPF and establish a bilateral development finance institution that will help Korea promote PPP projects and support Korean companies’ participation in SPCs and EPCs.
Chapter 4 focuses on the need for and support status of ODA through PPPs in Korea, the opportunities and limitations of co-financing with MDBs, and the cases of co-financing and PPP. We have examined the need to expand development finance in Korea and how the Economic Cooperation Fund (EDCF), the Economic Cooperation Fund (EDPF), and the Overseas Infrastructure Fund are being used to promote Korean companies’ participation in PPPs in developing countries. In addition, we introduced the government’s proposal to revitalize co-financing with MDBs and pointed out the limitations of this plan. In particular, the cases supported under the EDCF were comparatively analyzed by PPP type. The following implications can be drawn from the case of ODA using PPP in Korea.
First, private companies that want to use EDCF need to understand the EDCF process from a developing country perspective and consider introducing EDCF at an appropriate time. However, in Korea, most private companies contact EDCF at the financing stage. Therefore, companies need to consult with EDCF from the business discovery stage.
Second, to identify promising PPP projects that can be linked to the EDCF, information sharing and cooperation channels with relavent ministries and agencies need to be expanded.
Third, the EDCF-MDB cooperative financing system should be utilized to discover large-scale PPP projects. It is necessary to list up the candidate PPP projects that comprehensively consider the policy relevance and the possibility of Korean companies’ participation through annual consultations with MDBs. In addition, it is necessary to understand where the priorities of international organizations lie.
Fourth, cooperation channels with recipient countries should be strengthened by linking them to EDCF policy consultations. The mid- to long-term project pool should be expanded by actively identifying candidate PPP projects in recipient countries. To this end, it is necessary for the EDCF local office to identify the recipient country’s PPP policies and candidate projects and strengthen consultations with the recipient country’s aid ministry and PPP management office.
Fifth, as PPP projects have recently become larger and more specialized, there is a need to promote grant and aid cooperation to strengthen the capabilities of recipient countries. An F/S suitable for the PPP project needs to be supported by matching the grant agency’s own master plan (M/P) and business feasibility study with the EDCF F/S resources.
Sixth, risk management related to PPP needs to be strengthened. A proper preliminary assessment of risks at each stage and countermeasures must be prepared, and who will bear the burden for each risk must be determined in advance. In addition, efforts should be made to obtain coverage from MDBs for interest rate swaps, foreign exchange risk hedging, and political risks.
MDB’s participation in the PPP project can provide important opportunities in terms of resolving the accumulated deficit or creating new business for Korean public enterprises. Major public enterprises should form a task force and actively participate in international PPP projects, and the Korea Eximbank should also pursue business exploration beyond the simple business guarantee. Considering that the traditional powerhouses in the PPP field are global accounting firms and law firms, interest in the PPP projects they discover is also necessary. In addition, Korean companies do not yet have much experience participating in international PPP projects, so their expertise is not high. Therefore, it is necessary to train human resources to accumulate experience and secure expertise.
based on the policy implications of the MDB’s PPP operation (Chapter 2) and the implications of the MDB’s PPP case (Chapter 3) and Korea’s ODA case (Chapter 4), Chapter 5 presents the necessary policy recommendations are presented to expand MDB participation in PPP. In order to expand the participation of Korean companies in the MDB PPP project, it is necessary to actively review the following points.
First, it is necessary to establish a development finance institution (DFI). In our case, the problem of the fragmentation of concessional loans and grants has not yet been significantly improved, so we need to drastically change the governance of aid process in order to increase the effectiveness of aid. In addition to grant and concessional loan, various development finance instruments such as equity participation and guarantees should be organically utilized to increase participation in development projects of developing countries. In order to overcome the problem of fragmentation, increase opportunities for overseas infrastructure projects in large-scale developing countries, and revitalize participation in MDB projects, it is necessary to establish a Korean-style DFI.
Second, government support needs to be systematized. In our case, it is difficult to find a strategic direction because various ODA funds, such as the Development Cooperation Fund and the MDB Trust Fund, are being implemented individually, and as a result, ODA funds have not been used effectively to win MDB projects. We also need to systematize cooperation with MDBs through selection and focus.
Third, in order to expand participation in the MDB project, it is necessary to deepen the understanding of the MDB project and establish a long-term strategy for it. Instead of focusing only on the bidding participation stage to win the contract, it is necessary to collect information throughout the entire project cycle and identify key stakeholders for marketing. In addition, it is necessary to establish an informationsharing platform so that both private and public companies can accumulate and share the experience of failing to win business orders.
Fourth, we need to strengthen channels for sharing information with the private sector and enhance two-way communication. To this end, it is necessary to meaningfully increase the proportion of private sector entrepreneurs among the members of the International Development Cooperation Commission. -
Assessment of the Macroeconomic Impact of the Sanctions on the Russian Economy and Stabilization Measures for KOREA-RUSSIA Economic Cooperation
This research analyzes the economic impact of the sanctions on the Russian economy and explores measures to stabilize economic cooperation between South Korea and Russia. Even if the war between Russia and Ukraine are resolved in ..
Minhyeon Jeong et al. Date 2023.12.29
economic growth, economic cooperationDownloadContentSummaryThis research analyzes the economic impact of the sanctions on the Russian economy and explores measures to stabilize economic cooperation between South Korea and Russia. Even if the war between Russia and Ukraine are resolved in any manner, it is highly likely that Western sanctions on Russia may persist in the long term, given the difficulty in resolving deep-rooted traditional conflicts between Western ideologies and Russian ideologies. Therefore, there is an urgent need for a systematic analysis of the long-term impact of the sanctions on the Russian economy. Additionally, it is crucial not to passively observe a deterioration in economic cooperation between the two countries due to the sanctions. This is because the potential for economic cooperation between the two countries has not yet been fully realized, and expectations are high for a mutually beneficial collaboration through dense future economic cooperation. Consequently, exploring measures to stabilize economic cooperation between South Korea and Russia in the face of anticipated prolonged Russian sanctions is a highly meaningful undertaking.<
For this purpose, this study comprehensively compares and analyzes the diverse characteristics of Western sanctions against Russia after the 2022 Russia-Ukraine War with those imposed after the 2014 Crimean Peninsula crisis. While the 2014 sanctions primarily exhibited targeted and cautionary features in specific areas, the 2022 sanctions are characterized by an all-encompassing comprehensiveness and substantial punitive nature without sectoral limitations. Due to these contrasting features, the impact of the 2022 sanctions on key macroeconomic indicators of the Russian economy was profoundly severe.
To rigorously analyze the impact of Western sanctions on the Russian economy, this study employs Vector Autoregressive Models (VAR) for time-series analysis as well as a new theoretical framework, extending and modifying a general macroeconomic model dealing with structural transformation to suit the economic conditions of Russia. Through this framework, the prolonged duration of the sanctions and their potential effects on Russian economic growth are systematically examined. Initially, we construct a comprehensive index measuring the overall intensity of the sanctions by categorizing the sanctions imposed by the United States, the European Union, and the United Kingdom from March 2014 to June 2023. The analysis considers a VAR model composed of the constructed sanction index, natural gas prices, industrial production index, export/import ratio, and real effective exchange rate. The results confirms the long-term impact of the sanctions on the Russian economy. In particular, VAR analysis reveals that the sanctions shock significantly contributed to a sharp decline in Russian industrial production, with the negative effects persisting over a year.
This study theoretically analyzes the long-term effects of the sanctions on the Russian economy from the perspective of structural transformation. Considering that the core elements of the sanctions include deepening financial constraints, restricting imports of intermediate goods crucial for advanced industrial development, and limiting technological cooperation, the study rigorously examines the potential impact on Russia’s economic structural transformation when financial friction intensifies and sectoral productivity declines due to the sanctions. To achieve this, a multi-sector growth model is constructed, accounting for varying productivity across sectors and the presence of financial friction. The theoretical analysis suggests that when financial friction intensifies, the productivity of high value-added sectors decreases, delaying the necessary industrial structural transformation for Russia’s long-term growth. Following the same logic, if technological advancement in high value-added sectors is hampered by the sanctions, resulting in delayed productivity improvement, structural transformation further delays. Consequently, by delaying a crucial structural transformation for Russia’s long-term growth, the sanctions may increase the risk of the Russian economy falling into what is commonly referred to as the middle-income trap.
If the long-term impact of the sanctions on the Russian economy is deemed significant, the Russian government recognizes the imperative to exert various domestic and international efforts to mitigate these adverse effects. Accordingly, this study examines the Federal Government of Russia’s external and internal strategies in response to the sanctions. Russia’s post-war external strategy, addressing changes in the existing external cooperation environment, revolves around countering threats to the national economy due to sanctions-induced economic and technological isolation. Within the structural shifts of the international order, Russia indicates its intention to strengthen efforts for survival and development, seeking diverse partnerships across various domains. Moreover, Russia has unveiled a post-war industrial development strategy focusing on high-value-added manufacturing sectors such as automotive, metal, microelectronics (semiconductors), and communication industries. In light of deepening credit constraints resulting from the financial sanctions, efficient restructuring in the financial sector is essential for successful industrial transformation toward high-value-added industries perhaps necessary for the qualitative growth. Therefore, Russia has announced a financial industry development strategy aimed at modernizing its domestic financial market. This study also examines this financial market development strategy.
Finally, based on the analysis presented earlier, we explore short-term and medium- to long-term directions for stabilizing economic cooperation between South Korea and Russia. Specifically, we consider the short-term scenario, assuming South Korea is in a situation where lifting sanctions against Russia is inevitable. We examine the directions for cooperation stabilization required in such circumstances. Additionally, we contemplate the directions for cooperation when South Korea can impose more flexible (relaxed) sanctions in the future. -
Post-Pandemic Inequality in Education and Its Implications on Korea’s Development Cooperation
The persistent global inequality crisis has long been a critical social issue due to its substantial economic and social cost. Despite continuous international efforts to mitigate inequality, the issue remains severe. The outbreak..
Gee Young Oh et al. Date 2023.12.29
ODA, foreign aidDownloadContentSummaryThe persistent global inequality crisis has long been a critical social issue due to its substantial economic and social cost. Despite continuous international efforts to mitigate inequality, the issue remains severe. The outbreak of COVID-19 and associated lockdown measures have further exacerbated inequality in various forms, including poverty rates, gender-based labor gaps, and educational gaps. Moreover, global inequality is expected to intensify further due to multiple post-pandemic crises like inflation, climate change, and conflicts.<
This study analyzes the post-pandemic inequality levels in developing countries and derives policy implications for Korea’s development cooperation to help reduce inequality, especially in the education sector. Multidimensionality of inequality requires a comprehensive approach to understand the nature of inequality and its resolutions fully. However, paradoxically, because of the vast dimensions, the complexity of inequality cannot be fully explored in a single analysis, no matter how comprehensive it might be. Hence, this study thoroughly explores a single dimension of inequality—education. Education is one of three critical components of human capital, along with inherent abilities and skills, thus crucial in mitigating and preventing inequality. Because the pandemic led to an unprecedented global disruption in education, including prolonged school closures, analyzing its effect on the education sector is even more urgent.
Chapter 2 assesses the overall impact of COVID-19 on inequality, especially in the economic, health, and education dimensions, and global efforts to address the issue. The results suggest that both across- and within-country inequalities have worsened, with low-income countries or groups experiencing bigger negative impacts. Globally, numerous discussions on inequality acknowledge the severity of the issue and the urgency to solve it but fail to propose specific strategies or solutions.
Chapter 3 summarizes the role of education in mitigating inequality based on previous literature and uses macro-level data to explore the global education levels and gaps from 2010 to 2020. In the 2010s, education levels increased globally, and intra-country educational gaps narrowed. However, the pandemic triggered a sharp decline in education levels and widened educational gaps. Notably, students from low-income countries or rural areas participated less in learning activities during the pandemic school shutdowns, exacerbating the pre-existing educational disparities.
Chapter 4 conducts an in-depth micro-level analysis of the post- pandemic education levels and gaps in Ethiopia and Cambodia. Based on the two countries’ quantitative and qualitative analyses, the study finds that both countries experienced learning loss, with vulnerable households affected more. However, there were some differences across countries due to the economic, social, and cultural differences. For instance, with weaker institutional foundations in education, Ethiopia experienced quantitative educational loss, including a drop in school registration rates and learning activities. However, Cambodia, a higher-income country with stronger foundations than Ethiopia, faced challenges due to the low quality of education, including teachers’ capabilities to hold virtual classes. Meantime, most Cambodian students returned to schools when schools reopened after the lockdown.
Based on the analysis results, the study derives implications for inclusive recovery from COVID-19. Globally, supporting vulnerable groups affected by COVID-19 and multiple crises is critical while providing various quantitative and qualitative educational opportunities and incentives to compensate for learning gaps. As for the social role of education, incentives must be provided to students and teachers to regain their motivation to educate or learn and enhance parents’ awareness of education. At the same time, education policies that can protect students, especially vulnerable ones, should be implemented to reduce educational inequality. Strengthening financial and technical capacity to implement these measures is also essential. In addition, just as the two countries and urban and rural areas within each country show different patterns of educational disconnection and learning loss, recovery plans must be tailored to address the context-specific impact of the pandemic and the consequent new educational conditions. For example, in terms of education infrastructure, in low-income countries with poor educational environments, such as Ethiopia, there is an urgent need to restore basic education to make up for the loss of basic learning, and in countries with higher levels of infrastructure, such as Cambodia, reducing the digital gap is more important than basic learning. In other words, for countries like Cambodia, expanding the digital education base, such as building ICT education infrastructure and strengthening teachers’ digital capabilities, should be prioritized.
Finally, Chapter 5 summarizes the analysis results and derives implications for Korea’s international development cooperation(IDC) in education based on the characteristics of Korea’s current IDC or ODA projects. The study finds that Korea’s ODA projects in education can be summarized into three characteristics. First, most ODA projects are materialistic support such as infrastructure and equipment provisions; second, the focus is on higher and vocational education rather than primary and secondary education; and third, there is little differentiation across countries. Combining the new post-pandemic educational environment in developing countries analyzed in earlier chapters and the characteristics of Korea’s ODA projects, Korea’s challenges in IDC in education can be summarized into three tasks. First, as the educational environment differs across countries, ODA projects should be customized for each context to be more effective. For example, as mentioned earlier, low-income countries need support to strengthen basic education, and middle-income countries with higher levels of infrastructure need support to expand digital education infrastructure and strengthen digital capacity. Training parents and teachers and providing high-quality educational content is also needed. The pandemic has deteriorated not only the quantity but also the quality of education. Therefore, the institutional education base and the social role of education must be strengthened to recover qualitatively by training human resources and producing high-quality teaching materials. In particular, as teachers’ low digital literacy and technological capacity led to educational loss during the pandemic school lockdown, training teachers to strengthen their technical capabilities should be prioritized to support the digitalization of education in developing countries with relatively higher infrastructure. Since Korea’s ODA projects already focus on vocational training, expanding vocational training projects for teachers can effectively achieve such goals. Lastly, support for vulnerable children, including girls, should be expanded. Currently, most of Korea’s ODA projects aim to improve a country’s overall educational environment. If the average education level of a country increases, it can contribute to alleviating inequality. However, a more proactive way to tackle inequality is to focus on vulnerable children and resolving the within-country education gap, especially because the study finds that the pandemic hit vulnerable students harder. -
Changes in the Global Economic Security Environment and Korea’s Policy Response
As the international environment rapidly changes due to developments such as the war in Ukraine and the competition for hegemony between the U.S. and China, major countries are pursuing new forms of economic security policies such..
Wonseok Choi et al. Date 2023.12.29
economic security, economic cooperationDownloadContentSummaryAs the international environment rapidly changes due to developments such as the war in Ukraine and the competition for hegemony between the U.S. and China, major countries are pursuing new forms of economic security policies such as reorganizing supply chains, fostering industries, and strengthening research security. The study aims to examine the threats and opportunity factors posed by economic security policies of the U.S., China, and the EU, particularly in the areas of supply chain and science and technology diplomacy, amid growing uncertainty in the economic security environment. It goes on to suggest countermeasures, focusing on items and technology areas that are expected to have a significant impact on Korea’s economic security.<
Chapter 2 describes the geopolitical conflicts and changes in the international order over the past 30 years since the dissolution of the Soviet Union in 1991, focusing on the revival of competition between major powers due to China’s rise, the weaponization of interdependence and rise of “de-risking” strategies, and bloc formation and solidarity competition. In particular, while the international order that prevailed in the post-Cold War era for more than 30 years was characterized by global free trade and economic interdependence, the focus has now been placed on network reorganization to find and unite with more sustainable and reliable supply chain and economic exchange partners, since 2018 as the world experienced U.S.-China competition, the COVID-19 pandemic, and the war in Ukraine. In addition, the background and implications of supply chain stabilization policies were a government-led increase in industrial policies and trade threat measures, the weaponization of interdependence, and the effect of supply chain gateways. Finally, it was suggested that most countries faced changes in science and technology cooperation, pursuing diplomatic strategies based on their own interests and making fostering key emerging technologies a top priority for economic security.
In Chapter 3, supply chain policies of the United States, the EU, and China were analyzed, focusing on semiconductors, secondary batteries, and core minerals, and trade threats were examined. In the semiconductor field, both the U.S. Semiconductor and Science Act and the EU’s European Semiconductor Act are based on a multilateral export control system. However, despite cooperation in export controls through the decisions of a multilateral council, there is a possibility that competition for subsidies will intensify in the future as the EU and the United States prioritize the fostering of their own industries. China has not enacted a support law specifying semiconductors, but in order to cope with U.S. export regulations, it is continuing to promote support policies to create an ecosystem of semiconductor industries in China and strengthen innovation.
With the enactment of the Inflation Reduction Act (IRA) in 2022, the U.S. is pushing to foster the secondary battery industry within its borders, also introducing Section 13401, which stipulates the requirements for critical minerals and secondary battery components for tax credits related to eco-friendly vehicles. The clause is currently under discussion, for instance regarding the expansion of regional conditions for the mining and processing of critical minerals to countries with close economic cooperation relations with the U.S. and that have signed key mineral-related agreements through subsequent implementation guidelines (drafts), but the economic impact of detailed implementation measures is expected to increase as the scale of tax credits is expected to be implemented on a larger scale, contrary to estimates from the U.S. Congressional Budget Office. The EU is focusing its policy capabilities on attracting companies in the region, presenting the target ratio of manufacturing capacity in the region through the Climate Neutral Industry Act. In particular, while leading the establishment of a circular economy related to secondary batteries, it is rushing to support companies by easing subsidies for companies in the region through the Temporary Crisis and Transition Framework (TCTF). Since 2009, China has expanded demand and created an ecosystem for the secondary battery industry by distributing eco-friendly cars in China, and local Chinese companies are seeking to enter the global market with lithium iron phosphate (LFP) battery technology supported by the government from the beginning of the technology.
In the critical mineral sector, unlike semiconductors and secondary batteries, China is trying to control exports in some resources, such as rare earths, gallium and magnesium, which have international influence, but considering that China has also been converted into the largest consumer of critical minerals in the course of its economic development, China is unlikely to pursue a policy to weaponize critical minerals. However, the overlap in lists of critical minerals in each country, and the difficulty of diversifying supply chains due to the regional ubiquity of some minerals, could pose new trade threats.
When considering the above, caution is required in that China, the EU, and the United States are pursuing various industrial policies to stabilize the supply chain, with the possibility of this developing into a trade conflict between the EU and the United States in the future. In addition, the United States is considered to be the leading country in supply chain management. In particular, the United States collected opinions from various stakeholders by releasing a list of key supply chain items as part of follow-up measures to an executive order, and it is expected that a new policy will soon be implemented that contains the direction of supply chain management based on the final list. Since the items in these lists are likely to be managed as items related to economic security in major countries in the future, an import dependence analysis was conducted in Chapter 5.
Chapter 4 analyzes the science and technology foreign policies of major countries. Although cooperation between the United States and EU member states is actively conducted in areas of ICT technology which include nuclear power and cybersecurity and dual-purpose technology, cooperation between the EU and the United States and China in the area of technology has been reduced. In particular, the United States has been gradually expanding technological cooperation since 2021 through agreements in nuclear and space-related technologies with European countries, similar countries such as Korea and Japan, rather than with the countries of concern. In addition, through the Trade and Technology Commission (TTC) with the EU, it is pursuing a strategy to secure leadership in areas that are expected to have a significant impact in the future by promoting the enactment of international standards for artificial intelligence and genetic biotechnology.
We examined the current state of science and technology diplomacy being promoted by the EU through Horizon 2020, the EU’s international science and technology cooperation project. In terms of project implementation, 89.1% was executed by EU member states, 9.1% by quasi-member states, and 1.8% by third countries without quasi- member status. This demonstrates the importance of non-EU member states joining as quasi-member states for science and technology cooperation with the EU. The scale of science and technology cooperation between the EU and China through Horizon 2020 has been greatly reduced, but cooperation is still underway to address global issues such as climate change and pandemic response. China has also reduced its technological cooperation with the EU and the United States, but is conducting joint research with the United States to respond to climate change.
Taken together, we can see the trend of bloc formation proceeding in areas of cooperation in key technologies (AI, quantum computing, next-generation information communication, etc.) that the U.S., EU, and China are competitively fostering, while technological cooperation to solve global problems such as climate change and biodiversity is still being promoted between even the U.S. and China. In this regard, it is necessary to examine Korea’s technological influence in key technology areas where cooperation with similar countries is becoming increasingly important, strengthen domestic technological competitiveness, and seek cooperative countries in each field. Accordingly, by compiling the technological impact assessment indices of major countries, including Korea, in core technology fields, mid- to long-term cooperation partners necessary from the perspective of economic security were presented in Chapter 5.
Chapter 5 analyzes Korea’s supply chain and its influence in key technology fields, focusing on the items and technology fields presented in Chapters 3 and 4. Supply chain analysis was conducted with the aim of identifying Korea’s supply chain problems by analyzing Korea’s dependence on imports from the world by item unit. When looking at the import dependence by selecting the items related to the economic security-related policies of major countries among Korea’s semiconductor imports, the amount of imports for the relevant items is gradually rising, while the proportion of total imports has decreased. Korea mainly imports the items from Japan and China, but its dependence on imports from a single country by item is mostly in the 60% range or less, and there are at least one alternative importing country. However, caution is required as the proportion of the items among Korea’s semiconductor imports is gradually increasing.
Korea’s imports of secondary battery items have been increasing rapidly in recent years, and the proportion of imports related to secondary battery materials and parts has increased. Among Korea’s secondary battery imports, the number and amount of items related to the economic security policies of major countries are increasing rapidly. In particular, Korea’s imports of these items are largely from China, and its dependence is also becoming more pronounced. Therefore, Korea needs to carefully examine the policies of major countries related to secondary batteries.
As a result of analyzing the indicators that evaluated the impact of key technologies, Korea was evaluated to have a greater technological impact in the energy, environment, and advanced information and communication fields than in others, but it was evaluated to have a lower impact in quantum-related technologies and detection and navigation technologies. In addition, six technology fields with low technological influence in Korea and large differences in influence between the top countries with high technological influence were selected among the core technology fields, and the need to strengthen domestic technological competitiveness and mid- to long-term cooperation targets was suggested from the perspective of economic security.
Chapter 6 summarizes Korea’s economic security policy, focusing on the designation of key technologies through legislation, promotion of supply chain stabilization, and the status of international cooperation. As policy implications, measures for economic security cooperation with major countries were suggested. First, as a cooperation plan with the United States, it was suggested to facilitate the movement of manpower in key areas, establishing a coordinating mechanism related to bilateral supply chains, together with cooperation in the development of critical minerals. Other suggestions were to participate in the EU’s Global Gateway initiative, concentrate capabilities in joining Horizon Europe as a quasi-member, and to re-establish relations with the EU by revising provisions on supply chain cooperation within the Korea-EU FTA. It was also suggested to promote cooperation through ODA, supply chain dialogue channels, and green transformation cooperation with developing countries (ASEAN, India, Mexico and China), which are important in Korea’s supply chain, in addition to developed countries. Other implications of the study to promote Korea’s economic security included: establishing a communication system between ministries to promote active economic security policy, promoting the supply of premium intermediate goods in the global supply chain, and promoting cooperation with key partner countries (Japan, Germany, the United Kingdom, Italy, etc.) that comprehensively considers the supply chain and critical technology competitiveness. -
Strategic ODA: Definition and Policy Recommendation for Korea’s ODA System
This study defines the concept of ‘strategic ODA,’ which has recently gained attention, and proposes ways to improve the Korean ODA system to promote strategic ODA. Strategic ODA is defined based on a literature review of relate..
Jione Jung et al. Date 2023.12.29
ODA, foreign aidDownloadContentSummaryThis study defines the concept of ‘strategic ODA,’ which has recently gained attention, and proposes ways to improve the Korean ODA system to promote strategic ODA. Strategic ODA is defined based on a literature review of related academic fields. Elements for promoting strategic ODA are derived for different stages of the ODA process – planning, implementation, and performance management. Policy recommendations are drawn based on an evaluation of the Korean ODA system, an analysis of major donor countries, and interviews with international development cooperation experts from a strategic ODA perspective.<
Chapter 2 reviews the academic literature in business administration, public administration, and political science to define the concepts of strategy and the term ‘strategic’. This study defines strategic ODA as “ODA as a means to achieve foreign policy goals, with differentiated competitiveness, and clear goals and action plans to achieve desired results.” An analytical framework for pursuing strategic ODA was derived to determine factors to consider at each stage of planning, implementation, and performance management. First, it is essential to have planning capabilities that encompass the vision, strategic goals, targets, and performance indicators. Coordination and cooperation between relevant ministries is a given. After that, it is necessary to decompose the strategic objectives into executable units, form the required organization, and establish a budget plan and periodic performance review process. For result management, the main elements are setting performance targets and indicators, and disclosing performance-related information.
Based on the strategic ODA concept and analytical framework developed in the previous chapter, chapter 3 presents case studies of the leading bilateral ODA donors for benchmarking. The United States implements the strategic ODA considerations proposed in this study throughout the planning, implementation, and performance management phases based on the principle of Managing for Results (MfR) framework. The U.S. Agency for International Development (USAID) plays a central role in ODA implementation, working closely with the Department of State. While Germany stands out as the only country among the OECD Development Assistance Committee (DAC) members with a ministry dedicated to international development cooperation, Germany’s development cooperation also involves a variety of actors, such as local governments and the private sector. Therefore, Germany invests incoordinating among implementing actors towards unified development cooperation goals. Japan’s ODA Charter explicitly states national interest as a goal, and this factor is considered in evaluating its ODA performance from a national interest or diplomatic perspective. In some cases, different ministries or agencies play specialized roles according to their development cooperation objectives. For example, FinDev, a Canadian development finance institution provides various instruments to support private sector development in developing countries, which also helps to promote the entry of Canadian companies into these markets. The Netherlands has a mechanism for international trade linkage that considers development cooperation and overseas expansion of Dutch companies. The Netherlands’ performance framework and information disclosure system are the most noteworthy among the donor countries we analyzed. Finally, as Denmark strives to consolidate its position as a leaderin the action against climate change, the country also shows coherency in development cooperation. It systematically strives for results by setting a specific strategy and allocating the budget accordingly.
Chapter 4 reviews Korea’s ODA system from the strategic ODA perspective. First, the chapter explains the legal and institutional system of Korea’s international development cooperation and then summarizes the implementation procedures of grant and concessional loan projects, respectively. Although Korea’s ODA system has improved since the enactment of the Framework Act on International Development Cooperation in 2010, there is still work to be done. In particular, to promote strategic ODA as defined in this study, further efforts are needed to better align ODA with foreign policy goals, promote competitiveness in the local context, and pursue systematic goals and action plans to achieve results. Based on the analysis of government policy documents and institutions, this chapter identifies areas for improvement for each phase of planning, implementation, and performance management. The Comprehensive Strategy, a top-level implementation strategy published every five years, should contribute to the achievement of the objectives set out in the Framework Act. There are various levels of thematic or sector policies and strategies, national or regional strategies, which need to be complementary. International development cooperation policies should also be consistent with other relevant policies and strategies, such as the foreign policy and the national security strategy. The criteria for approving individual ODA projects should be clear, be transparent, and align with the overarching strategy. By ensuring that each project is aligned with the strategic objectives, the project would effectively achieve the intended results of the Korean government.
The case studies of the five donor countries provide valuable insights and lessons for Korea's strategic ODA implementation. By carefully examining the strengths and weaknesses of each country’s system, Korea can identify best practices and adapt them to its own context to enhance the effectiveness and efficiency of its ODA programs.
Chapter 5 presents the survey results on strategic ODA. The purpose of the survey was to verify the understanding of strategic ODA among the academics and practitioners in international development cooperation and to identify areas for improvement in promoting strategic ODA. The experts agreed that the planning phase most critical in promoting strategic ODA. However, under the current system, there is some question as to who is responsible for planning strategic ODA. There was a consensus that a unified approach involving more than 40 implementing ministries is urgently needed to implement strategic ODA in the planning stage. The experts also argued that it is essential to set clear targets for strategic ODA. At the same time, a regular performance management plan is needed to monitor the achievement of targets.
The study suggests the following to improve Korea’s strategic ODA system:
1. Deepen expert engagement in high-hevel decision-making:
Recognizing ODA as an essential instrument of economic cooperation abroad, expertise in international development cooperation should be integrated into national-level decision-making processes regarding foreign policy and economic partnerships. This integration can be achieved through designated positions within relevant top-level decision-making structures.
2. Improve the roles of the Committee on International Development Cooperation (CIDC):
Strengthen the CIDC’s capacity to develop unified development cooperation programs that are consistent with national foreign policy aspirations. This could include expanding its expertise to enable comprehensive program planning and coordination.
3. Prioritize resource allocation and streamline processes:
Allocate dedicated budgets to strategic ODA priority programs to ensure flexibility and agility in resource allocation. Consider alternative budgeting mechanisms that bypass traditional annual review processes for individual projects within a priority program while maintaining accountability and transparency.
4. Implement blended finance for greater impact:
Utilize a mix of financial instruments, including grants, concessional loans, and innovative development finance solutions, to maximize the effectiveness of strategic ODA programs.
5. Strengthen results monitoring and measurement:
Establish robust performance measurement frameworks for strategic ODA, using measurable indicators aligned with program objectives and overall ODA goals. Ensure that individual program targets are clearly defined, quantifiable, and contribute to the broader strategic vision. -
Ensuring Energy Security and Carbon Neutrality: Implications for Korea
The international community is faced with the dual challenges of securing stable energy and achieving carbon neutrality. This study approaches energy security from the perspective of energy transition and comprehensively analyzes ..
Jin-Young Moon et al. Date 2023.12.29
energy industry, environmental policyDownloadContentSummaryThe international community is faced with the dual challenges of securing stable energy and achieving carbon neutrality. This study approaches energy security from the perspective of energy transition and comprehensively analyzes key issues and cases of international cooperation in the area of carbon neutrality and energy security. Building on this analysis, the study offers implications for governmental measures to enhance energy security while facilitating the transition towards carbon neutrality.<
Chapter 2 summarizes the concept of energy security from the perspective of energy transition. Energy security includes energy availability, accessibility, affordability and acceptability. The focus shifts from the availability and accessibility of fossil fuels to that of clean energy during the energy transition period. Price is important in the clean energy transition. It is also important to ensure stable and environmentally sustainable energy transition. Furthermore, fostering international collaboration to overcome individual country-level limitations serves as a cornerstone for contributing to global carbon neutrality while advancing energy conversion schemes.
Next, looking at the main characteristics of the recent energy market, the importance of “energy security” has been re-emphasized due to the recent outbreak of the Russia-Ukraine war. Accordingly, the EU is implementing policies to reduce its dependence on energy supply from Russia through the announcement of the Fit for 55 package and the REPowerEU plan. In addition, the United States is focusing on restoring its global leadership in the field of climate change, for instance by hosting the Leaders Summit on Climate, and is placing more emphasis on climate change in industrial support policies, such as including climate change as a key support target in the IRA. Meanwhile, Korea has been pursuing energy transition to achieve a low-carbon economic structure. With its recent dedicated focus on energy security, it is unveiling policies and external strategies that consider both energy security and carbon neutrality.
In Chapter 3, we examine essential aspects to consider when pursuing carbon neutrality and energy security, transition to clean energy, critical mineral supply chain, and investment and institutional support. First of all, as the proportion of variable renewable energy (VRE) gradually increases in the energy transition process, it is necessary to compensate for volatility and promote stable power supply through measures such as energy storage devices, demand management, and distributed energy systems. In addition, there is a need to promote the commercialization of technologies that are still in the early research and development stage among advanced energy sectors such as nuclear energy, clean hydrogen, biofuel, and CCUS. Moreover, the advantages and limitations of natural gas and nuclear energy, which are used as transitional energy sources, must be taken into account when designing energy policies.
Next, the stable procurement of critical minerals required for batteries and renewable energy needs to remain an important policy. Demand for these critical minerals is expected to continue to grow in the future, while the distribution of production sites is concentrated in certain countries, making these inevitably vulnerable to security conditions. Meanwhile, as critical minerals have recently begun to attract attention as a major strategic asset, countries, mainly China, the United States, and Indonesia, are frequently implementing export control measures along with efforts to secure critical minerals. Therefore, it is necessary to respond to this.
Lastly, it is important to provide a market and institutional environment which enables carbon neutrality and energy security. The scale of public and private investment to achieve carbon neutrality must be expanded, and support is also needed for developing countries that lack the capacity for energy transition. Additionally, in the process of promoting carbon neutrality and energy transition, we must consider a just transition that embraces vulnerable groups and vulnerable industries. Lastly, there is a need to improve flexibility in the existing power grid and power system by taking into account the changing energy mix.
In Chapter 4, we analyze the status of international cooperation for carbon neutrality and energy security response, focusing on international cooperation cases for each major issue and major agendas and opportunity factors in major multilateral cooperation. Regarding the stabilization of the critical mineral supply chain, major countries are currently promoting various international cooperation projects such as the establishment of a bilateral and multilateral supply chain consultative body, supporting cross-border investment promotion using ODA, and signing a bilateral and multilateral trade agreement to bypass supply chain restrictions. Next, for energy transition, technology-leading countries such as Japan and the EU are promoting technological cooperation projects between countries specialized in green hydrogen and eco-friendly fuels, and are also actively participating in the process of establishing related international standards. In addition, we also reviewed the international investment initiatives and cases with particular emphasis on reducing risks and supporting early-stage clean energy investment in developing countries.
The main issues and opportunities for cooperation at the multilateral level derived from this study are as follows. The Indo-Pacific Economic Framework (IPEF) is seeking effective ways to revitalize the clean economy market and stabilize the supply chain under Pillar 3 (Clean Economy), and discussions at the G20 are focused on energy transition and circular economy. The Major Economies Forum on Energy and Climate (MEF) and the Clean Energy Ministerial (CEM) are supporting decarbonization of the industrial sector and clean energy technology innovation. It is expected that each country will be able to create synergy effects by selecting and participating in projects that overlap with their own policy goals and contribute to the international community among these activities.
In Chapter 5, building on the earlier discourse, the energy transition phase was segmented into three key stages: the introductory phase, the transitional phase, and the maturation phase. Furthermore, the chapter provided international collaborative measures within the energy transition process. Addressing the imperative of bolstering energy security in response to carbon neutrality necessitates an expansion of clean energy conversion while diminishing reliance on fossil fuels. The following countermeasures are proposed to achieve this goal.
First, the promotion of external cooperation to stabilize the critical mineral supply chain requires the following strategic considerations. To begin with, it will be necessary to use bilateral and multilateral cooperation channels related to critical minerals as an opportunity to strengthen networks and discover cooperative projects. In addition, it is necessary to promote a bypass strategy for export restrictions of major mineral suppliers by utilizing the revision of existing FTAs and conclusion of limited FTAs in the mineral sector. Finally, it is necessary to promote private participation in overseas resource development through overseas investment incentives and ODA project support.
Second, it is necessary to strengthen efforts to innovate new energy technologies and establish international standards. There are still many technical challenges to overcome in order to utilize new energy forms (especially hydrogen) in an environmentally friendly and economical manner. However, at the same time, it is expected to be a driving force in achieving carbon neutrality and energy security in the long term. Korea’s hydrogen-related technological capabilities are generally insufficient compared to developed countries, and efforts to establish international standards need to be strengthened. There is a need to effectively utilize energy-related bilateral dialogue with technologically advanced countries and programs of multilateral organizations such as the Major Economies Forum on Energy and Climate (MEF), Clean Energy Ministerial (CEM), and Mission Innovation (MI), and expand support from ministries for joint research with other countries. In addition, in order to lead the establishment of international standards, it is necessary to redefine the role and support needs of Korea's private sector, and support efforts in the long term.
Third, it is also crucial to expand the global clean energy investment. Creating a regulatory and institutional environment to promote clean energy investments such as a green taxonomy for eco-friendly economic activities or green bond guidelines is prerequisite. In addition, it is necessary to deepen the existing bilateral and multilateral energy cooperation system to seek cross-border clean energy investment opportunities, while discovering new cooperation partners with energy investment demands and potentials. Domestically, there is a need to analyze the costs and benefits arising from carbon neutral scenarios and energy mix changes and present an investment roadmap. Lastly, for energy transition in developing countries, Korea should consider participating in various innovative financial instruments and specialized funds in addition to ODA projects. -
India’s Medium- to Long-term Trade Strategies and Korea-India Cooperation Plans
India’s stature on the international stage is strengthening. The country has recently become the world’s most populous country, and the international ranking of its economic size is expected to go from 5th to 3rd this decade. Mo..
Kyunghoon Kim et al. Date 2023.12.29
economic relations, economic cooperationDownloadContentSummaryIndia’s stature on the international stage is strengthening. The country has recently become the world’s most populous country, and the international ranking of its economic size is expected to go from 5th to 3rd this decade. Moreover, India is becoming a major partner for many developed countries amidst the rising diplomatic conflict between the west and China. Advanced economies, including the United States, the European Union, and Japan are devising detailed strategies to strengthen relationships with India in the areas of trade, investment, development cooperation, and security. Along with these major trends, global companies in search of a huge consumer market and competitive manufacturing base are expanding investment in India. The Korean government and companies also need to strengthen their partnership with India. To support their ventures, this report takes a close look at four main areas with significant potential, namely supply chain rearrangement, digital transformation, climate change, and south-south development cooperation. The report analyses India’s position and strategy, as well as policies that Korea and India could implement to strengthen their relationship.<
In India, forward- and backward-linkage global value chain trade ratios declined in the early- to mid-2010s and increased in the late-2010s. While ‘complex’ global value chain trade ratios remained stable, ‘simple’ global value chain trade ratios led an increase in these overall ratios. As these small adjustments have canceled out one another, the global value chain trade ratios in the early-2010s and the early-2020s did not show significant change.
India’s gradual global value chain participation is linked to the government’s industrialization strategy, which prioritizes domestic value addition rather than export expansion via using imported products. A key policy that matches this description is the ‘production-linked incentive’ scheme. During the 2010s, the Indian government focused on improving the business climate by streamlining investment processes and improving infrastructure under the ‘Make in India’ strategy. In the beginning of the 2020s, the government began providing subsidies to incentivize domestic manufacturing under the ‘production-linked incentive’ program. Furthermore, India has been participating in discussions on supply chain at multinational forums such as the Quadrilateral Dialogue and the Indo-Pacific Economic Framework.
As the Indian government has been actively adopting policies to stimulate domestic manufacturing and as global manufacturers are rushing to establish production bases in India, Korean companies should also strengthen their entry into India to tap into the growing consumer market. However, there are still many hurdles that Korean manufacturers face when seeking to enter India. To collaboratively solve these challenges, the governments of the two countries can establish a senior-level institutional structure. This body will find viable solutions to problems that Korean manufacturers face in India and use the outcomes of the discussion when negotiating the upgrade of Korea-India Comprehensive Economic Partnership Agreement. Moreover, as the Korean government is planning to strengthen development cooperation with India, the focus may be on ways to strengthen India’s manufacturing competitiveness. Infrastructure projects that improve connectivity and skill training projects that support local companies and workers could indirectly help Korean manufacturers in India.
India’s enormous digital market is expanding rapidly. India’s digital communication networks, equipment, contents, finance, and online marketplace are quantitatively and qualitatively upgrading. India’s digitally deliverable services trade is also growing with India recording a large trade surplus. This notable growth of India’s digital economy is supported by government-driven policies across diverse segments. The government is actively participating in establishing the foundations of digital economy as it aims to secure domestic benefits from digital transformation. For example, the government has established an electronic identification system, Aadhaar, the Unified Payments Interface (UPI), and the Open Network for Digital Commerce (ONDC). The Indian government has also emphasized the public character of digital data. In other words, the country maintains a conservative stance in terms of cross-border data flows and international agreements on data transfers. While the government has, at times, weakened its stance in order to foster the growth of the digital industry, its overall position of limiting foreign companies’ access to India’s market and data with an aim to support domestic firms is expected to be in place for the foreseeable future.
Considering that the areas for digital cooperation are diverse and because the Indian government considers digital industry a key pillar of economic development, the Korean government should establish a high-level cooperative mechanism with India. Participating officials may discuss digital public infrastructure, communication networks, artificial intelligence, finance, and standards. The relevant information may be passed on to Korean digital companies to help them adjust strategies. Moreover, the Korean government could continue monitoring the changes in India’s regulations in the digital industry and share information that could act as risks to the Korean companies. The two countries can find ways to co-invest in start-ups and research and development activities in the digital industry.
India is expected to be one of the countries that suffer to the largest extent from climate change. News on extreme weather in India has already been widely shared, and statistics highlight the seriousness of the situation. Compared to approximately nine decades ago, the recent monthly temperature patterns show that winters have become warmer and summers have become longer. The comparison of monthly precipitation during the same period shows that the level has decreased in June and increased from August-October. The frequency of natural disasters such as floods and storms is also increasing along with climate change. These trends not only threaten lives and livelihoods, but also hurt worker productivity thereby having negative consequences on India’s economy.
In response, India has adopted various climate change adaptation policies. Under the National Action Plan on Climate Change, the government has designed strategies to expand renewable energy, protect ecosystem and forests, and create sustainable urban areas. Furthermore, reflecting increasing concerns surrounding natural disasters, the Indian government has been continuously modifying the National Disaster Management Plan. There are also policies aimed at climate change mitigation. India has established and adopted policies for achieving the Nationally Determined Contribution, which demonstrates the country’s plan to cut emissions. India’s climate change policies also have an international angle. India aims to become leader of the Global South by implementing climate change policies on an international scale. For example, India has been at the forefront of establishing and operating multinational bodies such as the International Solar Alliance and the Coalition for Disaster Resilient Infrastructure. Using these multilateral platforms, India is supporting developing countries’ adoption of climate change policies and expansion of infrastructure.
As India’s climate change policies cover adaptation and mitigation and are both domestic and international, Korea should establish a multifaceted cooperative relationship with India. An important starting point would be to construct a high-level communication channel that would support the establishment of a cooperative strategy. This forum will provide a venue for information sharing on India’s demand and Korea’s strengths. Korea should also pay attention to India’s international efforts to fight climate change. Korea may contribute to finding global solutions by firstly joining the International Solar Alliance and the Coalition for Disaster Resilient Infrastructure, which already have numerous developed and developing countries as members. Moreover, the Korean government’s efforts to strengthen development cooperation with India may focus on the green sector. Furthermore, diversifying Korea’s development financing tools would expand the scope of cooperation.
India is actively seeking means of supporting developing countries’ economic and social progress. India’s south-south cooperation began in the 1950s, and its expansion began to accelerate in the 2010s. India has been mobilizing numerous tools to pursue south-south cooperation. The Indian government’s grants and concessional loans to developing countries is concentrated on its neighbors. The government is also providing lines of credit through the Export-Import Bank. While Bangladesh is the largest beneficiary, the lines of credits are provided to a large number of countries in various regions since they are designed to support Indian companies’ global venture. The Indian Technical and Economic Cooperation program invites individuals from developing countries to educational and training courses in India. Moreover, India has contributed to solving global challenges by, for example, providing vaccines to its neighbors during the COVID-19 Pandemic.
Many developed countries view India as a key facilitating partner in triangular development cooperation because the country has accumulated important information and technology in the process of solving its own problems, as well as vast experience in cooperating with certain developing countries. India may benefit from triangular development cooperation as it can strengthen global reach and leverage developed countries’ development finance. Based on these strategic opportunities, India and developed countries such as the United States, the United Kingdom, Germany, and Japan are strengthening triangular development cooperation in various forms.
Triangular development cooperation with India could also support Korea’s aim of becoming a global pivotal state. Korea may seek triangular development cooperation projects by joining multinational forums such as the International Solar Alliance and the Coalition for Disaster Resilient Infrastructure, as well as the Global Biofuel Alliance and the One Future Alliance in the digital sector, which were announced during the G20 Summit in New Delhi. Since Korea has not yet have systematically begun triangular development cooperation, it requires a special taskforce with the role of designing an overall strategy. Following this process, Korea can sign an official document indicating the aims and goals of triangular development cooperation with India and establish a dedicated team that searches for potential projects that reflect the two countries’ strengths.
This report concludes by emphasizing the importance of creating a conducive atmosphere for a smooth implementation of economic cooperation between Korea and India. Firstly, considering India’s economic size and strategic importance, Korea should view the country as a major cooperative partner that is in a different league to other developing countries. Secondly, Korea’s development agencies and government- linked financial institutions could innovate their development cooperation tools to satisfy India’s growing needs for diverse financing instruments. Thirdly, because the Indian government is aiming to foster the growth of domestic firms, Korean businesses must strengthen cooperation with local companies, and the Korean government could provide supporting measures. Fourthly, as business and people exchange between Korea and India is expected to intensify, the Korean government could prepare by adopting measures that could improve the living environment of Koreans residing in India. Finally, the Korean government needs to establish a centralized body that coordinates government institutions at the forefront of strengthening Korea-India relations. A careful coordination would enable the mobilization of various cooperation tools such as the Comprehensive Economic Partnership Agreement, grants, and concessional loans to create synergy and minimize negative side effects. -
Mongolia’s Medium- to Long-term Trade Strategies and Korea-Mongolia Cooperation Plans
This study aims to explore a collaborative framework for sustained and resilient economic cooperation between Korea and Mongolia in the medium- to long-term. The collaborative areas considered in this study, expected to have high ..
Minhyeon Jeong et al. Date 2023.12.29
economic cooperation, trade policyDownloadContentSummaryThis study aims to explore a collaborative framework for sustained and resilient economic cooperation between Korea and Mongolia in the medium- to long-term. The collaborative areas considered in this study, expected to have high synergy in bilateral economic cooperation, encompass △mining, △digital, △climate change adaptation, and △healthcare sectors. The study gathers available data for each sector to objectively assess Mongolia’s current situation. Simultaneously, through extensive literature analysis, the study meticulously examines the Mongolian government’s strategies and detailed policies for the development of each sector. This process facilitated the derivation of medium- to long-term cooperation directions between Korea and Mongolia in each respective area.<
To achieve the research objective, a systematic examination of Mongolia’s medium- to long-term foreign trade strategy was examined. The key principle underlying Mongolia’s medium- to long-term foreign trade strategy can be summarized as the so-called “establishment of balanced external relations.” Mongolia prioritizes balanced cooperation between nations in terms of economic security, with a primary focus on attracting balanced investments, particularly in the energy and mineral sectors.
The fundamental direction of this trade strategy is equally applicable to external cooperation in the mining sector. Mongolia possesses abundant mineral resources including Korea’s key minerals such as molybdenum, tungsten, copper, and lithium. However, the reality is that most of the major minerals are exported to neighboring China. This situation directly contradicts Mongolia’s external trade strategy aimed at achieving balance. Due to limitations in technological capabilities and manufacturing facilities, Mongolia is compelled to export significant quantities of key minerals in an unprocessed form. The geographical constraint of being a landlocked country further restricts the marketability of exports to neighboring countries. Consequently, it is imperative to enhance the value-added of mineral resources to promote exports to so-called ‘third neighboring countries,’ in order to establish a balanced trade relationship.
Therefore, it can be deemed crucial for bilateral cooperation in the high-value-added processing of key minerals such as lithium and tungsten. The export to Korea currently heavily relies on land and sea transportation through China. However, the potential for high-value- added aviation transport exists for rare ores like lithium and tungsten. Additionally, Mongolia has actively engaged in lithium exploration since 2020, and the yet-to-be-discovered substantial lithium deposits enhance the bright prospects for future collaboration between the two countries. Moreover, the Mongolian government, leveraging incentives for foreign investment, seeks to facilitate large-scale mine development and technology transfer, presenting a high likelihood of collaboration in the development of transportation, logistics, and customs infrastructure projects.
For the purpose of formulating a direction for collaboration in the digital industry, this study conducts an in-depth examination of Mongolia’s digital industry status and reviewed the government’s digital development strategy. The contribution of Mongolia’s ICT industry to the country’s GDP remains below 3%. The critical issue lies in the relatively low number of individuals with higher education among Mongolia’s ICT industry workforce. This is a problem associated with the delayed improvement in labor productivity in Mongolia’s ICT industry. It is crucial for Mongolia’s future, especially in establishing an e-government system and advancing the ICT industry, to urgently address the serious need for workforce development. In expanding cooperation in the digital field between the two countries, the insufficient presence of local ICT professionals in Mongolia poses a significant obstacle, particularly as Korean companies need to enter the Mongolian market as a priority.
Considering these realities, it is deemed challenging to rapidly expand bilateral cooperation in the digital industry in the short-term. Instead, a long-term perspective suggests prioritizing the active utilization of ODA to contribute to local ICT infrastructure enhancement and human resource development. This, in turn, can serve as a foundation for expanding cooperation between the two sides by fostering exchanges among businesses and experts. Through the Knowledge Sharing Program (KSP) initiatives, such as legal advice in the ICT sector, policy consultation, and research advisory services, it is crucial to facilitate collaboration among companies, secure infrastructure for enhanced cooperation, and promote information sharing. Given Mongolia’s recent interest in ‘e-local government’ and ‘electronic customs systems,’ collaborative efforts could involve providing policy advice related to these areas and sharing South Korea’s experiences in addressing various side effects arising from the introduction of digital, electronic, and AI systems.
This study also identifies the direction of cooperation in addressing climate change. To achieve this, we carefully examines Mongolia’s key policies for climate change adaptation and identifies areas where cooperation between Korea and Mongolia demonstrates high synergy. Notably, Mongolia has established a national greenhouse gas reduction target (NDC) focusing on reducing emissions in the energy and agriculture sectors. In addition, Mongolia is addressing current challenges such as air pollution and waste management in connection with climate change issues. Therefore, collaboration between Korea and Mongolia in climate change adaptation is deemed promising, focusing on areas that consider current issues related to climate change based on Mongolia’s NDC and the Green Growth Plan for Vision 2050. These areas can be categorized into five sectors: energy, agriculture, forestry, air pollution, and waste.
Finally, this study examines a direction for economic cooperation between Korea and Mongolia in the health and medical sector. To achieve this, we conduct an objective analysis of Mongolia’s current health and medical status, carefully examining the Mongolian government’s policies for the development of this field as well. Mongolia has faced various health and medical crises amid rapid urbanization and industrialization. Increasing rates of chronic diseases among Mongolian citizens, exacerbated by air pollution and unhealthy dietary habits, along with escalating mental health issues among youth in the midst of rapid social changes, pose significant societal burdens. Ongoing challenges, including the persistence of tuberculosis and the inadequacy of response capabilities to new infectious diseases such as COVID-19, threaten Mongolia’s health security.
In response, Mongolia has actively pursued the improvement of vulnerable health and medical services and infrastructure, echoing the slogan that "health is a national asset." This presents an opportunity for the expansion and substantial strengthening of health and medical cooperation between Korea and Mongolia. Considering Mongolia’s commitment to introducing advanced medical technology and expanding eHealth services in its ‘Vision 2050,’ there is a need to contemplate progressive and practical avenues for collaboration, particularly in the industry of smart healthcare or digital healthcare, which involves the integration of ICT, medical services, and medical devices, creating new opportunities in the emerging sector.
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