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  • 아세안 경제통합의 진행상황 평가와 한국의 대응 방향: TBT와 SPS를 중심으로
    Assessing ASEAN Economic Integration Progress and South Korea’s Approach: Focus on TBT and SPS

    TBT (Technical Barriers to Trade) and SPS (Sanitary and Phytosanitary Measures) have two attributes. They act as barriers to trade expansion by protecting producers, but their importance has grown in terms of consumer protection m..

    Sungil Kwak et al. Date 2023.12.29

    economic integration, barrier to trade
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    Summary
    TBT (Technical Barriers to Trade) and SPS (Sanitary and Phytosanitary Measures) have two attributes. They act as barriers to trade expansion by protecting producers, but their importance has grown in terms of consumer protection measures after the COVID-19 pandemic. Rather than eliminating related regulations,  achieving harmonization within the ASEAN region can simultaneously serve two objectives: expanding trade between South Korea and ASEAN and improving consumer protection. We assess the level of regional economic integration by measuring regulatory distances among ASEAN member states. We also measure regulatory distances between South Korea and ASEAN, and between Japan and ASEAN. We estimate the impact of ASEAN’s TBT and SPS on the export performance of countries exporting goods to the ASEAN region. In addition, a survey of South Korean firms exporting goods to the ASEAN region is conducted to assess their difficulties and to evaluate South Korea’s support policies.

    Chapter 2 evaluates the economic integration efforts within the ASEAN region, focusing on TBT and SPS. In 2020, ASEAN conducted a mid-term assessment of economic integration and produced the “Mid-Term Review: ASEAN Economic Blueprint 2025” in 2021. According to the results, ASEAN has achieved 54.1% of the sectoral work plans, with the remaining 34.2% currently underway and expected to be achieved without major problems. The ASEAN recognizes the need for regional integration to overcome the poly-crises facing the global economy. ASEAN Comprehensive Recovery Framework (ACRF) views economic integration as a means of recovery from the COVID-19 pandemic and the associated poly-crises. As a result, intra-ASEAN trade and investment have  increased steadily since 2021. 

    A notable harmonization effort for non-tariff measures such as TBT and SPS in the ACRF is the development and application of the “Non-Tariff Measures Cost-Effectiveness Toolkit.” This toolkit encourages individual ASEAN member states to assess both the introduction process and the cost-effectiveness of their non-tariff measures, thereby promoting harmonization. Additionally, the “Framework for Circular Economy for the ASEAN Economic Community,” adopted by ASEAN in 2021, can be seen as an effort to harmonized regulations related to circular goods and services. While existing regulations in manufacturing sectors may require more time to harmonize because they are already in place, emerging sectors like circular goods and services can flexibly seek regulatory harmonization within the ASEAN region due to their ongoing establishment. By achieving standard harmonization and mutual recognition agreements for these sectors, South Korea and ASEAN can anticipate efficiency gains and regional integration, resulting in  trade facilitation effects between the two regions.

    Furthermore, an analysis of TBT and SPS cases in Vietnam and Indonesia, key partners in the “Korea-ASEAN Solidarity Initiative (KASI),” aimed at assisting South Korean firms to  enter the ASEAN region. Indonesia still faces issues related to certification and testing, including ‘halal’ certification. Vietnam, despite its high level of integration into the global economy as evidenced by its high trade dependence, has not implemented high-level TBT and SPS measures due to the low technological competitiveness of its domestic and indigenous firms. However, there are concerns about the transparency and adequacy of the implementation process. Capacity building is urgently needed in Vietnam and Indonesia to ensure the transparent use of SPS and TBT for public purposes. 

    Chapter 3 first measured regulatory distances among ASEAN member states (AMS) from 2015 to 2018. During this period, it was observed that TBT and SPS regulatory distances among AMS increased, indicating a lack of regulatory harmonization within the ASEAN region. This can be attributed to the rapid economic growth, leading AMS to focus more on protecting their own citizens. It should be noted, however, that the data used in the study is only available up to 2018, making it  impossible to compare with the more recent results. As discussed in Chapter 2, ASEAN has made harmonization efforts in response to the COVID-19 pandemic and poly-crises. Therefore, it is expected that regulatory gaps will decrease as the 2025 integration target approaches.

    Second, using Multidimensional Scaling (MDS), TBT and SPS regulatory distances between South Korea and ASEAN are found to be greater than those between Japan and ASEAN. When the average SPS regulatory distance index between South Korea, Japan, and ASEAN Member States (AMS) is plotted using MDS, South Korea is located further away from Japan and the AMS. This indicates that South Korea’s SPS regulations appear to be heterogeneous compared to those of Japan and AMS. Regarding TBT, except for Vietnam and Cambodia, Japan and the AMS are  close to each other, while South Korea is far from the AMS. This result can be attributed to Japan’s historical contributions to ASEAN’s institutional establishment through the activities of ERIA and ADB. South Korea needs to actively participate in projects aimed at strengthening institutional linkages between South Korea and ASEAN, in particular, in emerging sectors like environmental and digital industries, in order to harmonize the SPS and TBT regulations in these new sectors. 

    Third, industries in South Korea that are vulnerable to ASEAN SPS and TBT regulations, as selected by trade experts using the Analytic Hierarchy Process (AHP), include food, general vehicles, steel, boiler machinery, toys, and others. Regarding SPS, food products are found to be more significantly affected than animal and vegetable products, while concerning TBT, transportation, iron and steel, boilers and machinery, and toys are expected to be more affected.

    Fourth, in industries closely linked to global value chains, the regulatory distances of TBT are shorter, but the distances of SPS between South Korea and ASEAN are relatively longer. In the MDS analysis of TBT, the industries in which South Korea has a comparative advantage in the ASEAN region are located closer to AMS and Japan. This suggests that increasing regulatory similarity between South Korea and AMS will potentially accelerate regional integration through expanded trade. On the other hand, industries highly affected by SPS, such as meat and fish products, and fruit and vegetable  products, are found to be far from South Korea and other AMS. This divergence can be attributed to significant differences in institutional arrangements in these sectors and income disparities between South Korea and the AMS.

    Fifth, the average regulatory index of TBT between South Korea and each AMS shows significant differences, particularly in high-technology industries such as chemicals and machinery. On the other hand, low-technology industries such as plastics/rubber and textiles/apparel have shorter regulatory distances of TBT on average. Therefore, it can be assumed that the likelihood of TBT-related problems affecting South Korea’s exports to the ASEAN region is low for low-tech industries like textiles/apparel and plastics/rubber. However, in high-technology-intensive industries like chemicals and machinery, South Korea’s exporters are more likely to encounter TBT-related issues. This finding is consistent with the previous AHP analysis.

    Sixth, countries classified as high-income nations, such as Singapore and Brunei, have shorter regulatory distances than South Korea. However, significant regulatory disparities are observed between South Korea and Cambodia, a low-income country. This aligns with previous research findings suggesting a higher degree of regulatory similarity among countries with similar income levels. Therefore, Singapore can be seen as  a valuable focal point for South Korea to harmonize regulations with ASEAN member states.

    In Chapter 4, we first examine the current status and characteristics of non-tariff measures in the ASEAN member states using TBT/SPS notifications and Specific Trade Concern (STC) cases. We find three stylized facts. First, within the ASEAN region, continental countries have more TBT measures, while maritime countries have more SPS measures. This finding is particularly evident when considering only STC cases. The relatively higher-income maritime countries in the ASEAN region may have adopted more advanced measures due to their technological development. On the other hand, lower-income continental countries seem to adopt TBT and SPS measures later than higher-income countries, possibly because their economies have grown rapidly  in recent years, allowing them to catch up with the measures introduced by advanced countries. 

    It is expected that the economic impact of TBT and SPS will vary depending on the geographical, economic, cultural, and social differences between continental and maritime countries. Therefore, South Korea should formulate flexible strategies to address TBT and SPS in the ASEAN region, taking into account regional and country-specific characteristics.

    Second, the number of TBT/SPS notifications and Specific Trade Concern (STC) cases for primary processed products, as well as chemicals, and electronic equipment, has been on the rise recently. These industries are identified as vulnerable sectors for South Korea in Chapter 3 on ASEAN’s TBT and SPS measures. Therefore, South Korea needs to develop policies specifically for high value-added manufacturing. Considering that most ASEAN member states seek to promote the materials and parts industries of chemical and electronic equipment, there is a high likelihood that TBT/SPS measures  for these industries will be strengthened within the ASEAN region.

    Third, in formulating policies for ASEAN non-tariff measures, we must consider our current economic situation. The extent of trade-restrictive  and trade-promotion effects of TBT/SPS will vary depending on the economic conditions of the exporting countries. For example, if we look at the countries raising Specific Trade Concerns (STC) regarding TBT/SPS, we can see  that for TBT, it is mainly advanced countries that raise concerns, while for SPS, both advanced nations and developing countries participate in raising the concerns.

    In chapter 4, we estimate the impact of TBT and SPS of ASEAN member states on the exports of 213 exporting countries to the ASEAN region from 1996 to 2021, using gravity models with fixed effects. The results of the estimation can be summarized into three main points.

    First, non-tariff measures in the ASEAN region do not significantly affect the exports of countries to Southeast Asia as a whole. However, exports from OECD countries are significantly negatively affected by ASEAN TBT measures, while exports from non-OECD countries are significantly negatively affected by ASEAN SPS measures. This is consistent with  the fact that ASEAN TBT measures are primarily targeted at advanced countries, which is consistent with the  stylized facts presented earlier. Moreover, it is evident that ASEAN TBT measures became a significant barrier to exports from advanced countries to the ASEAN region in the 2010s. This aligns with the stylized facts earlier that shows an increase in Specific Trade Concern (STC) cases raised by advanced countries regarding ASEAN TBT measures in the 2010s. Therefore, South Korea, as an OECD country, needs to focus more on developing policies to address TBT rather than SPS. That’s why, in chapter 5, we conduct a survey on TBT measures among Korean firms exporting goods to the ASEAN region.

    Second, SPS is found to be a significant barrier in the continental ASEAN  countries. This is due to the fact that countries located in the continental part of the ASEAN region, such as Cambodia, Laos, Myanmar, and Vietnam, have relatively less advanced industrial structures compared to the maritime part. In the 2010s, TBT served as a significant trade barrier in the ASEAN maritime region. Given the relative development in the maritime region compared to the continental region, there is a significant potential for  more active use of TBT measures based on technological advantages. Therefore, there is a need to pro-actively develop appropriate strategies  for this situation. This finding aligns with local expert interviews, which indicated that it may be challenging for domestic firms to raise TBT to a high level in countries that are still in the process of development, such as Vietnam.

    Third, overall, it is revealed that ASEAN’s TBT and SPS measures do not significantly affect intra-ASEAN trade. However, they did have a statistically significant impact on  intra-ASEAN trade negatively in the 2010s. This aligns with the findings from the stylized facts presented earlier, which showed the emergence of TBT and SPS-related STCs among ASEAN Member States (AMS) in the mid to late 2010s.  Furthermore, it aligns with the results from Chapter 3, which indicated that the regulatory distances between AMS widened from 2015 to 2018. This suggests that regulatory harmonization and standardization will be crucial for the expansion of intra-ASEAN trade in the future ASEAN economic integration process. In fact, ASEAN’s efforts for regulatory harmonization and standardization have been ongoing, especially since the COVID-19 pandemic, as confirmed in Chapter 2. 

    Moreover, given the high similarity between AMS’s regulations and institutions and those of Japan, South Korea, which aspires to be a global pivot state, should actively engage in improving AMS’s regulations and institutions, particularly in emerging sectors such as the digital economy and environmental goods within the ASEAN region. Such efforts can enhance not only trade but also South Korea’s standing in the international community.

    Chapter 5 collected opinions through surveys of South Korean manufacturing firms exporting goods to the ASEAN region. The surveys aimed to gather insights on TBT-related challenges, areas requiring improvement, the similarity of TBT by ASEAN member states/region, evaluations of support policies, and additional support policies. The survey results can be summarized into the following five points.

    First, the impact of TBT varies depending on the characteristics of the firms. As noted above, TBT generates both trade-restrictive and trade-promotion effects. Among the firms that participated in the survey, 57.2% identified the excessive increase in compliance costs due to TBT as the most significant obstacle. Lack of Information  and technological deficiencies were also mentioned as challenges. On the other hand, other responding firms, not considering TBT as an obstacle, reported TBT’s positive impacts, such as enhancing their sales and export capabilities, increasing consumer trust in their products, and improving the dissemination of market information. Therefore, when policy-makers formulate support policies for the firms, it is important for them to recognize that the impact of TBT varies across the characteristics of the firms. Additionally, it is crucial for policy-makers to provide related information and best practices where TBT is helpful in promoting exports to the ASEAN region, particularly to small and medium-sized enterprises.

    Second, South Korean export firms face the most significant challenges in obtaining certifications related to TBT. In the survey, firms identify “lengthy certification acquisition time” as the biggest challenge of TBT to overcome when exporting to the ASEAN region. In addition, they express difficulties related to unclear regulations, uncertain certification procedures, lack of alignment with international standards, and  significant burden of certification acquisition costs.

    Third, despite ASEAN’s efforts to harmonize regulations, differences in TBT between the continental and maritime regions persist. ASEAN has launched the ASEAN Economic Community, aiming to create a “single market and single production base” by the end of 2015. As mentioned in Chapter 2, with the completion of the ASEAN Free Trade Area (AFTA), six advanced ASEAN member states (Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand) have already achieved a 99.29% of tariff line coverage, while the four less advanced ASEAN member states (Cambodia, Laos, Myanmar, and Vietnam) have achieved 98.64% of tariff line coverage for intra-regional trade.

    Efforts were made to harmonize TBT/SPS through the ASEAN Comprehensive Recovery Framework (ACRF), which was launched in November 2020 with the aim of eliminating non-tariff measures in the region and achieving ASEAN integration. However, disparities in TBTs still existed between the continental and maritime regions and varied across  countries. More than half of the firms surveyed  indicated that TBTs among ASEAN member states still differ significantly. In particular, the survey results showed that responses indicating significant differences between TBT in the continental and maritime regions accounted for more than half of all responses. This finding is also confirmed by the results of the quantitative analysis  in Chapter 4. 

    Fourth, there is a need to expand access to government support for TBT. The survey on firms’ awareness and use (including future plans) of  government support policies related to ASEAN TBT compliance shows that although firms are willing to use the support policies, they often do not use them due to a lack of awareness. This is why, despite South Korea having a systematic TBT response system centered around the Korean Agency for Technology and Standards (KATS), firms expressed that government support policies related to TBT are still insufficient. However, the good news is that the majority of firms responded that government support is helpful in solving problems. In other words, if firms receive government support when needed, they can minimize their losses. By enhancing promotional activities for TBT support policies, including seminars, consulting support, and educational materials, firms are expected to make better use of government support policies.

    Finally, concerning TBT, South Korean firms emphasize the importance of monitoring changes in foreign government regulations, promoting the internationalization of technical standardization projects, and supporting the expansion of Korean testing and certification institutions abroad. Since obtaining certification is the biggest challenge for these firms, they advocate for simplifying the certification acquisition process, streamlining certification requirements, standardizing country-specific certification procedures, and expanding testing institutions. Collaboration with ASEAN member states (AMS) is seen as a key way to achieve these goals. Simplifying and standardizing ASEAN’s TBT procedures would not only facilitate trade between South Korea and AMS but also contribute to the overall economic integration of ASEAN.

    Based on the research results above, this study presents four policy directions:

    1. Strengthening Collaboration for Regulatory Harmonization in ASEAN: It is essential to strengthen  cooperation for regulatory harmonization with the ASEAN member states (AMD). The local scholar meetings held in Vietnam and Indonesia also stressed the need for capacity building among  officials responsible for TBT and SPS in the ASEAN region. As future trade between the two regions is expected to revolve primarily around high-tech industries, proactive efforts are needed to harmonize technical regulations. This will help reduce regulatory disparities between the two regions. As seen earlier, ASEAN’s regulations for traditional manufacturing industries were already similar to Japan’s. South Korea should focus on regulatory harmonization in emerging sectors such as the digital economy and environmental industries.

    2. Consideration of a South Korea-ASEAN Joint Certification Center: The second policy direction is to  consider the establishment of a joint South Korea-ASEAN  certification center to facilitate flexible responses. This is crucial because the impact of TBT/SPS on exports may vary by product, time, and country. The study’s results highlight the regulatory differences between the maritime and continental parts of the ASEAN region, which affect South Korea’s exports to the region differently. By setting up an ASEAN-based certification center, with Singapore as a potential hub due to its closest regulatory distance to South Korea, and by strengthening the network with other ASEAN member states, more flexible responses to changes in AMS’s TBT/SPS measures can be achieved. The survey results in Chapter 5 also support the establishment of a Joint Certification Center. 

    3. Proposal for the Establishment of an ASEAN Integrated Standard Accreditation System: The third policy direction proposes the establishment of an ASEAN Integrated Standard Accreditation System. This is a challenging proposal, given   the diverse geographical, economic, social, and cultural characteristics of ten ASEAN member states. However, it could be piloted initially for universal safety standard requirements for electrical and electronic products or for new products without established regulations. If successful, it could be gradually expanded. The creation of a working group for this purpose, with South Korea’s participation, could promote regulatory harmonization between South Korea and the ASEAN member states.

    4. Strengthening the Interconnection among the National Trade Repositories of 10 ASEAN Member States: The fourth policy direction highlights the need to support the strengthening of linkages between the National Trade Repository (NTR) of 10 ASEAN Member States (AMS) and the ASEAN Trade Repository (ATR). A Trade Repository serves as an information repository that collects information on each country’s tariff and non-tariff measures. Due to the significant development gap among the 10 AMS, there are differences  in the capacity to operate national trade repositories. To ensure the effective consolidation of information from national repositories into the ASEAN Trade Repository, it is necessary to develop and improve the capacity to manage and operate these national repositories. With proper data aggregation, the utility of the current ASEAN Trade Repository can be enhanced and it can lead to more active research in this area.

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  • The Relationship between COVID-19 Entry Restrictions and Immigration
    The Relationship between COVID-19 Entry Restrictions and Immigration

       In this paper, we investigate the relationship between COVID-19 entry restrictions and dependence on immigrants. In response to the global COVID-19 pandemic, countries worldwide implemented international travel restri..

    Youngook Jang and Donghee Joe Date 2023.12.29

    international immigration, public health
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    Content
    Executive Summary 

    1. Introduction 

    2. Theoretical Framework

    3. Data and Methods  

    4. Results  

    5. Policy Implications 

    6. Conclusion 

    References 
    Summary
       In this paper, we investigate the relationship between COVID-19 entry restrictions and dependence on immigrants. In response to the global COVID-19 pandemic, countries worldwide implemented international travel restrictions to reduce the entry of infected individuals. These measures included entry and exit bans, mandatory quarantine of travelers, and vaccination requirements, significantly altering global mobility patterns. Despite their proven effectiveness, entry restrictions also impose substantial economic costs, particularly evident in the form of reduced immigration and subsequent labor shortages in sectors reliant on immigrant labor. We introduce a theoretical framework to shed light on the factors influencing the determination of entry restrictions, encompassing both health and economic considerations. Empirical analyses reveal that countries heavily dependent on foreign labor are inclined to adopt less stringent border controls, balancing the economic costs associated with reduced immigrant workforce. Moreover, we argue that the strength of entry restrictions is determined by a government’s capacity to manage infection waves through means other than entry bans. Finally, we offer policy implications based on our research, on how to control the spread of infectious diseases while minimizing the costs imposed by reducing immigration and the cost imposed on the immigrants themselves.
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  • Individualism and Political Stability
    Individualism and Political Stability

    This study analyzes the relationship between individualism as a cultural trait and political instability as a political characteristic. The intuition of the analysis is that cultural traits can determine political preferences of m..

    Minhyeon Jeong and Wongi Kim Date 2023.12.29

    competition policy, political economy
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    Content
    Executive Summary 

    1. Introduction 

    2. Empirical Findings on Individualism

    3. Theoretical Framework 

    4. Empirical Analysis

    5. Conclusion

    References 
    Summary
    This study analyzes the relationship between individualism as a cultural trait and political instability as a political characteristic. The intuition of the analysis is that cultural traits can determine political preferences of members of society. The study considers a specific political belief: “How much should the government protect individual property rights?” which extends to broader political beliefs such as profree market vs. pro-redistribution. According to numerous studies, individualistic cultures tend to support stronger protection of property rights than collectivist cultures. If the degree of protection of property rights is determined by the political choices of the members of society, it can be inferred that the political preferences that lead to strong protection of property rights reflect the individualistic cultures inherent in society members. That is, the political preferences of society members regarding the degree of property rights protection―or, in a broader sense, pro-free market versus pro-redistribution―are influenced by their cultural traits of individualism or collectivism.

    This study presents a politico-economic model that captures this intuition. The theoretical results are as follows. First, in societies where neither individualism nor collectivism dominates, political preferences for free-market or redistribution contrast more sharply than in societies where individualism or collectivism dominates. Second, this contrast in political preferences leads to political instability, such that societies where neither individualism nor collectivism dominates tend to be more politically unstable. This study provides empirical evidence supporting the theoretical results.

    This study identifies a relationship between cultural traits, political preferences and political instability, shedding light on the impact of culture on economic growth. In a nutshell, societies with highly heterogeneous cultural traits among their members are prone to polarization of political preferences, leading to political instability, which constrains economic growth in the long run.
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  • Resilience of Faith: Post-Covid Religious Trends and the Effect of Ecclesiastica..
    Resilience of Faith: Post-Covid Religious Trends and the Effect of Ecclesiastical Policy in the United States

    This paper delves into the impact of the Covid-19 pandemic and related policies on religious attendance, with a particular focus on Catholic church attendance in the United States. The study utilizes smartphone location data from ..

    Angela Cools et al. Date 2023.12.29

    economic outlook, public health
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    Content
    Executive Summary 

    1. Introduction 

    2. Background: The US Catholic Church and Dispensations

    3. Data 

    4. Foot Traffic Trends

    5. Religious Policies and Church Attendance

    6. Robustness and Placebo Tests

    7. Conclusion

    References 

    Tables and Figures

    Appendix Tables and Figures

    Appendix B: Classifying Religious Organizations
    Summary
    This paper delves into the impact of the Covid-19 pandemic and related policies on religious attendance, with a particular focus on Catholic church attendance in the United States. The study utilizes smartphone location data from SafeGraph Inc. to track weekly religious attendance trends from 2019 through the end of 2022. This approach offers a comprehensive analysis of how attendance patterns evolved during the pandemic. Notably, the study leverages two distinctive features of the Catholic Church: its division into 175 U.S. territorial dioceses, each overseen by a bishop, and the requirement for members to attend Sunday Mass.

    The study reveals several significant findings. Firstly, it highlights the dramatic decline in religious service attendance following the outbreak of Covid-19. In comparison to 2019 attendance levels, Catholic church visits lagged behind restaurants and other religious institutions throughout 2020 and 2021. However, by 2022, both Catholic and non-Catholic religious attendance had rebounded, returning to approximately 90% of their 2019 levels by October 2022. 

    Secondly, the paper explores the impact of religious policies, focusing on the lifting of dispensations that temporarily exempted Catholics from the requirement to attend Sunday Mass during the pandemic. The study uncovers that dispensation lifting resulted in a 4 percentage point increase in weekend church attendance compared to the 2019 baseline. Notably, this boost was short-lived, lasting for only six weeks following the lifting of dispensations. It's worth mentioning that the effect of lifting dispensations was smaller in magnitude compared to the impact of church reopenings, which were associated with a 6 to 10 percentage point increase in attendance. 

    Thirdly, the study emphasizes the lack of a significant correlation between the lifting of dispensations and changes in visits to non-Catholic religious institutions or restaurants. This suggests that the impact of dispensation lifting on church attendance was independent of other reopening events.

    In the broader context, this paper contributes to the understanding of religious practice in the face of adverse events, such as natural disasters or economic crises. It distinguishes itself by using actual behavioral data, offering high-frequency insights  into the dynamics of religious practice, and benefiting from a large sample size. Additionally, the study sheds light on the impact of religious policies on individual behavior, particularly through the novel exogenous variation introduced by the lifting of dispensations in U.S. Catholic dioceses.

    Furthermore, this research aligns with the broader body of literature on the effects of social distancing measures on mobility patterns. It contributes valuable insights into mobility within religious institutions, contrasting it with mobility trends in restaurants and bars.

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  • 빅데이터 기반의 국제거시경제 전망모형 개발 연구
    Developing an International Macroeconomic Forecasting Model Based on Big Data

    The economic uncertainties arising from recent global inflation and the Covid-19 pandemic have significantly amplified the importance of accuracy and timeliness in macroeconomic forecasts. To enhance the predictive abilities of mo..

    Yaein Baek et al. Date 2023.12.29

    economic growth, economic outlook
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    Summary
    The economic uncertainties arising from recent global inflation and the Covid-19 pandemic have significantly amplified the importance of accuracy and timeliness in macroeconomic forecasts. To enhance the predictive abilities of models, harnessing all potentially relevant information is crucial. The advent of big data has spurred active exploration in economic forecasting research, leveraging additional data dimensions. Notably, text data such as online searches and news articles are widely employed to extract sentiments of economic agents, thereby monitoring economic and financial conditions. Additionally, machine learning has emerged as a pivotal tool in macroeconomic forecasting because it efficiently processes and analyzes big data. Given the potential benefits of big data for forecasting and the ongoing development of new methodologies, a collective analysis of forecasts based on big data and traditional macroeconomic models is essential. In this study, we analyze the predictive ability of short-term GDP growth rate forecasts based on big data against those generated by traditional statistical and structural macroeconomic models. Given the contrasting characteristics between big data-based forecasting models and structural models, we comprehensively analyze the results of each model and discuss implications for future economic forecasting research.

    This study largely consists of four parts. In Chapter 2, we utilize a small open economy dynamic stochastic general equilibrium model (SOE-DSGE) to forecast Korea’s GDP growth. This theoretical model serves as a benchmark for comparing against big data-based forecasts. Using a Bayesian framework, the model examines the impacts of various shocks, such as those related to total factor productivity, government spending, monetary policy, foreign demand, and foreign monetary policy. The findings reveal that the response of model variables to external shocks align with real-world outcomes. One of the strengths of the SOE-DSGE model is that it explicitly includes structural shocks, allowing us to analyze not only forecasts but also the effects of economic policies. However, a limitation is its inability to fully leverage available data due to inherent model constraints.

    In Chapter 3, we estimate machine learning and traditional econometric models based on a large set of macroeconomic and financial indicators to obtain forecasts of GDP growth in the United States and South Korea. We consider machine learning methods that have shown good predictive performance in previous studies, such as random forests, XGBoost, LSTM, and hybrid methods. For conventional econometric models, we employ the autoregressive model (AR) as a benchmark, along with the Dynamic Factor Model (DFM) and the Diffusion Index Model, both capable of utilizing a large number of predictors. The findings underscore the positive impact of utilizing big data on enhancing the predictive ability of GDP growth forecasts, particularly through machine learning. In the case of the U.S., machine learning outperforms econometric models, reducing forecast errors by up to 34% (measured by RMSE) compared to the AR model at a one-quarter forecast horizon. Although many of these improvements lack statistical significance, machine learning exhibits significant forecasting performance one quarter ahead when excluding periods of financial crises. For South Korea, the performance of machine learning in GDP forecasting is not as pronounced as in the U.S., but improvements have been evident since the 2000s. Unlike in the U.S., both machine learning and the DFM exhibit similar predictive abilities, notably performing well during financial crises periods. Consequently, it’s crucial to note that the forecast performance of machine learning models using big data may vary based on factors such as the country, forecast horizon, time period, and sample size.

    In Chapter 4, we classify Naver search data as unstructured and employ dynamic model averaging and selection (DMA and DMS) to predict South Korea’s GDP growth rate. Utilizing eight widely accepted macro-financial indicators as predictors of GDP growth, we create a search index by standardizing the search volume of Naver terms linked to each variable. Based on the idea that online search data is useful for selecting the most influential predictors of economic growth at specific junctures, we integrate the Naver search index as the selection probability of the dynamic model. Our findings reveal that DMA and DMS incorporating the search index, exhibit significantly superior forecasting abilities compared to AR, and also outperforms the OLS employing the same predictors. Moreover, while forecasting models typically exhibit regression towards the mean, DMA and DMS excel in predicting turning points in GDP growth, making them useful for predicting economic fluctuations.

    Chapter 5 synthesizes findings from preceding chapters and compares forecasts for Korea, offering insights into future economic forecasting research. Firstly, our results affirm that employing big data enhances the accuracy of economic growth forecasts, which is consistent with the expectation that a richer dataset can unveil important additional information. Secondly, it is necessary to construct a comprehensive macroeconomic database by sourcing information from diverse channels. Our findings show that forecasts integrating the Naver Search Index demonstrate proficiency in predicting sharp fluctuations in economic growth compared to forecasts reliant solely on structured data, indicating the timeliness of online search data in reflecting real-time consumer economic sentiment. This highlights its utility in forecasting evolving economic landscapes, capturing insights beyond existing structured datasets. Lastly, in addition to building databases, we need to innovate and explore new analytical methodologies for economic forecasting. While statistical methods utilizing numerous predictors exists and are widely used, our study reveals the relatively superior predictive performance of machine learning when applied to the same dataset. Although it is difficult to entirely replace existing forecasting models or the qualitative judgment of economists, machine learning-based economic forecasts can serve as supplementary indicators that can be used as a reference for the final forecast or the assessment of the economic landscape.
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  • 한-인도 해운·항만산업 협력방안 연구
    A Study on Korea-India Shipping and Port Industry Cooperation

    The purpose of this study is to propose cooperation measures in shipping and ports between Korea and India. To achieve this goal, we propose specific cooperation measures and policy tasks between the two countries. To this end, in..

    Hyung-JIn Chun et al. Date 2023.12.29

    economic growth, economic cooperation
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    Content
    Summary
    The purpose of this study is to propose cooperation measures in shipping and ports between Korea and India. To achieve this goal, we propose specific cooperation measures and policy tasks between the two countries. To this end, in Chapter 2, this study identified the cooperation environment in India’s shipping and port sectors in connection with the growth of the Indian economy. In Chapter 3, it examined India’s shipping and port policies and the current status of companies. In Chapter 4, it examined India’s shipping and port policies and the current status of companies. Shipping and port logistics infrastructure was analyzed focusing on the Chennai and Kolkata regions. In addition, Chapter 5 identified the demand for cooperation between Korea and India and proposed cooperation plans in shipping, ports, and international multimodal transportation, and Chapter 6 presented cooperation plans and demonstrations in shipping, ports, and international multimodal transportation between Korea and India based on the analysis results in Chapter 5. Promotion tasks for each project and related ministries and institutions were proposed.

    In Chapter 2, it was discovered that India’s shipping and ports pursued policies such as modernization of ports, expansion of connectivity, port-led industrialization, and improvement of logistics efficiency under the Modi government. Due to the rapid growth of the Indian economy, shipping volume has also increased rapidly, and the role of major ports such as JNPT and Mumbai Port has increased significantly. Indian merchant ships are small, and the shipbuilding industry is small compared to the size of the economy, so containerization is insufficient. However, there is high development potential as trade diversification expands along with economic growth in the future. If the high growth trend of the Indian economy continues, the complementary relationship between Korea and India will further expand, and the possibility of using Indian shipping and ports is higher, so a foundation for cooperation is needed.

    In Chapter 3, it was identified that India’s shipping and port policies are shifting to respond to India’s expanded role following the reorganization of the global supply chain. The Indian government is proposing various policies focusing on improving infrastructure related to shipping logistics, and related investments are also being made. Although companies in Indian shipping ports are small, they have ample growth potential, and the use of containers is expected to increase through logistics standardization, so there is a need to explore cooperation strategies in related fields. Accordingly, there is a high possibility of participation in port redevelopment and new port development, and it is possible to participate in terminal operation in the form of a merger with related companies.

    Chapter 4 shows that India’s major ports have high potential in terms of their roles and competitiveness, and that ports in the three major regions are pursuing various projects and policies to strengthen port competitiveness, such as port modernization, strengthening connectivity, and strengthening internal capabilities. Three major ports, including Navasheva Port, Paradiv Port, and Chennai Port, account for most of the container cargo. Fossil fuels are mainly handled by Dindaya Port, Mumbai Port, and Paradiv Port. Ports in India’s three major regions were evaluated to have secured transportation networks for each port in response to the rapid increase in cargo volume, improved internal infrastructure, and secured logistics networks connecting roads and railroads. In India, various projects such as port modernization, connectivity enhancement, and internal capacity building are being promoted by the central government, local governments, and individual port organizations, and the construction of additional terminals is being promoted for each port. In addition, it is important to secure complex logistics bases at each major base to improve land logistics conditions.

    In Chapter 5, in order to specify international cooperation in the shipping and port sectors, the demand for cooperation between Korea and India was reviewed and general areas of cooperation were proposed. For this purpose, a review of existing literature, interviews with container shipping companies, expert interviews, AHP techniques, and ODA expert inverview were utilized. Summarizing the results using this methodology, the areas that should be considered priority for cooperation between the two countries are port construction and operation. Of these, container terminal construction should be considered first, followed by cooperation on new port construction and operation. must be reviewed. Next, it is necessary to expand the customs clearance agency business into areas including multimodal transportation that can provide door-to-door transportation. Meanwhile, for ODCY and ICD, there were difficulties in purchasing land, obtaining permits, and complicated procedures when entering new markets, so it was concluded that taking over the existing system was appropriate.

    Chapter 6 proposes cooperation measures and pilot projects in the shipping and port sectors between Korea and India based on the results of Chapter 5. In detail, the shipping market is concerned with regular container transportation and other shipping, shipbuilding, and port construction operations. Cooperation plans and pilot projects were proposed for new port construction, existing ports, port hinterland linkage infrastructure, port hinterland logistics centers, etc., and port/ rear area complex transportation, respectively, for customs clearance agency and forwarding, trucking, ODCY, and ICD. In addition, comprehensive opinions on cooperation measures and pilot projects in the shipping and port sectors between Korea and India were described, and policy tasks for each relevant ministry were proposed based on the above policy proposals. In addition, implications for the advancement of related businesses such as construction and transportation operators in transportation infrastructure such as port infrastructure, roads, and railroads were described.
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  • Industrial Policy, Rise of Skilled Labor, and Firm Growth in the Early Stage of ..
    Industrial Policy, Rise of Skilled Labor, and Firm Growth in the Early Stage of Economic Development

    This paper examines the role of education policy in raising specific human capital for industrialization during the period of economic miracle in Korea. As part of the Heavy and Chemical Industry (HCI) drive, the Korean gov-ernmen..

    Sunghun Cho et al. Date 2023.12.15

    economic growth, industrial policy
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    Summary
    This paper examines the role of education policy in raising specific human capital for industrialization during the period of economic miracle in Korea. As part of the Heavy and Chemical Industry (HCI) drive, the Korean gov-ernment built technical schools near industrial complexes, resulting in a prompt supply of skilled labor. With practical curricula and training, young and skilled workers were able to enter the new sector. We also document these two patterns by using the Technical School List and the Occupational Wage survey. This government-led education reform led to higher firm-level productivity and growth, which is one of the important aspects explaining the success of the industrial policy. 

    Motivated by historical evidence, we combine the administrative Mining and Manufacturing survey with the Technical School List to study the effec-tiveness of industry-oriented education reform. We incorporate an education layer into the targeted industries under the HCI drive by exploiting the varia-tion in technical school openings at the county level.

    Our results show that plants in treated regions tend to employ and invest more than those in control regions, but value-added and labor productivity are negatively correlated with our interaction terms. This implies that firms in HCI sectors experienced disproportionate growth and should pay higher on-the-job costs for workers while education reform may reduce the overall cost of hiring industry-specific labor. In contrast, non-HCI sector firms ex-hibit a positive correlation with value added and labor productivity. These firms might benefit from the education reform that improved overall quality of skilled workers. Lastly, the effect of education reform was concentrated before the end of the HCI drive period and did not persist after 1980.

    In the era of emerging industrial policy, our paper presents a new mecha-nism that encourages more workers to enter a new sector targeted by gov-ernment-led plans. Our results serve as a starting point for re-evaluating con-temporary industrial policy and underscore the need to consider this addi-tional layer in future policy design.

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  • 디지털 정책과 규제 변화 분석: Digital Policy Alert 통계를 중심으로
    Analysis on Digital Policy and Regulations: Based on the Digital Policy Alert Database

    Digital policies and regulations are changing rapidly in advanced and major emerging economies. Based on the newly built Digital Policy Alert data, we found 3,876 changes in digital policies and regulations in major countries such..

    Ji Hyeon Kim Date 2023.12.11

    E-trade, electronic commerce
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    Content
    Summary
    Digital policies and regulations are changing rapidly in advanced and major emerging economies. Based on the newly built Digital Policy Alert data, we found 3,876 changes in digital policies and regulations in major countries such as US, EU, China, and India. This is the result of governments’ efforts to embrace the digital age and create a fair and stable digital economy. However, we do not have an accurate understanding of digital policies and regulations’ content around the world. This report aims to provide policy implications for our government’s policy making by objectively analyzing the international trends and status of digital policies and regulations and reducing uncertainty about foreign countries. 

    Digital trade, which is the trade of goods and services through digital means, has increased worldwide due to the development of digital technology. It can be divided into Business-to-Customer(B2C) and Business-to-Business(B2B) trade. By 2023 B2C trade is expected to reach $6 trillion and B2B trade $24.4 trillion. Asia, in particular, accounts for a large share of digital trade, accounting for more than 50% of the world’s B2C trade and on average 78% of B2B trade in 2022. Korea’s digital trade in goods is also expanding, and the proportion of its exports to China and Japan is decreasing while that to Europe is increasing.

    According to existing data, such as that from the OECD and EUI, the level of restrictions on digital services trade around the world is generally increasing. If we look at the regulatory environment of digital trade more broadly, there are many restrictive measures, but the level of restriction is not very high. Specifically, the level of openness in e-commerce and intellectual property rights have increased. On the other hand, the level of restriction in infrastructure and connectivity, or data is the highest. The level of restriction in other areas, which includes online advertising ban, local presence requirements, is also increasing. By region, Europe and North America have the most open regulatory environment, while Central Asia and South Asia have the most restrictive regulatory environment. East Asia-Pacific’s regulatory environment is more restrictive than the global average.

    By country, open economies such as Canada, US, Australia, or small countries such as Dominican Republic and Costa Rica, have lower levels of restriction on digital services trade. In contrast, relatively closed emerging economies such as Kazakhstan, Russia, Saudi Arabia, and India have higher levels of restriction on digital services trade. China, Russia, India have more restrictive measures on data transfer, and local data storage and processing than other major countries, and they also take discriminatory measures on communications business licenses and e-commerce. US is the most open to data transfer, while Europe and Japan transfer data conditionally.

    According to the Digital Policy Alert, data governance and competition account for the largest share of digital policy and regulatory changes worldwide. The main policy instruments for data governance are data protection, cybersecurity, cross-border data flows, and for competition, unilateral conduct regulation, merger review. Recently, the proportion of other business conditions, and registration and licensing have increased. Their instruments, algorithm design and technical standards for other business conditions, product or service licensing for registration and licensing have became increasingly important. In the policy area of content, changes have increased in user speech rights. In international trade, we see changes in measures such as bilateral and regional agreements and export/import bans. Foreign direct investment and tax are also changing actively.

    The top 10 countries with the most digital policy changes are US, EU, UK, China, India, Australia, Korea, Japan, Russia, and Canada. Their digital policy changes  focus on personal information and information protection, and they also have policies for emerging industries such as AI and crypto assets. Notably, US has more regulations under discussion than adopted or implemented. China and India have relatively more data localization requirements than other countries. Russia has many content-related policy changes, while China and US are active in the registration and licensing area.

    Other business conditions, registration and licensing are policy areas which have recently gained attention in digital policy and regulation. Among them, algorithm design and technical standards (other business conditions), product or service authorization (licensing and registration) are mainly used as policy tools. The aforementioned top 10 countries are seeking cooperation for standardization work concerning new industries such as AI. When it comes to crypto assets, countries adopt rather opposite policies depending on their perspective.

    Korea’s level of regulatory restriction on digital services trade is lower than that of East Asia-Pacific, but it is higher than the global average. Korea’s digital services trade regulations are becoming more similar to Germany and less similar to China. In terms of digital policies and regulations, Korea is discussing various digital policies such as data protection, unilateral conduct regulation etc.

    In conclusion, first, Korea follows the international trend in terms of policy changes in areas such as data governance, other business conditions, competition, but more active discussion on content is needed. Second, international standardization discussions are actively taking place. Korea should be more strategic and base its discussion on the cooperation status of other countries. Third, considering Digital Policy Alert with other existing data will provide a comprehensive picture of digital policies and regulations. Finally, collecting digital policies and regulations by ourselves would be a first step to respond more accurately to changes in digital policy regulation.
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  • 국내 전략산업 투자유치 인센티브 개편 방향
    Reforming Incentive Policies to Increase FDI in Korea’s Strategic Industries

    Foreign direct investment(FDI) in Korea remains at a lower level compared to that of major countries, although the amount of FDI in Korea in 2022 on notification basis exceeded 30 billion USD for the first time in history. And maj..

    June Dong Kim et al. Date 2023.12.08

    subsidy, foreign direct investment
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    Summary
    Foreign direct investment(FDI) in Korea remains at a lower level compared to that of major countries, although the amount of FDI in Korea in 2022 on notification basis exceeded 30 billion USD for the first time in history. And major advanced countries have recently expanded investment incentives to strategic industries such as semiconductors and secondary batteries. Therefore, we need to make a landmark transformation of our FDI incentive policies. In this regard, this study first took a look at the recent trends of FDI in Korea and reviewed the incentive systems for attracting strategic investment in major countries such as the U.S., the EU, Japan, and China. And then it attempted to present policy directions for reforming incentive systems to attract strategic investment to Korea. In particular, it aimed to present the improvement of the cash incentive system as well as the use of specialized complexes for advanced industries and specialized zones for equal opportunity development.

    First, by looking at the recent trends of FDI into Korea (2010~2022), there are more FDI from advanced countries and tax haven countries such as U.S.A., Japan, Singapore, Malta, Netherland than from others. Also, we found more FDI in services industry than in manufacturing industry. Finally, there were more greenfield FDI than M&As.

    Next, we investigated recent incentive systems to attract investment in strategic industries in some key countries. These include the CHIPS and Science Act along with the Inflation Reduction Act of the U.S., and the European New Investment Strategy, InvestEU Program, and European Chips Act in the EU. We also analyzed Japan’s Direct Investment Promotion Strategy toward Japan, Promotion Act of 5G, Semiconductor Fund, and Green Innovation Fund, as well as China’s FDI expansion policy in the manufacturing sector. From this investigation, we confirmed that major countries (ⅰ) operate investment incentive systems without any discrimination between foreign and domestic firms, (ⅱ) provide large amounts of investment subsidies, and (ⅲ) have formed a social consensus that large-scale assistance is necessary to attract investment in strategic industries. 

    Based on these characteristics in major countries, we presented the improvement of cash assistance system as well as the use of specialized complexes for cutting-edge industries and equal opportunity development special zones as policy directions for reforming incentives to attract investment in domestic strategic industries. More specifically, in the case of improving the cash subsidy system, we found that the following measures are necessary; (ⅰ) increasing the budget available for cash subsidies, (ⅱ) increasing the R&D subsidy expenditures in the aspect of software, (ⅲ) and calculating the amount for cash assistance taking into account the quality of employment, not to mention the effect of job creation. Finally, we presented a plan for linking specialized complexes for cutting-edge industries and special zones for equal opportunity development in order to provide unprecedented support for the large-scale investments in strategic industries.
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  • Impact of Temporary Trade Barriers within APEC: Evidence from Korea
    Impact of Temporary Trade Barriers within APEC: Evidence from Korea

    This study uses a detailed product-level data to examine the trade deflection of Korean exports as a result of antidumping (AD) duty impositions. Given that APEC economies account for a large share of Korean exports and AD duty im..

    Seungrae Lee Date 2023.11.30

    APEC, anti-dumping system
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    Content
    Executive Summary

    I. Introduction

    II. U.S. and Chinese AD cases on Korea

    Ⅲ. Estimation strategy and Data

    Ⅳ. Estimation Results

    V. Conclusion

    References

    Appendix
    Summary
    This study uses a detailed product-level data to examine the trade deflection of Korean exports as a result of antidumping (AD) duty impositions. Given that APEC economies account for a large share of Korean exports and AD duty impositions on Korean exports, especially by the U.S. and China, this study focuses on the deflection of Korean export to APEC economies following the imposition of AD duties by the U.S. and China. This study finds robust evidence of Korean export deflection within APEC as a result of the imposition of AD duties by the U.S. and China. Moreover, intra-APEC trade deflection is associated with the type of products involved in the AD duty orders. U.S. AD duties have an impact on the export deflection of intermediate products, while Chinese AD duties have an impact on final products, towards APEC economies.
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