Recently, the production processes from material procurement to marketing have been split up into many stages and the value added from the production was divided among various countries. In other words, the global value chain has deepened, thereby changing the trade in goods to trade in tasks.
Therefore, we need to approach the international trade in terms of value added rather than gross value. This study investigates the share of employment and value added of each industrial sector, utilizing the World Input-Output Tables and the Socio-Economic Accounts.

In the Korean case, notably, the employment share of the industrial sector has changed rapidly, compared to exports and the value added. When we analyze the correlation among export, employment, and value added, it turned out that manufacturing export and employment are correlated by -0.82 which is statistically significant. However, the correlation between export and value added is not statistically significant, while the statistical relationship between value added and employment is not supported by the data.

This study also analyzes the effects of final demands such as export, investment, and consumption on the value added, based on Meng et al.(2006), WTO and IDE-JETRO (2011), Stehrer (2012), Stehrer et al.(2012). The results indicate that the share of value added induced by export to the total value added has increased since 1996, while the value added inducement coefficient of export has decreased consistently.
When we investigate the effects of final demands such as export, investment, and consumption on employment, it yields similar results to the value added. It turned out that the share of employment induced by export to the total employment has increased steadily, while the employment inducement coefficient of exports tended to decrease during the period from 1996 to 2009.

Utilizing a plant-level panel dataset on Korean manufacturing, this study estimates the effects of exporting on the relative employment and wage of the skilled workers, as well as on the absolute levels of employment and wages of the skilled and unskilled workers. We find clear evidence that exporting increases the employment and wages of both skilled and unskilled workers, which implies labor reallocation from less productive, domestically-oriented producers to more productive exporters.

More importantly, we also find that exporting increases the relative demand for skilled workers. Specifically, exporting is found to increase both the relative employment and wage of the skilled workers, with the former effect more pronounced than the latter. The results found in this study are broadly consistent with the view that trade liberalization brings about not only benefits but also costs: the increased disparity between skilled and unskilled workers in the labor market outcomes.

This study also investigates the determinants of trade in value added, after analyzing the trade in value added of 40 countries and 35 industries contained in the World Input-Output Tables. Specifically, it incorporates the gravity model, the Heckscher-Ohlin model, and the Ricardian model to explain bilateral trade as a dependent variable. It applies the panel data methodologies including the least squares dummy variable, the unequally spaced panels with AR1 disturbances, the Heckman's two stage approach, and the Poisson Pseudo Maximum Likelihood.

The empirical results indicate that the test statistics have improved substantially when we take into consideration trade in value added as a dependent variable, compared to trade in gross value. It is because the gravity model was used to include the GDP into the right-hand side of equation as an explanatory variable. The net value such as the GDP can explain the value added better than gross value.

According to the results for Korean trade, the higher the share of high-skilled persons to the total employment is, the more the trade in value added tends to increase. In addition, the medium-skilled products turn out to occupy a greater portion of the current Korean trade than the high-skilled products, while the share of value added to trade tends to decrease steadily.

This study provides the following policy implications for the Korean economy. First, Korea needs to prepare employment policies that considers the fact that the effects of trade on employment may differ by the skill levels of labor. Second, Korean export strategies need to focus on the products with a high share of value added, strengthening the competitiveness of material and intermediate goods in case of the industries with a low value added inducement coefficient. Third, the globalization process in general strengthens the case for active labor market policies, such as re-training and re-education, in order to ease the adjustment burden of those who become unemployed. Fourth, it is also necessary to strengthen, and improve the effectiveness of, the social safety net in general. This approach is considered to be better than strengthening the trade adjustment assistance (TAA) program, which target only workers displaced by FTA-related increased import competition, and hence discriminates against those who become unemployed due to other causes. Finally, given the interdependence among exporting, innovation, skill upgrading, and the disparity between skilled and unskilled workers, the policies related to the employment and  technology development at the industry level, in particular, should be closely linked to the strategies aimed at upgrading the trade in value added.

Acknowledgement

Notes on the Contributors 

1. Practices of Korea’s Development Cooperation and Their References to China / Mao Xiaojing
Introduction 
An Overview of Korea’s ODA  
Management of Concessional Loans  
Training Program 
Aid Evaluation 
Conclusions 
References 

2. Beyond the Miracle of the Han River: Some Pro-Growth Philosophy in Korea’s Rural Development: The Saemaul Movement and Africa’s search for Agricultural Stimulation  / Ivor Agyeman-Duah
Introduction 
Korea: A Brief Historical Transition.  
Cultural Definition and Review Arguments. 
Agriculture in Korea, the Saemaul Movement and CulturalPhilosophy
Objectives of the Movement. 
Successes of the Movement 
Cultural or Philosophical Factors to Success 
Is the Movement Adoptable to Africa? 
Conclusion 
References 

3. Building Trans-Pacific Economic Partnerships: The Case for a Mexico-South Korea Free Trade Agreement / Juan J. Palacios
Introduction 
Trans-Pacific Trade Liberalisation: The Thrust of Binding Agreements 
Mexico’s and South Korea’s Trade Policies 
South Korea’s FTA Policy 
Economic Intercourse between Mexico and South Korea
Investment 
The Long Road toward a Mexico-South Korea FTA 
Assessing the Trade Potential between Mexico and South Korea 
The case for a Mexico-South Korea FTA 
References 
Appendix 

4. Trade and Investment Potential among BCIM Countries: Prospects for a Dynamic Growth Quadrangle / Mohammad Masudur Rahman
Introduction 
Rationale of the Study 
Current Status of Trade and Investment Flows among the Member Countries 
BCIM Trade Potential - A Gravity Analysis 
Challenges Facing the BCIM Countries 
Conclusion 
References 

5. 21st Century Global Economic Governance: Evolving Architecture, Emerging Issues, and Asia’s Role / Srinivasa Madhur
Introduction 
Evolving Institutional Architecture
Emerging Issues  
Asia’s Potential Role  
Converting Asia’s Potential into Reality: The Challenges Ahead 
Conclusion  
References 

6. Strategic Materials, Scarcity, Conflicts: A Geopolitical Approach / Stefania Paladini
Introduction: Scarcity and Conflict in XXI Century 
A Geopolitical Approach to Resources Management  
Conclusion 
References 

7. European Development Policies at the Crossroads / Wolfgang PAPE
Introduction  
Individual EU Member States’ Policies 
European Commission 
Conclusions 

8. Economic Integration of Russia, Belarus, and Kazakhstan and Tax Harmonization / Olga Shuleiko
Introduction 
Regional Integration as a Framework for Tax Harmonization 
Customs Union of EuRasES: What Changed? 
Tax Policy Issues in the Context of Common Economic Space 
Conclusions
References 

9. Egypt’s International Competitiveness: A Product Level Analysis / Hossam Younes
Introduction 
Market Shares of Egyptian Exports and Constant Market share Analysis Methodology 
Conclusions 
References 

10. The Influence and Countermeasures of Population Aging on the Economic and Social Development: Based on the Comparison between South Korea and China / Tan Yongsheng
Introduction 
Body 
Conclusions 
Reference 

11. Value Premium and Institutional Ownership in Chinese Stock / Jiyoun An, Kin-Yip Ho, and Lanyue Zhou
Introduction 
Background 
Hypothesis Development 
Methodology and Data  
Estimation Results 
Discussion and Conclusion 
References 

12. Influence of Transportation Corridors Across Yellow and Bohai Sea on the Economic Cooperation and Development in NAIR / Xiang Aibing

The Korea Institute for International Economic Policy (KIEP) was founded in 1989 as a government-funded economic research institute. It is a leading institute focusing on international regional studies with strong cooperative relationship with the world’s leading research institutes. The Center for Emerging Economies Research (CEER) has been enforcing visiting fellows program since 2008 in an effort to vitalize exchange among internal and external institutions and enrich competence in regional studies. This program cultivates close network and promotes cooperation through sharing of research outcomes and information among eminent scholars and experts of regional studies. ‘KIEP Visiting Scholars’ Paper Series’ is an accomplishment of this program that enabled higher understanding of international regional studies.

This study reviews Mexico’s economic performance under NAFTA, focusing on the changes in major economic indicators, and particularly, employment and income before and after the inception of NAFTA. There have been a significant improvement in inflation, budget deficits, and exports and FDI, but not as successful as in the expansion of economic activity and employment during the post-NAFTA era. We find a source of Mexico’s economic problems today in a lack of its appropriate domestic development policy. We also draw some implications for Korea’s future trade policy from the experience of Mexico under NAFTA.

Executive Summary

I. Introduction

II. Overview of Triadic Sanctions

III. A model of triadic sanctions
1. A Stage Game
2. An infinitely repeated sanction game

IV. US-Iran Sanction
1. Evolution of the US-Iran Sanction
2. Insights from the game theoretic Analysis

V. Conclusion

Reference

This paper presents a work-horse model to analyze the mechanism of triadic sanctions, where the receiver of the sanction is not the actual target. With a motivating example of the US sanctions against Iran and a simple game theoretic framework, we show that the threat of such sanction is not credible in situations where the game ends after single stage, or when the entities are not concerned with future transactions amongst each other. In a repeated game setting, on the other hand, the threats become credible, but the level of enforcement would differ across firms/countries depending on the economic interdependency and how the parties perceive the probability that the games would continue to the next period.

About the Editors/Contributors  
Foreword  
Message / Wook Chae  
Message  / Woosang Kim  
Opening Remarks / Joong-Keun Kim  
Opening Remarks / Skand R. Tayal  
Speech / Sung-Joo Han  
Speech / Chulsu Kim  

Preface  

Introduction  

Section I  Recent Economic Trends
1.  Korean Economy in Transition Toward an Advanced Economy:  Prospects and Challenges / Choong Yong Ahn and Kyttack Hong  
2.  The Indian Economy: Recent Trends and Prospects / D.K. Srivastava  

Section II  Trade Prospects and Non-Tariff Measures
3.  India-Korea Trade and Non-Tariff Barriers / Nisha Taneja, Pallavi Kalita, and Swati Saluja  
4.  Two Years In: Achievements and Challenges in the Trade Sector of the Korea-India CEPA / Choongjae Cho  

Section III  Foreign Direct Investment
5.  Trends of FDI Flows into India and Korea / Chang-Ho Kwag  
6.  Investment in the Indo-Korea CEPA / Saon Ray and Neetika Kaushal  

Section IV  Services and Green Energy
 7.  Current Status of Indian Green Energy Industry and Cooperation between Korea and India / Hyun Jae Kim and Chankook Park  
 8.  The Role of Culture in Economic Activity and Exchange Parthasarathi Shome  

Section V  Global Security Issues
 9.  Rising Powers and Asia’s Stability: Strategic Convergence between India and South Korea / W. Lawrence S. Prabhakar 
10.  India’s Changing Relations with the United States and China / Sanjana Joshi  
11.  Four-Layered Security Cooperation between South Korea and India / Cheol Hee Park  

This volume edited by Parthasarathi Shome and Choong Yong Ahn brings together papers and speeches presented at the 10th dialogue. It analyses the Indo-Korea CEPA in terms of the flow of goods, services and investment as well as discussions for collaboration on other sectors that are under consideration between these two economies. It also identifies the possibility to improve the relationship between the two countries through a revision of a number of existing tariffs, non-tariff barriers related to trade and investment linked policies. We hope that this volume will enrich our understanding of Indo-Korea relations and contribute to more significant relations between the two countries.

This volume is a collection of presentations made at the KIEP international seminar, “Economic development strategy of China’s Eastern Coastal Region during the transition period” in November, 2011. The first part entitled, 'Industrial restructuring and sophistication', analyzed today's shifting industrial structure and concomitant problems in Liaoning, Jiangsu, and Zhejiang provinces. The second part entitled, ‘New growth engines by Regions,’ elaborates on regional economic development strategies and strategic industries in Guangdong, Shandong, and Greater Capital Economic Zone that includes Beijing, Tianjin and Hebei province. 

This latest volume contains analysis of economic development and current issues involving Chinas coastal regions, along with appropriate response measures for business people, researchers, and policy makers. It is expected that this collection will enhance our understanding and eventually promote greater cooperation with China.

 

2011 Summaries of Research Report

Message from the President
Mission and Brief History

I. Overview of KIEP's Projects
1. Overview of Projects
2. Affiliated Bodies and Research-Related Activities

II. Review of 2011 Projects
1. Research Trends in 2011
2. Basic Research Tasks

III. Research Plan for 2012
1. Research Plan for 2012
2. Basic Research Tasks

IV. Appendix
A Glimpse at KIEP
List of Publications (2011)

 

In 2011, those of us at KIEP had designated four main research topics we deemed most pertinent to current circumstances, and engaged in twenty major projects in line with those topics. These include negotiations for liberalization of the services market and other multilateral trade issues in response to WTO regime reforms and other changes in the world trading environment; economic cooperation in APEC and other regional issues; and current bilateral trade issues including free trade agreements. KIEP conducted research to address changes in the macroeconomic environment surrounding Korea, such as changes the internationalization of the Korean won as a result of Korea's increasing prominence on the international economic scene, and presented basic resource materials and provided directions to prepare for changes in North Korea. Policy responses to global inequalities in light of the current rapid transnational movement of capital were forwarded, in addition to measures to facilitate Korea's entry into foreign markets and attract foreign investment. In recognition of rising demand for research on the world's regions, KIEP did not limit itself to providing data on Korea's major trading partners such as the US or China, but made efforts to provide basic data on Central/South America and Africa that had hitherto been lacking.