The Social and Economic Impact of Covid-19 in India
The Covid-19 pandemic led to significant reductions in economic activity across the world. In India, the Covid-19 pandemic has also created unprecedented disruptions in the labor market including employment loss and a decline in i..
Yoon Jae Ro and Seung Jin Cho Date 2022.05.27Economic cooperation, Labor market India and South AsiaDownloadContentSummaryThe Covid-19 pandemic led to significant reductions in economic activity across the world. In India, the Covid-19 pandemic has also created unprecedented disruptions in the labor market including employment loss and a decline in incomes. Furthermore, the Covid-19 pandemic is having unequal impacts on the consumption of Indian households.In this paper, we investigate the impact of the Covid-19 pandemic on Indian households. We examine the impact of lockdown measures that India imposed during the first and second years of the pandemic. The first lockdown in India was from March 25th, 2020, to May 31st, 2020, which was considered the longest lockdown during the Covid-19 pandemic. The second lockdown was from April to June 2021. We focus on the differential impact of these shocks on employment, income, and consumption, using data from a large household panel survey.Firstly, we observe large and heterogeneous reductions in employment and income in formal and informal segments of the labor market in India. Informal wage workers were significantly more vulnerable to the loss of employment than formal workers during the lockdown. Furthermore, income declined significantly more for the households of the informal wage worker. There was a differential impact of the shocks on labor market outcomes for male and female workers. We find that women were more likely to lose employment during the lockdown, and more likely to not return to work subsequently post the lockdown relative to men.Second, we document the impacts of the lockdown on household consumption. We find that consumption decreased the most for the households with initially higher pre-pandemic income. Also, this group has the slowest recovery rate to the pre-pandemic consumption level. For all households, the consumption of food and fuel dropped less than the consumption of durables.When the labor market fluctuates rapidly due to the economic downturn, the harm is relatively concentrated on the low-income and vulnerable groups. This study shows the Covid-19 pandemic caused great economic damage to women and informal workers, who are the most vulnerable groups in India.
Japan’s Digital Transformation Policy and Implications for Korea
This study takes Japan's digital transformation policy as a research topic after the COVID-19 pandemic. The scope of digital transformation is relatively broad, such as digital government, digital transformation of in..
Gyupan Kim Date 2022.05.20ICT economy, Industrial policyDownloadContentSummaryThis study takes Japan's digital transformation policy as a research topic after the COVID-19 pandemic. The scope of digital transformation is relatively broad, such as digital government, digital transformation of industries, and building of digital industrial infrastructure.First, the Japanese government's digitalization in the administrative field, that is, the digital government policy, focuses on regulatory reform in the public domain, standardization of information systems between the government and local governments, and regulatory reform in the private sector.There is a general recognition that Japan is lagging behind Korea in terms of digital government, but in the field of private use of public data, Japan has already enacted the ‘Public-Private Data Basic Act’ in 2016 and many local governments have established public-private data utilization promotion plans. In Korea, among the so-called '3 Acts on Digital Transformation' submitted to the National Assembly in June 2021, the ‘Data Basic Act’ can be highly evaluated in that it lays the legal foundation to promote the use of public data by the private sector. However, it seems that the work of building a public information data base like Japan's 'Base Registry' should be accelerated.In relation to regulatory reform, the Korean government needs to closely review the Japanese government's permit for telemedicine in the course of responding to the COVID-19 pandemic. The Japanese government's regulatory reform in the medical field is ahead of Korea's as shown in the permission of online sales of over-the-counter drugs in 2014.Second, this study analyzed the Japanese government's digital transformation policies and corporate trends in manufacturing, agriculture, and infrastructure and logistics sectors. The Korean government’s ‘Digital New Deal’ policy also emphasizes digital transformation in industrial fields such as smart industrial complexes, smart cities, and smart logistics systems, but in terms of policy directions and technological capabilities to pursue in each area, it is necessary to closely examine the Japanese cases to promote domestic distribution and dissemination.In the manufacturing sector, it is necessary to refer to the ‘Common Data Connecting Project’ supported by the Japanese government through pilot projects. At the corporate level, it is worth noting that Japanese manufacturing companies are focusing on industrial digital platforms by attracting related companies that go beyond factory automation to the entire supply chain. Japanese construction companies are also using digital platforms for remote management of construction sites as well as building management.Regarding the smart agriculture policy of the Korean government, it is necessary to pay attention to the Japanese government’s ‘Smart Agriculture Demonstration Project’. The Japanese government is implementing various pilot projects in a way that applies the so-called 4th industrial revolution-based technologies such as robot tractors, drones, sensors, cloud services, and AI to local agricultural field by establishing an public-private cooperation system.On the other hand, in the field of infrastructure and logistics, the Korean government also needs to actively introduce digital transformation work for urban planning like the Japanese government’s Plateau project. As of November 2021, 56 cities in Japan have developed large-scale 3D city models through the Plateau project, and in the future, use cases involving private companies will be developed in terms of the use of 3D city models to promote smart city development.Third, the digital infrastructure field needs to be approached from the perspective of economic cooperation between Korea and Japan. The Japanese government is focusing on supporting technology development in the post 5G mobile networks, but the weak competitiveness of Japanese companies in the field of 5G communication equipment provides room for Korea-Japan cooperation in the future. And, although the Japanese government is making plans to relocate its domestic data centers, there seems to be no way to hedge Japan's geopolitical risks such as earthquakes. From this point of view, the Korean government needs to consider ways to attract Japanese companies' data centers, just as it did immediately after the Great East Japan Earthquake in March 2011. Lastly, the Japanese government is also very active in fostering the domestic cloud service industry. Especially, the Korean government and companies need to be interested in the hybrid cloud system and super-decentralized cloud architecture that the Japanese government has designated as key support areas, and prepare a plan for cooperation with Japanese companies.
Australia’s Strategic Responses to the US-China Rivalry and Implications for Korea
As former Prime Minister Tony Abbott once admitted, Australia’s China policy has been driven by “fear and greed,” implying that China is a source of both economic prosperity and security discomfort. As in other Asi..
Ina Choi et al. Date 2022.05.20Economic cooperation, International politicsDownloadContentSummaryAs former Prime Minister Tony Abbott once admitted, Australia’s China policy has been driven by “fear and greed,” implying that China is a source of both economic prosperity and security discomfort. As in other Asia-Pacific countries, facilitating trade with China has provided a growth engine for Australia's economy. Up until the mid-2010s, despite concerns over security threats posed by China’s military expansion, hard balancing against China did not seem to be an option for Australia. Australia’s recent moves against China, however, signal that Canberra has reset its China policy, with an overhaul of its national security and defense strategy. The shift of Australia’s China policy is an interesting case to study how the regional order is likely to evolve in the growing US-China competition. Assessing Australia’s recent foreign policy is also relevant to South Korea, both in terms of navigating Korea’s relations with the US and China and enhancing strategic ties between Australia and Korea. Against this backdrop, this study aims to unravel Australia’s strategic responses to the changing regional order and draw implications for Korea’s foreign policy.Chapter 2 examines Australia’s strategic interests in the evolving regional architecture and how these interests have influenced Australia’s China policy recently. China’s retaliatory measures in response to Australia’s calls for inquiry into the origins of Covid-19 fueled the conflict between the two sides, but Australia-China tensions have loomed large over the past five years. Beijing’s responses to the PCA ruling on the South China Sea and persistent gray zone activities have alarmed Canberra to advocate for rules-based order and closely align with the United States in countering China’s hegemonic power. Most notably, high-profile scandals over China’s interference in Australia’s politics in 2017 led to a series of measures to counter Chinese influence in the country. In August 2018, Australia took the initiative in banning Chinese vendors including Huawei from its 5G network over national security concerns. China’s economic sanctions against Australia in 2020 reinforced anti-Chinese public sentiment, fostering an environment where the concerns of policymakers in the security sector are well-received. In particular, the Defense Strategic Update 2020 suggests that China’s military expansion poses a direct threat to Australia’s national security, calling for an increase of military capabilities. Along with an unprecedented large-scale investment in military forces, Canberra took a step further to initiate the launch of the AUKUS pact in September 2021, thus allowing Australia to build nuclear-powered submarines. In the past Australia used to be cautious about ruffling the feathers of its largest trading partner, but a series of recent moves against Beijing make it clear that security concerns have overridden economic considerations in Canberra.Chapter 3 analyzes the economic effects of China’s import restrictions on Australian exports. Our findings suggest that the import restrictions did not have a significant impact on the overall volume of Australian exports to China. The total export volumes of iron ore (not included in the restriction list) have actually increased, which counteracted the decrease in total exports of restricted products, such as beef, wine, and lumber. Hence, China’s import restrictions were not an effective tool for altering Canberra’s stance towards Beijing. Chinese policymakers could not expect the offsetting effects of Australian iron ore, which accounts for over 60% of China’s total iron ore imports. Nonetheless, this recent economic dispute caused Australia to revisit the potential consequences of overreliance on China as the major trading partner. Given the volatility of commodity prices, Canberra is also aware of the limits of relying on natural resources as the main safeguard against Beijing’s retaliatory actions. Consequently, the Australian government and businesses are exploring ways to reduce economic reliance on China, mostly via trade and investment diversification.Chapter 4 assesses how Australia is responding to China’s growing influence on global economic and political environments. First, in response to the growing economic threat from the overreliance on China, Australia is experimenting with government policies related to trade and investment diversification. Recommendations from the Joint Standing Committee on Trade and Investment Growth of Australia include 1) a “China Plus” or “China And” type approach to open new export markets; 2) market liberalization via bilateral or multilateral FTAs; 3) upgrading manufacturing processes; 4) prioritizing national security in trade policies; and 5) strengthen support for export industries and their associated businesses. As evidence of these trade diversification efforts, Australian barley exporters found a new destination in Saudi Arabia, away from massive Chinese tariffs. Moreover, Australian policymakers are being cautious with the large influx of Chinese investment into their mining and real estate industries. Recommendations from the parliament include 1) establishing national security guidelines, 2) increasing the number of foreign investments subject to a review for national interests (i.e., Foreign Acquisitions and Takeovers Amendment Regulations 2020), 3) providing incentives for domestic investment, and 4) supporting domestic manufacturing industries. Similarly, Australia’s Modern Manufacturing Strategy intends to create competitive and resilient domestic industries. Bilateral and multilateral FTAs are at the forefront of achieving the aforementioned initiatives to diversify trade and investment, away from China’s influence. Australia aims to conduct over 80% of global trade via FTAs, while actively participating in Indo-Pacific centric multilateral FTAs. Furthermore, Australia is heavily involved with setting a global technology standard in an era of the U.S.-China Technology Competition, reflecting its interests in national security and the Indo-Pacific region.Second, in response to the growing regional security threat from China, Australia has embarked on its largest military build-up for decades. Based on a new defense strategy outlined in the “2020 Defense Strategy Update,” the Australian government resolved to accelerate military transformation to enhance its self-defense capability. Australia has also strengthened defense ties with US allies and strategic partners, playing a part in consolidating the US-led security cooperation network. Apart from the Quadrilateral Security Dialogue (Quad), Canberra managed to conclude the AUKUS agreement, which allows it to acquire a variety of advanced weapon technologies including nuclear-powered submarines. The AUKUS partnership has also enhanced security commitments by the US and the UK to the Indo-Pacific region, which suits the interest of Australia. Third, sharing concerns about China’s hegemonic role in the region, Australia is actively participating in regional efforts to counterbalance China’s Belt and Road Initiative (BRI). Australia is particularly wary of China‘s growing influence in the South Pacific and Southeast Asia, where Australia’s most direct strategic interests lie. Accordingly, in close cooperation with the US and Japan, Australia has sought to support infrastructure development in the Pacific Islands and enhanced its bilateral engagement with Pacific states through the “Pacific Step Up” initiative. In regard to ASEAN, Australia newly launched the ASEAN Future Initiative in 2021 with an emphasis on maritime security, connectivity, SDGs and economic cooperation with Southeast Asia. In consideration of the strategic value of the Mekong region, Canberra has also launched a new partnership with the Mekong region called the ASEAN-Mekong Program (MAP).Based on the analyses above, Chapter 5 discusses the implications for Korea. First, Korea needs a preemptive strategy to ease the negative effects of China’s potential economic sanctions. Australia could fight through the negative effects via its irreplaceable commodities and trade diversification efforts for replaceable products. Analogous to Australia, Korea needs to secure leverage over critical products and technologies and explore alternative export markets, all along with the support of the government. Faced with China’s heavy tariffs, Australian barley farmers found new export destinations, then the Australian government followed through with additional support. This example showcases how the Korean government can also support businesses to expand export networks. Second, as Australia searches for new economic partners, Korea should renew economic relationships with Australia. Namely, the most workable area for the Korea-Australia cooperation is the supply of rare earth minerals. For instance, Korean companies can increase investment in Australia’s natural resources sector, while Australian companies can build an integrated rare earths refinery in Korea. As Australia develops future battery and critical minerals industries strategies, the Korea-Australia cooperation can extend to operations in the downstream sector, which would contribute to diversification of value chains for critical technologies.Third, given Australia’s commitments to regional development in the Indo-Pacific, Korea needs to enhance its partnership with Australia for the prosperity of the Indo-Pacific region, particularly in Southeast Asia, where the two countries’ strategic needs converge. At the country level, Indonesia can be prioritized in pursuing bilateral partnership since both countries have enjoyed deep bilateral cooperation with Indonesia. At the ASEAN level, Seoul and Canberra need to jointly support the implementation of the Master Plan on ASEAN Connectivity (MPAC 2025) and strengthen cooperation on cyber, digital and technology standards in which both countries have a competitive edge. In addition, as both countries closely work together with the US in promoting peace and prosperity of the region, more active trilateral dialogue between Korea, Australia and the US should be carried out on a regular basis to enable effective collaboration.
Analysis on Net-Zero Policy of Indonesia and It’s Implication for Korean Green New Deal Policy
While the international community has been engaged in dialogue on countermeasures to climate change by global warming, Indonesia, which ranked 8th in the world in Co2 emissions and top in ASEAN, has submitted its nati..
Jaeho Lee Date 2022.03.30Energy industry, Environmental policy Southeast Asia OceanDownloadContentSummaryWhile the international community has been engaged in dialogue on countermeasures to climate change by global warming, Indonesia, which ranked 8th in the world in Co2 emissions and top in ASEAN, has submitted its nationally determined contribution (NDC) targets of unconditional reduction of 29% and conditional reduction of 41% by 2030, and announced the net zero target by 2060. Indonesia is a core partner of Korea’s New Southern Policy and has been identified as a promising market for micro-grid projects in the K-New Deal Globalization Strategy, but as of yet no comprehensive strategy has been established that takes into account Indonesia’s net zero policy. To address this gap, this paper examines and suggests policy directions for cooperation with Korea’s Green New Deal, based on an analysis of Indonesian policies related to carbon neutrality and the current status of international cooperation in Indonesia.Indonesia had submitted a NDC target of unconditional reduction of 29%, conditional reduction of 41% by 2030, and has been implementing a series of policies in various areas, for example finance, technical assistance, capacity building, etc. Indonesia is coordinating its NDC targets and the local adaption and mitigation policies through the Long-Term Strategy for Low Carbon and Climate Resilience (LTS-CCR) 2050. In addition, a series of policies in the areas of environment protection, renewable energy, reforestation, and waste management had been introduced in the National Medium Term Development Plan (RPJMN) for 2020-2024. The National Energy Policy(KEN), which is the major initiative for Co2 emission mitigation, pursues to change the energy consumption structure by increasing the share of renewable energy instead of fossil fuels. The National Energy Plan(RUEN) is a set of multi-sectoral policies to implement the targets of KEN. The National Electricity Plan(RUKN) is the core plan of RUEN, in line with which the country has been implementing the structural change of national electricity generation by increasing the share of renewable energy(12%→28%) and decreasing the share of fossil fuels(60%→47%).Indonesia has been implementing various forms of multilateral and bilateral international cooperation to respond to climate change. Multilateral cooperation through the UNFCCC(UN Framework Convention on Climate Change) has been supported by major climate funds, such as the Global Environment Fund(GEF) and Green Climate Fund(GCF), while sectoral funds like the FCPF(Forest Carbon Partnership Facility), CIF(Climate Investment Fund) are supported by multilateral development banks. In this study, bilateral cooperation is analyzed using the Creditor Reporting System (CRS) ODA data of the OECD DAC. Japan took the top rank of major donors with a share of 53.6%, followed by France(14.9%), Germany(14.5%), the US(5.1%), and Australia(3.7%). The energy sector took the biggest share of 36.7%, followed by environment protection (21.3%), transport & storage(20.6%), agriculture & fishery(8.1%), etc. Physical infrastructure projects accounted for a major share of support from Japan and Germany, and administration and environment protection took the biggest share of support from France and the US. Support from Australia is relatively small in size, but covers various fields. In the case of Korea, Indonesia took the largest share of 77% of all its overseas afforestation activities, but did not produce recognizable mitigation achievements. Korea and Indonesia have been holding regular bilateral forums in the area of energy, and during the 12th forum held in 2021 the two countries focused on cooperation in the areas of renewable energy.In order to establish a policy toward achieving net-zero targets with Indonesia, Korea needs to prepare a cooperative approach based on analysis of Co2 emission status, net-zero policies, and international cooperation, etc. When considering the Land Use Change and Forestry(LUCF) accounted for the largest share (43.59%) of the total Co2 Emission in Indonesia, Korea needs to establish cooperation plans for the LUCF sector, such as the Reducing Emissions from Deforestation and Forest Degradation Plus (REDD+). In addition to bilateral cooperation in the REDD+, private-public cooperative platforms such as Lowering Emissions by Accelerating Forest Finance (LEAF) could provide further positive approaches for multilateral cooperation. Other multilateral cooperative mechanisms such as the ASEAN+3 or EAS would also be good channels for REDD+ cooperation. In the energy sector, emissions from electricity generation took the largest share (35%) in Indonesia, and the demand to develop renewable energy has been increasing for the energy mix conversion in the electricity generation sector. Considering the high demand for cooperation in renewable energy, the first step for energy cooperation between Korea and Indonesia would be solar and hydro generation. In addition to the electricity generation sector, the upstream and downstream linkage in the supply chain would create a synergy effect. To promote this synergy, developers should utilize financial linkages based on the basic characteristics of each project. Entering into PPP or purchasing contracts with local partners like power companies or institutions would be a positive approach to secure stable profitability. In transport sector, Korea and Indonesia have agreed to implement an EDCF project titled “EV infrastructure development project in Jakarta” from 2023. Korea also needs to expand the field of cooperation from physical infrastructure to the software and institutions to lead the EV ecosystem in Jakarta.
Internationalization of the Korean Won in the Light of the RMB Internationalization
Despite the fact that China and the United States represent the G2 in terms of economic size, the RMB’s international significance in the existing international financial system is limited. China has made significant progress in ..
Hyo Sang Kim et al. Date 2022.02.25Financial liberalization, Exchange Rate ChinaDownloadContentPrefaceForwardContentsExecutive SummaryContributorsChapter 1. Introduction1. Background and Motivation2. The Current Status of the Korean Won Internationalization3. ContributionsChapter 2. RMB Internationalization: Development Status, Evolution Logic and Prospect1. Development Status of RMB Internationalization2. Evolution Logic of RMB Internationalization3. Prospect of RMB InternationalizationChapter 3. Performance of the Shanghai and Seoul Direct RMB-Korean Won Exchange Market1. Introduction2. Direct KRW-RMB Exchange Markets in Seoul and Shanghai3. Empirical Model and Results4. Conclusion and Policy ImplicationsChapter 4. Synchronization of East Asian Currencies: RMB or USD?1. Introduction2. Exchange Rate Regime in China3. Empirical Estimation4. ConclusionChapter 5. Analysis of Factor Determining the Synchronization of RMB and Korean Won1. Introduction2. The Currency Co-movements with the RMB3. Factor Determinants on the RMB Weights4. Empirical Results5. ConclusionAppendixChapter 6. Effects of RMB Internationalization on Korean WonInternationalization1. Introduction2. Constructing the Korean Won Internationalization Index3. Empirical Analysis4. ConclusionAppendixChapter 7.Policy Proposals and Conclusion1. A Policy Framework for Currency Internationalization2. Review of the Experiences of the Currency Internationalization3. A Proposal for the KRW Internationalization4. Agenda for RMB and KRW Cooperation5. ConclusionReferencesSummaryDespite the fact that China and the United States represent the G2 in terms of economic size, the RMB’s international significance in the existing international financial system is limited. China has made significant progress in encouraging RMB internationalization. It has the ability to disrupt the global financial system, dominated by the US dollar. In order to seize chances under such circumstance, Korea must find a new direction for the internationalization of Korean Won.This collective volume has seven independent papers that investigate the current and future status of the RMB internationalization and its impacts and implications on Korean economy. The summarizations of each paper are as follows: Chapter One explains the background and motivation of this collective volume. Also, it describes the current status of the Korean Won Internationalization. Chapter Two provides detailed descriptions of the current status of RMB internationalization and its future prospects. Chapter Three examines the performance of Shanghai and Seoul RMB-KRW direct foreign exchange markets and figures that such direct FX markets have not been fully developed yet. However, such markets are expected to become more efficient gradually. Chapter Four finds that in the gradual evolution of the RMB internationalization, the KRW is becoming more synchronized with the Chinese yuan. Chapter Five explores the factors for coupling between the RMB and the KRW. Not only trade and finance channels but also policy implementations are important. Chapter Six develops the index for the KRW internationalization in light of the RMB internationalization. This chapter finds that the RMB internationalization may hinder the KRW internationalization. If the Korean government continues to delay the KRW internationalization, the benefit from the currency internationalization will become smaller. In that regard, Chapter Seven emphasizes that at this moment, it is very meaningful to re-examine the long-term strategy for Korea’s won internationalization.The internationalization of the Korean won provides a new opportunity for the country’s financial development, rather than a disruption to the current global financial system. In the process of the internationalization of RMB and KRW, China and Korea should further strengthen bilateral financial and economic cooperation to push forward the process of RMB and KRW internationalization. Because the RMB or the KRW each have such a small proportion of the global monetary system, it is premature to be concerned about competition. Cooperation should take priority. The key policy suggestions for cooperation between these two currency internationalizations could at the very least include: (1) increasing the bilateral currency swap lines (BSLs) and making them more effective; (2) encouraging more usage of RMB and KRW in bilateral trade and direct investment; (3) encouraging more Chinese investors to hold KRW denominated assets and so does the other party; (4) accelerating the development of offshore RMB market in Seoul while having increasingly important offshore KRW market in China; (5) strengthening the coordination and cooperation in exchange rate policies.
Korea’s Medium- and Long-Term Trade Strategies by Region and International Economic Cooperation Plans
This study seeks to identify Korea’s cooperation directions with major regions and present action plans to implement them in five medium-to long-term trade issues: global supply chains, digital trade, climate change,..
June Dong Kim et al. Date 2021.12.31Economic cooperation, Trade policyDownloadContent
SummaryThis study seeks to identify Korea’s cooperation directions with major regions and present action plans to implement them in five medium-to long-term trade issues: global supply chains, digital trade, climate change, health, and development cooperation.In the area of global supply chains, Korea and the U.S. could promote predictability and sustainability through periodic exchanges of information between the respective control towers of supply chains in the two countries, and the utilization of various consultative bodies composed of diverse agents related to supply chains. In the long-term perspective, we need to implement exchange programs of personnel and joint R&D programs in the areas of advanced technologies of the two countries in order to cultivate talented persons in the key industries.The EU and Korea could reinforce the connectivity of their supply chains through cooperation in the areas of technology and production in such strategic industries as telecommunication infrastructure. In addition, when considering the global expansion of low-carbon economy initiatives, Korea needs to closely cooperate with the EU, which is preemptively adjusting its supply chains under a green economy concept.With regard to China, it is anticipated that Korea will have no choice but to cooperate in areas where China and the U.S. share values, or in areas where the U.S. does not show interest in, for a considerable period of time. More specifically, cooperation can be possible in the areas of green industries, the health sector, and those with matured technology. Regionally, Korea needs to pursue cooperation with China in supply chains in third countries, rather than within China.In the New Southern Region, above all, Korea should pursue diversification of supply chains within the ASEAN region by utilizing changes in the trade and investment environment due to the RCEP, the CPTPP, and the ASEAN Economic Community. Korea also needs to upgrade its CEPA with India to secure smooth movement of intermediate goods between Korea and India. Additionally, Korea needs to expand cooperation with India utilizing the EDCF, particularly in light of the demand within India to establish various infrastructure such as renewable energy and roads.In the area of digital trade, two directions of cooperation with key countries and regions can be outlined as follows. First, Korea should strengthen medium-to long-term cooperation with leading economies such as the U.S. and the EU in digital infrastructure, digital technology, digital technological standards, and data regulation. Second, in places where need for digital infrastructure is increasing, such as China, the New Southern Region, and Africa, unique and specialized digital trade policies should be established.To be more specific, in order to strengthen cooperation with the U.S. in digital technology, Korea needs to encourage its domestic firms to join in the O-RAN Alliance. Furthermore, in order to foster technological cooperation in the field of AI, Korea should facilitate discussions about the development of international AI standards through the already existing Joint Committee on Science and Technology Cooperation between Korea and the U.S. Korea also needs to begin discussions to maintain technical standards cooperation by forming a Korea-EU Committee on digital technology like Trade and Technology Council between the U.S. and the EU. In terms of data regulation, Korea must take a proactive role together with the U.S. in WTO e-commerce talks. This study also suggests that the e-commerce chapter that was not addressed during the negotiation of the KORUS FTA amendment should be upgraded in the near future. Efforts will also be vital to keep complying with the EU’s GDPR requirements.Regarding digital infrastructure cooperation with major countries and regions such as China, the New Southern Region, and Africa, Korea should undertake action plans in conjunction with domestic policies such as K-semiconductor strategies and materials, components, and equipment strategies. Meanwhile, it is critical to develop a venue to discuss digital technology and data regulatory cooperation with China and the New Southern Region. Korea could benchmark the cooperation in the area of standards between Japan and China in 2019. This platform can help to improve the compatibility of digital technology and goods in key areas specified by the Northeast Asia Standards Cooperation Forum.Aside from digital infrastructure, digital technology, digital technological standards, and data regulation, Korea must seek specific cooperation plans for major countries and regions. For example, Korea can develop policies to increase intellectual property protection in relation to China. Furthermore, it can assist domestic digital trade firms in entering the Comprehensive Testing Region for Cross-Border E-commerce designated by the Chinese government. Korea also needs to conduct discussions with China to facilitate customs issues in e-commerce. In the New Northern Region, Korea should maintain cooperation with Russia in the field of digital services and software, with both countries developing research initiatives and expanding training programs for young researchers. In the New Southern Region, Korea can concentrate its capabilities for cooperation on SMEs and workers to strengthen the digital infrastructure. Establishing preemptive collaboration channels for digital trade between Korea and India would benefit both countries. In Africa, Korea should pursue digital trade policies targeted to the growing need for digital infrastructure, digital technology, public services, and labor force development.In regard to climate change, Korea should promote cooperation in such industries as energy transformation and transportation, areas where the EU is also focusing on within its carbon neutrality policy, as well as facilitate the dialogue channel of cooperation with the EU to back up this promotion. Korea also needs to maintain its position in the follow-up discussions to implement the Paris Climate Agreement while communicating closely with the EU.In the area of low carbon technology cooperation with the U.S., technological cooperation related to clean energy initiatives, energy efficiency, and carbon removal – which both countries share common interests and are competitive in – could be promoted first. In addition, Korea can also suggest cooperation in areas where the U.S. has global competitiveness, such as adaptation to climate change.In order to identify cooperation areas and facilitate multilateral cooperation with the New Southern Region, Korea needs to identify the policy interests and current status of dialogue channels in this area. With ASEAN, Korea needs to continue utilizing dialogue channels such as the Korea-ASEAN Dialogue on Environment and Climate Change. With respect to India, Korea needs to establish a regular high-level dialogue channel and identify specific cooperation demands.In the area of health cooperation, Korea needs to overcome the limits of existing international cooperation systems by establishing new international organizations such as an international pandemic treaty. This new organization will have the function of assisting production of vaccines, therapeutics, and equipment for diagnosis and personal protection as well as establishing more effective distribution systems for medicine and medical supplies.In order to respond more effectively to the crisis of infectious diseases in the future, it will be necessary to amend the related provisions within WTO agreements, since the production and distribution of medical supplies lies also in the area of international trade. More specifically, particular situations or conditions will have to be defined when the relevant TRIPS clauses can be exempted.The fundamental solution to the pandemic is technological innovations in the area of medicine manufacturing and increase of production amounts. In this context, Korea should place more of an emphasis on its current project to establish a global vaccine hub. A cooperation system must be established to co-utilize personnel and facilities through a consortium with companies in the U.S. and Europe.With regard to development cooperation in Asia, the need to differentiate cooperation types, methods and areas has already been pointed out. As a specific action plan, for example, Korea can cooperate with assisting ICT-based hybrid infrastructure projects such as smart city and smart water control to medium-income countries such as Vietnam, Indonesia, and Philippines. Meanwhile, to low-income countries such as Laos and Myanmar, assistance should be provided to establish basic social infrastructure mainly in the form of ODA.For development cooperation with the African region, systematic cooperation among the ODA-implementing entities is crucial. A good example is the Muhimbili University Hospital project in Tanzania. Korea could also consider promoting utilization of development finance, for the purpose of supporting private sector development in the region.In the Latin American region, Korea should explore plans to participate in large-sized energy projects by co-financing with the MDBs, since such countries as Columbia, Peru, and Bolivia are currently pursuing energy transformation initiatives.
현안대응자료 요약 모음집(2021 하반기)
KIEP Date 2021.12.31DownloadContentSummary
Changes, Challenges and Implications of Fiscal and Monetary Policy Directions in the Post Pandemic Era
COVID-19 has changed the way of our lives since it started emerging as a pandemic early 2020. The global public experience of masks and social distancing will leave a trauma, and eventually work as a main driver for us to reconsid..
Sungbae An et al. Date 2021.12.30경제성장, Economic cooperationDownloadContentSummaryCOVID-19 has changed the way of our lives since it started emerging as a pandemic early 2020. The global public experience of masks and social distancing will leave a trauma, and eventually work as a main driver for us to reconsider and improve our system. The need for change becomes even bigger as the pandemic continues beyond initial expectations. With that, we are now entering the era of the great transformation.Against this backdrop, this study focuses on examining the policy environment changed by the COVID-19 pandemic and analyzing the point to be considered when implementing future fiscal and monetary policies.By examining the similarities and differences in fiscal and monetary policies compared to the 2008 global financial crisis, the path of recovery after COVID-19 can be understood. The characteristics of major countries’ policy responses to this crisis are that short-term responses were quickly introduced, and mid-tolong-term responses for economic structural change are being made in various ways.The initial economic downturn caused by the COVID-19 pandemic did not stem from the frictions in demand, but rather the impact on the supply side, such as labor supply restrictions due to regional blockades. Responding to supply shocks with only accommodative monetary policy can lead to stagflation. Meanwhile, as the demand for services such as tourism sharply decreased due to the local lockdown, the economic damage was aggravated. Fiscal expenditures to relieve the economic damage followed in this situation. Disaster subsidies and selective support for small and medium-sized businesses were quickly implemented.The mid- to long-term response in major countries is focused on investment in physical and human infrastructure for digital transformation and green transformation. A large-scale longterm investment plan of a decade is being drawn up among concerns over financial soundness. Thus, the political controversy can be expected to continue until public investment schemes are confirmed.The effects of fiscal spending by major countries are analyzed using the time-varying structural vector autoregressive (TVSVAR) model. Using quarterly data from 14 countries since 2000, we examined how the multiplier effect of net tax and government consumption on gross national product changed over time, comparing before and after the COVID-19 crisis.The effectiveness of fiscal policy was found to vary by country and by means of fiscal policy. This means that careful consideration of national characteristics and policy measures is necessary for efficient fiscal execution. When examining the additional effects of fiscal policies during the COVID-19 crisis, an additional stimulus effect of net taxes, that is, a relatively low crowding out effect, was found in most countries. On the other hand, there was no additional stimulus effect evident in government consumption. It seems that the transfer payments as part of net taxes such as disaster relief funds have been effective. On the other hand, it was also found that the multiplier effect of fiscal expenditure decreases when a quarantinetype policy that restricts face-to-face economic activities is implemented. Therefore, when introducing a policy that strengthens the quarantine level, it is necessary to consider a more active fiscal policy.Unconventional monetary policy has been introduced following the global financial crisis. The policy goal of economic stimulation could not be attained despite continual policy rate cuts, which were eventually limited by the zero lower bound. In such a situation, an alternative measure to tuning the short-term interest rate was introduced. Managing quantity variables rather than a price variable became more popular. Such measures include asset purchase, simultaneous engagement of long- and short-term markets, the preemptive announcement of future rate targets without spot market intervention, and direct interventions on targeted markets. More specifically, these non-traditional monetary policy measures were implemented as negative interest rates, forward guidance, yield curve management, quantitative easing and credit policies. These policies implemented after the global financial crisis turned out to be effective and significant.As the pandemic shock involves both supplyside and demand-side elements and an unprecedented scale of fiscal expenditure has been implemented, assertions are raised that the central bank should consider more aggressive policies such as helicopter money schemes or monetary financing. The United States is expected to achieve a fast recovery through vaccination and large-scale fiscal spending, and then take a path to normalize its differentiated monetary policy in order to respond to inflation. On the other hand, there still remains a possibility that additional policy measures will be required with limited policy space due to the prolonged pandemic.Changes in the monetary policy framework, such as the introduction of the average inflation target (AIT), have a long-term effect on the expectation formation of market participants and are reflected in economic activities, so it is necessary to understand and forecast these trends.When uncertainties increase in major advanced countries such as the United States, capital flows and macroeconomic variables of neighboring countries are affected. In a situation where omni-directional policies are implemented in response to the spread of COVID-19 and economic slowdown, expectation shocks such as elevation of policy and financial uncertainty are highly likely to intensify and generate a riffle effect on capital flows.Based on the finding of this study, the following policy suggestions can be delivered.First, it is necessary to consider strengthening inclusiveness in short-term policy measures. Major countries have introduced liquidity assistance programs that encourage selective lending to small and medium enterprises (SMEs). In Korea, a wide range of financial support for self-employed and SMEs has also been introduced, but the predetermined amount of funds is distributed through financial institutions whose incentives are vague. In the case of Japan and China, a price-based approach is employed so that individual financial institutions are given incentives, such as interest rate subsidies to secure funds through the market. In order to strengthen inclusiveness, it is necessary to consider introducing incentive-based policies reflecting market functions.Second, the timeliness and effectiveness of investment for structural improvement should be considered. Globally, the mid- to long-term restructuring is focused on digital and green transformations. The Digital New Deal and Green New Deal, which are the focus areas of the Korean New Deal, are in line with global trends, and it is necessary to refer to the lessons learned from past policy experiences. As expectations on digital transformation emerge, an asset price bubble forms, especially among major tech companies. Therefore, policy makers should be careful when sending out signals to the market on their evaluation of current market conditions and future policy directions. In addition, risk management for moral hazard related to government support on venture enterprises is also required.Green transformation lies in the growing public interest in environmental issues and the growing awareness of the need to respond to climate change. The starting point is slightly different from digital transformation, which uses new technology to enhance convenience and productivity in life. Green transformation is motivated by the fear of a major disaster in the future. As such policies are unlikely to receive long-term attention, as is the case with awareness and response to crises in general, the policy authorities need to pay special attention to achieve apparent goals.There is great uncertainty about government investment in a period of new technology transition, and at the same time, it is highly likely to cause moral hazard in the market. Rather than providing direct support to businesses and universities, the government R&D might be used to fund research infrastructure on a scale that the private sector cannot. In the case of direct investment and support in the private sector, it is necessary to evaluate the timeliness of projects and closely monitor effectiveness.Third, a plan for medium-term fiscal consolidation should be prepared for sustainability. Although the pandemic is prolonged and uncertainty remains about the arrival of the postcoronavirus, the fiscal burden aggravated as a result of the short-term response may be normalized through fiscal consolidation in the future. However, it is worth noting that concerns about an increase in national debt have been raised in Korea even before the COVID-19 crisis. There is a structural effect where the proportion of the welfare budget increases due to increasing inequality and aging population. Of course, it would not be difficult for Korea to secure fiscal soundness as it has a low tax burden compared to major countries, and thus has sufficient fiscal space. However, in order to secure fiscal soundness, it is necessary to expand the tax base, which could invoke strong tax resistance and requires a political solution.Fourth, it is necessary to pay attention to the path to normalization taken by U.S. monetary policy. The Federal Reserve is expected to actively use forward guidance in the process of normalization in the future. Moreover, policy uncertainty has increased due to the lack of details on operation plans for the newly introduced AIT. When implementing monetary policy in Korea, it is necessary to reflect the impact of the policy uncertainty of the United States on neighboring countries. Monetary policy normalization requires close monitoring, as the financial imbalance may increase through the asset market channel.Meanwhile, asset prices have risen sharply due to abundant liquidity supplied globally during the pandemic. As the real estate market overheated in Korea, mortgage loans increased rapidly, which led to a sharp rise in household debt and regulations on total loan volume to limit the growth of household loans. Above all, it is necessary to prepare policy measures to maintain the soundness of the loan itself and, in particular, keep the volatility of collateral assets low.Fifth, efforts for international cooperation are anticipated in relation to infectious diseases and the great transformation. At this point, the need for international cooperation on infectious diseases cannot be overemphasized. In particular, all parties must work together to prevent short circuits at nodes on the global supply chain by increasing vaccine penetration in emerging countries. Securing financial resources is not the problem of a single country, but a global one. While many agreements have been reached as the Biden administration returns to international cooperation, concerns remain about the continued leadership of the United States. In particular, as the pattern of the U.S.-China conflict has become more sophisticated and the embers of national priority remain, this can act as a negative risk. The Korean government should clearly recognize the uncertainty in international cooperation and prepare an external strategy.
Major changes in economic system in the post-corona era: Focusing on climate crisis, digital platform, human resources and fiscal sustainability
This study reviewed what kind of institutional improvements are needed in the following four areas amid the changes in economic conditions that are accelerating due to the COVID-19 crisis.First, theoretical analysis was carreid ou..
Deokhyeon Ryu et al. Date 2021.12.30Economic reform, Economic developmentDownloadContentSummaryThis study reviewed what kind of institutional improvements are needed in the following four areas amid the changes in economic conditions that are accelerating due to the COVID-19 crisis.First, theoretical analysis was carreid out to reflect the principle of equal rights and historical responsibility in the allocation of obligations between countries to reduce greenhouse gas emissions, which is likely to become a fundamental constraint on future economic activities. Specifically, four apporached were reviewed and compared with the Kyoto Protocol: equal distribution per capita (EPC), historical equal distribution per capita (HEPC), proportional distribution (EPE), and proportional distribution (HEPE) per capita. As a result, a large gap between Kyoto Protocol and the HEPC principle, which is satisfies the principle of minimum equality (‘if historical and BAU responsibilities are the same, everyone should be guaranteed equal rights to common resources regardless of their country of origin’) and historical responsibility (‘standard that all countries are free from historical responsibility’). Existing international agreements such as the Kyoto Protocol were found to be most similar to the EPE, which respects vested interests and does not consider historical responsibility. Korea, which achieved rapid growth in a short period of time, has a very low historical responsibility compared to other advanced countries. Therefore, it is between the position of a developing country that demands historical responsibility and the position of a developed country that demands vested interests, and there is an advantage of being able to adopt a flexible strategy between the two sides in the climate agreement.Second, we reviewed how to establish competition rules in the field of online platforms, whose importance in economic activities has dramatically increased during the COVID-19 crisis. It was concluded that ex post regulation on a case-by-case is desirable considering and that ex-ante and non-discriminatory regulation can hinder competition and innovation activities. Online platforms have the characteristics of a multi-faceted market that can lead to a winner-takes-it-all market, but in reality there are factors that can offset such a tendency. In order to effectively implement such regulations on a case-by-case basis, it is necessary to revise the review guidelines reflecting the characteristics of the online platform and to upgrade the economic analysis method. To this end, it is necessary to actively refer to the economic analysis methodologies developed for online platforms, in particular, academic studies and judgment cases on market definition methods, and the price increase pressure analysis method, which is measures competition restrictions in business combinations. In addition, measures such as disclosure of data for pre-monitoring or shifting the burden of proof may be considered in order to perform monitoring and regulation more effectively.Third, taking into account the accelerated spread of new technologies due to Corona 19 crisis, the necessary policy tasks were reviewed to respond to the advancement and fluctuations in skills required in the labor market due to the progress of the 4th industrial revolution. The conclusion of a comparative review of the current system of Korea and major foreign countries is as follows. ① Administrative, financial, and integration of the higher education and lifelong education functions of the Ministry of Education and the vocational training functions of the Ministry of Employment need to be integrated. Also in major foreign countries, government agencies in charge of adult competency development are dispersed among the Ministry of Education, the Ministry of Employment and the local government. However, it is observed that there is a key institution that plays the role of a control tower for adult competency development policies. ② The academic system should become more permeable so that universities can play a key role in the lifelong competency development system. Currently, the university’s undergraduate system is mainly designed for full-time students in their mid-20s. It is necessary to reorganize the university’s academic system so that universities can expand from educational institutions for full-time students in their 20s to lifelong educational institutions that cover the needs of adults for lifelong ability development. ③ A personal learning account system that financially supports people’s lifelong ability development should be introduced. Personal support for skill improvement has been focused on low-skilled workers so far, but in the era of the 4th industrial revolution, the need for skill development will expand to middle-skilled workers and above. Therefore, it is necessary to devise a personal learning account that accumulates a certain amount of support for individuals to use for skill development throughout their lifetime. ④ Labor reform that strengthens the upward mobility of the labor market is necessary.Fourth, an international comparison was made on the ability to bear national debt and its implications were drawn. It is important to check whether the debt is repayable with revenue, that is, the condition that it is sufficiently possible to repay interest through revenue so that it is not necessary to cover it with another debt to pay interest. Considering this, the credit default swap spread (CDS) was selected and analyzed as an indicator of fiscal sustainability. The estimation of regression models to explain CDS as a function of various variables showed that, in addition to the ratio of national debt to GDP, the maturity structure of government bonds, the ratio of short-term government bonds, and the ratio of foreign government bonds were important factors. The result implies that the national debt-to-GDP ratio is one of the important indicators to be considered in fiscal management, but it is not appropriate to overly emphasize the ratio or insist on a specific level of it.
Moderately Prosperous Society in All Respects: An Economic Study of Chinese People’s Quality of Life
China’s per capita GDP surpassed $10,000 in 2020 as a result of its rapidly conducted 40 years of opening and reform (gaige kaifang). The Chinese government emphasized that Chinese people all moved above the “absolute poverty le..
Wonho Yeon et al. Date 2021.12.30Labor market, Chinese social structureDownloadContentSummaryChina’s per capita GDP surpassed $10,000 in 2020 as a result of its rapidly conducted 40 years of opening and reform (gaige kaifang). The Chinese government emphasized that Chinese people all moved above the “absolute poverty level” in 2021 and announced that it has achieved a Moderately Prosperous Society in All Respects (quanmian xiaokang shehui). In contrast to Deng Xiaoping’s original proposal, which sought to escape absolute poverty. the proposal to build a Moderately Prosperous Society in All Respects, set forth in 2002, aims to resolve both absolute poverty and relative poverty for social cohesion. This is also evident from the Chinese government’s official checklist.In light of this, Chapter 2 examines the definition, indicators, conceptual change, and development of the Chinese government’s “moderately prosperous society,” and evaluates China’s moderately prosperous society in all respects by comparing the quality of life in various nations. In particular, from the perspective of China, this research investigated the change in the quality of life of Chinese people using the white paper “China’s Epic Journey from Poverty to Prosperity.” Also, from a global perspective, we compared the quality of life in China and major countries with the UNDP’s Human Development Index (HDI) and the UN’s Happiness Index (HI). In terms of eradicating poverty, the quality of life for Chinese citizens appears to have been improved in general. However, China is still yet to reach its target in some areas, including the average number of years of education and productivity per capita. In addition, in terms of social integration, the gap in Chinese society has widened further. Based on the analysis framework presented by the OECD’s Better Living Index (BLI), in terms of income inequality, wealth inequality, and fertility rate, it is hard to conclude that China has achieved its own set of goals.Within the general framework laid out in Chapter 2, Chapter 3 investigates the quality of life of Chinese people by analyzing the Chinese Family Panel Survey (CFPS) data from 2012 and 2018. Our study discovered that the rapid income growth of the Chinese people has raised life satisfaction, solved fundamental concerns of livelihood, and lowered the Engel’s coefficient in China. However, this has also made Chinese people become more interested in social problems. Today, Chinese people worry about China’s difficulties with education, environment, healthcare, and social security far more seriously than they did in 2012. In fact, during this time, the gap in personal income between urban and rural areas, the eastern coast and the western interior, males and women, and those with high and low levels of education expanded. Our research also revealed that the income disparity below the median income level has been getting worse in terms of household-level income and consumption. Additionally, the cost of housing more than quadrupled between 2012 and 2018, which makes the problem highly likely to aggravate in the future. Assortative matching between people whose incomes are homogeneous has been proven to occur in cities, where the level of inequality is further exacerbated. The situation in which increasing inequality and assortative matching among households occur simultaneously is a serious social problem in that the gap between the rich and the poor can be transferred to the next generations.The intergenerational study we conduct in Chapter 4 reaffirmed the likelihood that China’s inequality problem will be passed down from generation to generation. In particular, not only the inheritance of tangible assets like wealth but also the inheritance of intangible investments like education are expected to worsen China’s inequality issue. In addition, in Chapter 4, we developed a new economic model to analyze and explain the conflicting phenomenon of improving income inequality in cites at individual level and the expansion of income inequality at household level. Household level inequality appears to be growing as a result of the assortative matching, which refers to the marriage among similar income and educational attainment levels. This suggests that, from a dynamic perspective, the passing down of wealth and education between generations may cause China’s inequality problem to worsen and eventually develop into a permanent problem.The final chapter, along with the overall summary of this report, provides key implications. In particular, based on our findings presented in previous chapters, we tried to explain why the Chinese government took “common prosperity (gongtong fuyu)” as a new task after the declaration of achieving a moderately prosperous society in all respects, what “common prosperity” actually means, and predict the major tasks for the Chinese government. The Chinese government aims to address the problem of relative poverty by resolving the economic and social inequality that has accumulated since reform and opening up (gaige kaifang), and furthermore, to improve the quality of life at a higher and multidimensional manner. In August 2021, the Chinese government announced the six major directions for common prosperity: improving balanced, harmonized, and inclusive development; expanding the middle and upper-middle-income class; strengthening basic public services; tightening regulations for overly high incomes; promoting spiritual prosperity; and promoting the common prosperity particularly in rural areas. From now on the Chinese government’s policies can be expected to focus on the areas of: ① forming a middle class by resolving inequality, and ② improving the quality of life by solving social problems such as medical care, education, marriage, and childbirth.When considering the difficulties associated with resolving inequality in China, the Chinese government is likely to tighten regulations to protect the relatively weak. For example, in 2021, the Chinese government implemented a series of regulations on internet platform, real estate, private education, and entertainment businesses.These regulations seem to be highly related to keywords such as “relative inequality” and “common prosperity.” As the recovery trajectory from the COVID-19 pandemic appears to be K-shaped, it is believed that aforementioned industries are taking unfair profits by putting pressure on households and became the subject of government regulations. While various regulations are expected to be implemented when “common prosperity” policies are fully promoted in the future, we will be able to predict the areas of interest and regulation of the Chinese government based on an objective understanding of the current Chinese society. This is why we have conducted this research, which can help us to understand changes in the Chinese government’s policy stance, to analyze opportunity and threat factors, and to establish a new strategy for China.