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  • 중동부유럽으로의 EU 확대 평가와 향후 전망
    Enlargement of the European Union: Evaluation and Outlook

    This study assesses the previous enlargement of the EU and investigates the potential enlargement EU in the future. The European Union has established itself as a politically and economically integrated community in the European r..

    Yoonjung Kim et al. Date 2023.12.29

    Economic growth, Economic cooperation
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    This study assesses the previous enlargement of the EU and investigates the potential enlargement EU in the future. The European Union has established itself as a politically and economically integrated community in the European region, and it continues to evolve. The biggest change in the EU in the last two decades was the massive enlargement of the EU to the countries of Central and Eastern Europe in 2004, when eight Central and Eastern European countries joined the EU together at the same time. The discussion of EU enlargement, which has been stagnant since the last enlargement when Croatia joined the EU, seems to have been revitalized by the recent Russian invasion of Ukraine. As further changes in the EU are becoming increasingly visible, the purpose of this study is to draw implications for Korea’s future strategy to cooperate with the EU candidate countries. To this end, Chapter 2 provides an understanding of the EU’s enlargement process, and Chapter 3 lays the groundwork for future conjectures through an economic and political assessment of existing Central and Eastern European countries since their accession to the EU. In addition, Chapter 4 examines the prospects for the accession of the candidate countries through a diagnosis of their current economies and governance, and Chapter 5 examines Korea’s cooperation with the existing Central and Eastern European countries and the current status of cooperation with the candidate countries. We conclude with the prospects for further enlargement of the EU and policy implications for Korea’s future cooperation in Chapter 6 .

    Chapter 2 first examines the process of EU enlargement, the incentives for enlargement from the EU’s perspective and the incentives for membership from the member states’ perspective. We then discuss how the fulfillment of the Copenhagen Criteria, a prerequisite for EU accession, is assessed. According to these criteria, a country must meet three main requirements to be eligible to join the European Union. First, politically, democracy, the rule of law, and human rights must be guaranteed, as well as the respect and protection of minorities. Second, economically, it must have a functioning market economy and sufficient capacity to withstand competition within the European Union single market. Finally, it must have the administrative capacity to apply the acquis communautaire regulations, criteria, and policies of the European Union, including its objectives as a political, economic, and monetary community. The fulfillment of the Copenhagen Criteria is assessed through the EU’s negotiation process with the accession candidates on 35 policy areas (chapters). We provide an overview of EU enlargement, with examples of the main issues that may arise during negotiations and discussions of changes in the EU’s enlargement strategy following the recent Russian invasion of Ukraine.

    Chapter 3 analyzes the economic and political outcomes of EU enlargement, focusing on the existing accession countries. The economic performance of Central and Eastern Europe after enlargement is analyzed by focusing on macroeconomic variables, such as GDP, GDP per capita, trade share with the EU, foreign direct investment (FDI) inflows, current account changes, and industrial structure changes. The beta-convergence analysis, which looks at convergence across countries, shows that Central and Eastern Europe has been able to enjoy a catch-up effect based on its high economic growth rates since joining the EU. In this regard, we can cautiously conjecture a link between the significant increase in FDI inflows and the development of the manufacturing sector following EU accession and economic growth. On the other hand, in terms of convergence within individual countries, we observe income disparities in the economic centers of each country, suggesting that EU accession is not a panacea. In the case of political performance before and after EU accession in Central and Eastern Europe, the World Governance Indicator data shows that improvements in democracy and rule of law occurred during the accession process. Microeconomic analysis using Eurobarometer data shows that individuals with relatively higher regards of their subjective economic conditions and assessments of domestic democracy are likely to have relatively more positive perceptions of the EU. Also, individuals with perceptions that the EU as a community sharing common values or political solidarity can be associated with having relatively more positive perceptions of the EU. It is worth noting that the explanatory power of the variables for evaluating the EU differs between Central and Western Europe. A detailed analysis of the mechanism is beyond the scope of this study, but it is a topic worth exploring further in future research

    Chapter 4 analyzes the overall economic conditions and industry characteristics of the candidate countries, focusing on macroeconomic indicators, in order to provide a more detailed analysis of the candidates’ prospects for future accession, and to identify factors that may pose challenges in the EU accession negotiation process. Although there is no direct reference to the size of economy or the income level in the EU accession negotiations, countries with low income can have issues in satisfying the Copenhagen Criteria. In particular, we found the strong negative correlation between the income level of existing accession countries at the start of negotiations and the length of time for the negotiation to join the EU. This suggests that, given the current income levels of accession candidates, it will likely be a very long time before they finally join the EU. The candidate countries are also showing relatively weak state of governance compared to the Central and Eastern Europe at their time of accession, which implies that achieving the Copenhagen Criteria and adapting to the EU legal framework is likely to be a major challenge for the candidate countries. Nevertheless, based on the current state of negotiations and the analysis in Chapter 4, we conclude that Serbia and Montenegro are the most likely candidates to join the EU, while Ukraine, given its geopolitical specificities, is also a key candidate and will be discussed in more detail in this study. However, it is unlikely that the EU will be able to rush the accession process at a rapid pace, as this could lead to a weakening of integration and increased governance problems. In addition, as accession is ultimately decided by a unanimous vote, the possibility of reducing benefits for the existing beneficiaries of EU Cohesion Funds - the countries of Central and Eastern Europe - is likely to be a major issue. For the candidate countries, it may be very difficult to fulfill the EU accession conditions if their economic and governance levels are not significantly improved, and other factors such as territorial disputes stemming from historical issues and protracted discussions may weaken the incentives for the candidate countries to improve their governance

    Chapter 5 examines the changes in economic cooperation with Korea after the accession of Central and Eastern European countries to the EU and analyzes the economic cooperation between the candidate countries and Korea. We found that FDI from Korea increased around the time of accession of Central and Eastern European countries to the EU, and that these investments were mainly concentrated in Poland, the CzechRepublic, and Hungary to establish production bases within the EU single market by taking advantage of relatively low-cost labor. Trade between Korea and Central and Eastern Europe has also increased significantly since the EU enlargement, mainly in Central and Eastern European countries with relatively better governance. The investment and trade was concentrated in manufacturing, and the data shows that automotive and construction-related industries have entered the market. In the case of the major accession candidate countries, economic cooperation is not large in terms of trade or investment currently, but in the case of Serbia, it is gradually becoming more active. In particular, it is worth noting that Serbia has lower wages and a lower corporate tax rate compared to Central and Eastern Europe, and Montenegro is the most advanced candidate in the accession negotiations, although its trade with Korea is still minimal. In the case of Ukraine’s reconstruction project, which has received a lot of attention recently, it is necessary to consider cooperation with Poland, which is likely to be a basecamp of the reconstruction project. Forming strategic alliances with European companies that have established joint ventures with Ukrainian companies can be a recommended strategy for participating in the reconstruction project

    Chapter 6 combines the findings of the previous chapters to provide an outlook on the prospects for future EU enlargement and provides policy implications for Korean companies’ entry strategies in the accession candidate countries. At this point, it seems that it will take quite a long time for the candidate countries to join the EU, but nevertheless, the EU is increasingly adding momentum to the potential enlargement. In sum, it is necessary for Korean companies to proactively draw up strategies for entering the candidate countries in the medium to long term. Given Montenegro’s friendly relations with Serbia, it is necessary to take an integrated view of entering both countries. Since Croatia is expected to take on a large part of the shipping logistics previously handled by Slovenia due to their joining of Eurozone and the Schengen Area in 2023, the ripple effect is likely to affect Montenegro as a neighboring country of Croatia. Serbia is a candidate with relatively active trade with Korea and is considered the most likely candidate to increase trade and investment with Korea. Among the three candidate countries that we focus in this study, Serbia is more likely to take over the manufacturing role of Central and Eastern Europe in the future. We conclude that Serbia is a candidate country that should be considered for priority entry and cooperation. Ukraine’s case poses geopolitical uniqueness as Ukraine is currently at war. Due to the ongoing war and current security threats, EU accession is
    much more uncertain for Ukraine than other candidate countries. In addition, it is unclear when the reconstruction project, which has been attracting attention recently, will begin. It is crucial to utilize the existing cooperation with Poland and Korea to participate in the reconstruction project from a long-term perspective.
  • 북한의 관세 및 비관세 제도 분석과 국제사회 편입에 대한 시사점
    North Korea’s Tariff and Non-Tariff System: Implications for Its Integration into the International Economy

    This study comprehensively analyzes North Korea’s tariff and non-tariff regimes and suggests the direction of North Korea’s tariff and non-tariff regimes in the process of reform and opening up. The purpose of the study is to an..

    Jangho Choi et al. Date 2023.12.29

    Customs, North Korean economy
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    This study comprehensively analyzes North Korea’s tariff and non-tariff regimes and suggests the direction of North Korea’s tariff and non-tariff regimes in the process of reform and opening up. The purpose of the study is to analyze North Korea’s tariff and non-tariff systems to reveal the direction of the North Korean authorities’ trade policy, the structure and characteristics of the legal and institutional framework, and to identify priority reforms for the country’s future integration into the international economy. This study differs from previous studies in that it is the first to quantitatively analyze North Korea’s tariff rates system. 

    Chapter 2 examines the role of the legal system in North Korea and the history and purpose of the trade regime. North Korean authorities regulate tariff and non-tariff regimes through trade laws, customs laws, and tariff rate schedules. In North Korea, the guidance and policies of the Workers’Party take precedence over the law, but for the most part, the law governs the economy as a whole. North Korea’s customs law is similar to ours in that it aims to protect domestic industries, but it does not mention raising revenue through tariffs. In practice, however, North Korea’s tariff system appears to be used to raise revenue by absorbing foreign exchange held by private owners. One of the unique aspects of North Korea’s trade laws is that they are designed to ensure national security. This stems from the closed nature of the North Korean economy, which is designed to preventpolitical and economic influence from neighboring countries through trade, as well as the transmission of foreign cultures through imports and exports that could agitate the North Korean population and threaten the socialist system.

    Chapter 3 analyzes North Korea’s tariff rate structure and assesses its industrial protection and fiscal revenue effects. A key feature of North Korea’s tariffs is the low overall level of tariffs. The average nominal tariff rate was 5.5% and the average real tariff rate was only 4.6% based on the foreign exchange rate. Structurally, the tariffs have a sloping tariff structure with higher tariff rates depending on the level of processing, but the overall tariff level is still low enough to achieve the purpose of industrial protection. By product, the relatively high sloping rates on processed food and beverages and leather textile and haberdashery products in particular suggest an intent to protect light industrial consumer goods, but the tariff rate on these final products are not very high. While North Korea states that the purpose of its tariffs is to protect industry, there are many aspects of the tariffs that are inconsistent with North Korea’s 2005 industrial policy , known as the Military-first(Songun) Economic Policies. In terms of fiscal contribution, North Korea’s tariff revenue accounted for less than 2% of total fiscal revenue, suggesting that tariffs do not contribute much to the economy.

    Chapter 4 identifies policy and institutional factors that can be considered non-tariff barriers to the integration of North Korean trade into the international trade regime. The non-tariff barriers in the North Korean trading system can be broadly categorized into policy and institutional factors. Policy factors include the centralized governance system, the goal of building a self-reliant national economy, the qualitative strengthening of the national defense force, and the strengthening of the party-state system. To achieve, non-tariff measures arbitrarily restricted trade rights, items, and volumes. In terms of institutional elements, North Korea’s centralized trade system has identified a number of measures that can be perceived as non-tariff barriers in the entire process of trade, from planning, contracting, pricing, transportation, customs clearance, and payment. The role of North Korea’s non-tariff regime was to maintain the regime and implement state plans.

    Chapter 5 examines the historical changes in the tariff regimes of Vietnam and South Korea during their economic opening and development. Although South Korea and Vietnam had different economic systems before the reform and opening up policy, they experienced a similar increase in tariff rates in the early years of reform. The first increase in tariff rates occurred as a result of ‘tariffication’, where non-tariff barriers were converted into tariff policies, and the second increase in tariff rates for protected industries occurred as a result of the policy of differentiating tariff rates by industry sector for the purpose of industrial protection. In the early stages of North Korea’s trade system reform, tariff rates are naturally expected to increase as the country moves from a non-tariff to a tariff system, and tariff hikes to protect its industries are inevitable as it integrates into the international economy.

    Currently, North Korea’s tariff and non-tariff regimes are typical of Southeast Asian transition economies in the 1980s. Tariffs are low and fail to protect industries and raise government revenue, but the non-tariff barriers are high and serve to protect the economy. North Korea’s reform of its tariff and non-tariff regimes should consist of phasing out non-tariff barriers while raising tariff barriers to fill the gaps in trade regulations left by the removal of non-tariff barriers. To eliminate non-tariff barriers, the centralized trade administration system of trade should be abolished, the trade qualification approval system should be relaxed to limit trade to its own citizens, legal entities, and organizations, and the principle of building a self-reliant national economy should be revised to allow for integration into international value chains. In addition, North Korea’s unique logistics (transportation and ship-to-ship inspection) standards and inspection regimes, as well as trade payment methods should be harmonized with international standards. North Korea’s tariff rates should be systematically increased , with lower tariffs on raw materials and equipment in the early stages of reform, and higher tariffs on consumer and final goods.

    정책연구브리핑
  • 영-미 사례를 통한 미중 패권 전환 가능성 분석: 무역, 금융, 안보, 다자주의를 중심으..
    Analyzing the Prospects of U.S.-China Hegemonic Shift: Insights from Anglo-American Perspectives on Trade, Finance, Security, and Multilateralism

    There has been extensive research on the possibility of the change of the hegemonic leadership between the U.S. and China. When we take a look back the history of the modern international relations, we can recognize that there hav..

    Ihn-Hwi Park et al. Date 2023.12.29

    International politics, Political economy
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    There has been extensive research on the possibility of the change of the hegemonic leadership between the U.S. and China. When we take a look back the history of the modern international relations, we can recognize that there have been specific leader countries who played leadership roles within each international structural stage. This means the previous experience of the leadership change between the U.K. and the U.S. should tell us some meaningful lessons to prospect the possibility of the leadership change between the U.S. and China. The research starts from this research question.

    Simply speaking, it is impossible for China to play the role of the U.S. in the areas of ① trade, ② global finance, ③ military security, and ④ multilateralism. Firstly in trade, most of the nations in the current international society pursue to maximize there national interests with the current liberal international trade order. Most of the nations never understand China should play a role to initiate the future international trade order in terms of value, institutions, leadership, and followership even with the many structural problems of the current trade order. Secondly, China, in particular, has not prepared a global financial leadership in the perspective of ‘gold-standard system’ which is one of the most critical preconditions for the global financial leadership. It is also interesting to know that the total volume of the US dollar in the global financial market has been smaller than before, and the same time the portion of the Euro and the Yen got larger, not the Chinese currency.

    Thirdly, militarily speaking, the military power of each country is the accumulated outcome of all the factors including economic power, operational capability, human resources, overseas military bases, hi-tech technology, etc. China is far behind the U.S. in the means of all of these factors. Especially, China is not able to use all the military resources only to face the U.S. due to the long border lines with two nuclear powers, Russia and India, and the vulnerability of the geographic conditions of the 14 neighboring countries. Lastly, the two countries may engage relatively a close competition to initiate each own-centric multilateralism. But the Chinese self-oriented principles and world view could be a critical barrier to expand the idea of China’s world order, multilateralism, mutual interests, etc.

  • 기업결합과 혁신: 미국 디지털플랫폼과 경쟁정책을 중심으로
    Merger and Innovation: Focusing on the U.S. Digital Platforms and Competition Policy

    This study analyzes the impact of the large U.S. digital platforms such as GAFAM (Google, Apple, Facebook, Amazon, Microsoft) on their performance in terms of innovation and sales, focusing on their mergers and acquisitions (M&..

    Gusang Kang et al. Date 2023.12.29

    Competition policy, Intellectual property rights
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    This study analyzes the impact of the large U.S. digital platforms such as GAFAM (Google, Apple, Facebook, Amazon, Microsoft) on their performance in terms of innovation and sales, focusing on their mergers and acquisitions (M&A) activities targeting numerous small and medium-sized enterprises over the past 20 years. It also identifies ‘killer acquisitions’, where these platforms acquire innovative companies that could become potential competitors, thereby potentially reducing future market competition. The study provides insights and policy implications for the Korean Fair Trade Commission’s merger review process for digital platforms.

    Chapter 2 reviews the literature on the relationship between M&A and innovation and discusses the motives for M&A in the digital platform market, including ‘killer acquisitions’. Traditional M&A motives such as economies of scale and scope, acquisition of unique technologies or new distribution channels, and increased market dominance are contrasted with those in the digital platform industry, which include securing core assets like technology, processes, and intellectual property. Recent literature has raised concerns about ‘killer acquisitions’ that may reduce or eliminate future competition, although the definition of ‘particularly competitive future competitors’ and the limited pre-emptive merger policy pose challenges.

    Chapter 3 examines the types, characteristics, and status of M&As conducted by GAFAM, categorizing them into vertical, horizontal, and conglomerate mergers. Despite the unique characteristics of the digital platform industry, most M&As have been approved by the U.S. competition authorities. However, this has led to criticism of high market concentration. Recent arguments suggest the need to actively incorporate data characteristics in assessing the competitive restraints of M&A.

    Chapter 4 conducts an empirical analysis of the impact of digital platform M&A on firm performance. It examines how ‘killer acquisitions’ affect innovation performance, using patent applications and citations as indicators. The results show that killer acquisitions have a statistically significant negative impact on patent applications, suggesting potential negative effects on overall innovation performance. We also estimate the impact of digital platform M&A on the sales of both acquiring and acquired companies, and find revealing increased sales for the acquiring firms but decreased sales for the acquired firms.

    Based on these findings, Chapter 5 suggests the following policy implications: 1) using patent data and other metrics to evaluate digital platform mergers, 2) examining methodologies such as technology similarity indicators to identify killer acquisitions, 3) considering post-regulation rather than pre-regulation, and 4) shifting the burden of proof of market competition restriction from competition authorities to the digital platforms themselves.
    정책연구브리핑
  • 산업보조금의 글로벌 확산 현황과 시사점
    Proliferation of Industrial Subsidies: Current State and Its Implications

    The recent trade environment has not been favorable for Korea. Since 2018, the U.S.-China trade conflict has intensified, leading to more protectionist tendencies globally, and since 2020, the COVID-19 pandemic has led major count..

    Hyeyoon Keum Date 2023.12.29

    Trade policy, Subsidy
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    The recent trade environment has not been favorable for Korea. Since 2018, the U.S.-China trade conflict has intensified, leading to more protectionist tendencies globally, and since 2020, the COVID-19 pandemic has led major countries to build more resilient supply chains. As a result, subsidies have become increasingly important as a useful trade policy to address emergencies or market failures. But subsidies have the potential to distort trade and competition depending on who they target and how they are administered. And Korea, with its high trade dependence (96.8% as of 2022), can be particularly affected by the subsidy policies of its trading partners. However, the global proliferation of subsidies is likely to continue for the foreseeable future, and it is time to take a closer look at the current state of subsidy policies.

    In this study, I use statistics from the Global Trade Alert (GTA) database, which contains information on government intervention by country from November 2008 to April 2023, and the Corporate Subsidy Inventory, which contains information on subsidies only, to examine the status of industrial subsidies in detail. We also identify Korean industries that are associated with subsidies in major countries and analyze the trade changes of Korean industries before and after the implementation of industrial subsidy policies in major trading partners.

    During the analysis period, the number of industrial subsidy policies increased significantly globally. The number of subsidy measures increased from 92 in 2008 to 1,511 in 2021, with 147 policies announced in a four-month period in 2023. The country with the most industrial subsidy policies over the same period was China, with a total of 3,770, followed by the EU, the US, Canada, Japan, and India. Each of these countries' subsidy measures covered a wide range of products and industries and affected almost every country in the world, including Korea. Financial grants were the most common type of subsidy throughout the  period, accounting for 35.9% of all measures, followed by trade finance and state loans. In addition, tax or social insurance reliefs and production subsidies have been increasingly announced in recent years.

    Subsidies were reported in various manufacturing sectors, with the most relevant industry being HS84 (machinery), followed by HS85 (electrical equipment), HS52 (cotton), and HS87 (automobiles). In addition, there were many cases of subsidies in industries such as optical and precision equipment, plastics, and steel. Since 2018, HS84, HS85, and HS87 have been the most frequently subsidized industries. Since these are mostly industries where Korea is competitive in the global market or has a high proportion of exports, the more widespead the subsidy policies become, the more likely it is that Korea’s export industries will be negatively affected.

    China, the EU, and the U.S. were the major countries that used industrial subsidies during the period analyzed, but the number of subsidy announcements, the types of subsidies used, and the sectors with many subsidies differed somewhat by country. Of these major countries’ policies, the share of policies affecting Korea was 96.7% in China, 56% in the EU, and 50.9% in the U.S. In China, automobiles, machinery, pharmaceuticals, and semiconductors were the most frequently subsidized products; in the EU, environmental machinery, chemicals, and plastics; and in the US, rechargeable batteries and semiconductors.

    Based on the industrial subsidy announcements made by major countries (China, EU, and US) since 2018, we identified 280 export items and 281 import items at the 6-digit HS code level that particularly affect Korea. Both exports and imports were dominated by the machinery, electrical equipment, and automobile industries, as is the case globally. The results show that exports to the rest of the world are increasing, while the share of exports to major countries is decreasing. These results suggest that industrial subsidies in major countries may have a negative impact on Korean exports to these countries. Meanwhile, imports from major countries grew faster than imports from the rest of the world in terms of the average annual growth rate over the 2012-2022 period. However, since 2018, imports from major countries and the world as a whole have grown at similar rates. However, Korea is a significant importer of items that  major countries subsidize for their own companies, and if this situation continues, there is a possibility that domestic products may be replaced by imports from major countries.

    Based on the above analysis, this study suggests that the Korean government’s role in responding to the proliferation of industrial subsidies is to 1) lead international efforts to create a fair competitive environment, 2) expand channels of communication with major trading partners, and 3) establish effective policies to improve the competitiveness of Korean companies.
  • 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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    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.
  • 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.
  • 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.

  • 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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    Content
    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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