This book presents a detailed record and an in-depth analysis of the negotiations that took place within the G20 – the premier forum for international economic cooperation – to achieve historic outcomes on the IMF quota and governance reforms in the lead up to and at the G20 Seoul Summit in 2010. It captures the entire negotiation process that was adopted to shift quota shares and improve governance structure of the IMF, thereby enhancing its legitimacy, effectiveness and credibility. We, the authors, worked on the preparation of the Summit as working level staff and were privileged enough to get involved in one of the most successful multilateral negotiation processes in action. As such, we thought our experiences and analyses of the negotiation process might be helpful to others who may be involved in negotiation processes from time to time or carry out research on negotiations. So we decided to share our experiences and analyses by writing this book.

As the massive global financial crisis swept the world in 2008, one of the major tasks the G20 Leaders focused on at their first Summit in Washington was the reform of the international financial institutions. The G20 delivered its first concrete result in April 2009 when it agreed to increase the IMF resources by more than 500 billion dollars at the London Summit. Then, in Pittsburgh in September 2009, the G20 Leaders further agreed to shift at least 5 per cent share of the IMF quota to emerging market, developing and under-represented countries and undertake governance reforms. But making promises was the easy part. Delivering on them required a lot of hard work and careful negotiations. That’s why when these commitments were finally delivered at the Seoul Summit in November 2010, people said it was the most comprehensive reform in the history of the IMF. While it took many years of negotiations to achieve this result, the book mostly focuses on the negotiations that took place between the Pittsburgh Summit and when Korea hosted the G20 Summit in Seoul.

Shifting IMF quota shares amongst countries is a zero-sum game. If one country wants its quota share increased, it cannot be achieved without a corresponding decrease for some other countries. That is why the IMF quota share reform process was so arduous. Although the 2010 IMF reform was agreed in almost record time, when compared to past agreements, it too was a rough journey consisting of many formal and informal meetings, disagreements and, at times, complete stand-offs in the course of negotiations. This book meticulously records and analyzes the whole 2010 IMF reform negotiation process. But rather than provide a witness statement in a chronological order, the authors divided up the negotiation process into four stages – preparation, exploration of negotiation strategies, actual negotiation and settlement – and evaluated what happened in each stage against a theoretical framework for multilateral negotiation. In addition, the IMF’s major functions, structure and role are explained throughout the book. The authors adopted this approach to enhance readers’ understanding of the issues and provide meaningful insights to those who may have to go through similar negotiation processes in the future.

Finally, the book does not record or evaluate Korea’s role as one of the participants of the negotiation. Rather, it records and evaluates its role and position as the chair country of the G20. However, the book is not an official record or assessment of the implications and achievements of the Seoul Summit.  Official records and assessments can be found in the White Paper published by the Presidential Committee for the G20 Summit. This book was written by working level staff to complement the White Paper by focusing on technical aspects of negotiations and providing lots of firsthand experiences with the negotiation in the form of anecdotes.

In conclusion, we the authors hope that this book will enhance readers’ understanding of the IMF quota and governance reforms, but at the same time provide good insights to general procedures and characteristics of international negotiations. We look forward to it being used as a practical guide for other negotiations in the future.
 

 

This study aims to analyze the productivity spillover effect of inward foreign directive investment in Korea by FDI mode and present some policy implications to improve the policy in order to increase FDI into Korea. To overcome the limitations of previous studies on this subject, a dynamic panel model is set up in this study using the System Generalized Method of Moment (System GMM) with the aggregated FDI data by industry and by mode, i.e. Greenfield-type and M&A-type FDI.
This study shows that inward FDI in Korea has a significantly positive productivity spillover effects, with the effects of Greenfield-type FDI being greater in terms of productivity than M&A-type FDI, considering the overall effect including intra-industry and inter-industry effects. It also shows that total inward FDI as well as each mode of that investment causes significant intra-industry spillover effects. In particular, the effect is greater when FDI for upstream and downstream industries includes service industries. Moreover, Greenfield-type FDI leads to inter-industry linkage effects, while M&A-type FDI does not.
Based on this analysis, we draw out implications for FDI policies of the Korean Government. First, Korea’s FDI policy needs to remain active in order to continuously improve the productivity of the domestic industry. Second, The effort to improve the investment environment in Korea will have to focus on increasing Greenfield-type FDI in terms of productivity spillover effects. Last, it is necessary to take further liberalization actions for FDI, as well as improve the investment incentive system related to service industries in light of the direct and indirect linkage effects upon productivity by FDI.

This paper explores multilateral engagement in North Korea’s economic rehabilitation, with particular focus on the establishment of special Trust Funds. North Korea’s economic recovery in the 2000s has been stagnant, the socialist regime seemingly lacking the capacity to resolve food shortages and economic problems. Moreover, due to the recurrence of the nuclear issue and subsequent imposition of tighter sanctions against Pyongyang, not only has the scale of foreign aid for North Korea deceased sharply, but the engagement of international donors in humanitarian assistance has also been greatly reduced. Thus, a feasible institutional instrument for the amelioration of the regional instability caused by North Korea’s economic problems and nuclear standoff would be the establishment of a multilateral framework that would involve bilateral donors and international financial institutions. The setting up of special Trust Funds is a possible option for resource mobilization for and aid coordination in providing development assistance to North Korea. Given the potential benefits of such a mechanism, creating multi-donor Trust Funds (MDTFs) for North Korea as denuclearization in the Korean Peninsula progresses could help strengthen relations between Pyongyang and the international donor community. Moreover, the joint funding mechanism of the special Trust Fund would help to ease the political burden currently shouldered by South Korea and neighboring countries directly involved in providing development assistance to North Korea.

This paper endeavors to articulate the establishment of MDTFs in the early stages of denuclearization, which would facilitate the dismantling (or abandoning) of North Korea’s nuclear programs, as well as the construction of an international aid coordination mechanism. It also explores the potential roles that Trust Funds could play in resource mobilization and policy dialogue. The paper also considers areas of support and procedure in the operation of MDTFs for North Korea. By drawing attention to issues around the administrative structure of the MDTF, it proposes that international donors establish the ‘North Korea Development Assistance Group’ (NKDAG) as the principal special Trust Fund governing body. The NKDAG could provide a forum for policy dialogue in the coordination of development assistance to North Korea. Effective fund-raisings, and the successful implementation and management of the Trust Funds would serve as an impetus for enhancing the roles the NKDAG would have to play in the coordination of providing development assistance to North Korea and for the country’s economic recovery. This, in turn, would help to placate the donor community in respect of the transparency and effectiveness of its funding contributions, which could attract more foreign assistnance to Trust Fund activities.

In this paper, we explicitly address the role of comparative advantage in effects of outward FDI on domestic productivity, both theoretically and empirically. In the theoretical framework, we place Irarrazabal, Moxnes and Opromolla’s (2009) outward FDI model into Bernard, Redding and Schott’s (2007) framework of international trade with heterogeneous monopolistically competitive firms and comparative advantage; and show that ex ante high average industry productivity triggered by firm self-selection enhances ex post average industry productivity during the process of increase in FDI. Using Korean industry-level data from 1992 to 2008, we also empirically test our theoretical predictions using the fixed effect model as a benchmark model, followed by system GMM estimation methods for sensitivity analysis. Our empirical findings suggest that Korean outward FDI is positively correlated with domestic productivity and this link is likely to take place in those sectors above median competitiveness measured as export-based RCA (Revealed Comparative Advantage). Thus, we find that the empirical results were consistent with previous theoretical predictions as well as our analysis.

The labor market situations in Tunisia, Libya, Egypt, as well as the gulf countries such as Saudi Arabia and the UAE are under the world’s scrutiny since the high unemployment rate amongst the labor force, especially that of the youth, was analyzed to be the main driver behind the 2011 MENA unrest.

Unemployment arises when labor supply falls short of labor demand. The chronical unemployment in the MENA region, especially that of the youth and female labor forces, however, seem to indicate to a structural problem. This report analyzes the labor market structure of saudi arabia and the UAE. It also addresses the recent labor market policies and discuss how South Korea can cooperate with the two countries in the areas of human resource development, public sector reform, and nationalization policies. The report provides hard data behind the claims and suppositions of the existing literature.
The report is constructed as follows. Chapter 2 examines how certain characteristics of the labor market results from each country’s resource dependent economic structure, mainly represented with an oversized public sector. From the labor demand side, the government may provide its employees higher wages, greater job security, and a generous pension system for political reasons. Moreover, it is the government who plays the employer of the last resort when the price of resources drop unexpectedly due to external shocks and in case of private sector contraction. From the labor supply side, on the other hand, workers prefer jobs in the government that provides greater wages, benefits, and social status. They also tend to put importance to job security and thus prefer public employment due to the economy’s fragility to external shocks. A resource dependent economy may also lead to a in low labor participation rate of females, as well.
Based on statistics provided by the two governments and the literature on their labor markets, we summarize the population and labor market structures and its immediate concerns. Specifically, we focus on the high unemployment of the Saudis and Emiritis in the domestic labor market, especially that of the youth, female, and the highly educated. The mismatch between labor supply and demand in the private and public sectors are discussed.
In chapter 4, we summarize the main labor market policies of the two countries. Specifically, human resource development, nationalization, job-matching, and female employment policies are addressed. In Chapter 5, we evaluate the policies that are discussed in chapter 4 and conclude with various policy recommendations in the relevant areas. Public sector reform focusing on reduction of number of public jobs and change in the wage structure are also discussed.

Acknowledgements

Contributors

1 Introduction / Bokyeong Park and Barry Eichengreen

2 Financial Reform after the Crisis / Nicolas Véron
1. Introduction
2. The Dynamics of Financial Reform
3. Challenges and Outlook

3 Did WTO Rules Restrain Protectionism During the Recent Systemic Crisis? / Simon J. Evenett
1. Introduction
2. Twenty-first Century Protectionism in an Era of Systemic Crisis: Some Preliminary Considerations
3. The Resort to Discrimination Against Foreign Commercial Interests Since the First Crisis-era G20 Summit in November 2008
4. An Assessment of the Impact of WTO Rules During the Recent Systemic Crisis
5. Concluding Remarks


4 The International Monetary System after the Financial Crisis / Barry Eichengreen
1. The Global Reserve System
2. The Emergency Provision of Liquidity
3. Regulating Capital Flows
4. The Role of the IMF
5. Conclusion

5 The Group of 20: Trials of Global Governance in Times of Crisis / Ignazio Angeloni
1. Benefits from International Coordination: Reviewing the Arguments
2. A Narrative of the G20 in Times of Crisis
3. Scoreboards of Success
4. Taking Stock and Looking Forward

6 Emerging Markets in the Aftermath of the Global Financial Crisis / Eswar S. Prasad
1. Introduction
2. Rising Prominence of EMEs
3. The Distribution of World Growth
4. What Explains the Resilience of Emerging Markets?
5. Global Public Debt and Implications for the Growth Gap
6. Risks
7. Concluding Remarks

7 Challenges for the Asian Economy / Bokyeong Park and Jinill Kim
1. Background: Asia’s Recovery from the Global Financial Crisis
2. Transition from Export to Domestic Demand
3. Inflation as a Lingering Concern
4. Risk of the Middle Income Trap
5. Rise of China and the Future of Regional Cooperation


8 Challenges for the Advanced Economies / Joseph Gagnon and Marc Hinterschweiger
1. Introduction
2. Projected Paths of Government Debt
3. The Burden of Debt and Fiscal Limits
4. Paths to Safety
5. Conclusion

The global credit crisis of 2008-09 was the most serious shock to the world economy in 80 years. It was for the world what the Asian crisis of 1997-98 had been for emerging markets: a profoundly alarming wake-up call. By laying bare the fragility of global markets, it raised troubling questions about the operation of the 21st-century world economy. It cast doubt on the efficacy of light-touch financial regulation and, more generally, on the prevailing commitment to economic and financial liberalization. It challenged the managerial capacity of institutions of global governance. It augured a changing of the guard, pointing to the possibility that the economies that had been leaders in the global growth stakes in the past would no longer be leaders in the future.
Given that the 2008-09 crisis was first and foremost a financial crisis, it is appropriate that analysis should start with an assessment of the causes of recent financial problems and the successes and failures of post-crisis financial reform. The author argues that the traditional separation of macroeconomic and financial policies – the “Tinbergen principle” of assigning monetary policy to the maintenance of price stability and regulatory policy to financial stability – is part of what caused the crisis, and that the development of a synthesis, which flies under the flag of “macro-prudential” or “macro-financial” policy, points the way to a solution. Another striking aspect of the crisis was the abrupt collapse of international trade, which declined even more precipitously than the production of goods and services. Why the impact on trade was so dramatic continues to be debated. Then there was the protectionist response, described in Chapter 3. A few governments responded to the crisis and recession with overtly protectionist policies, but more important was “murky protectionism” defined to include not simply import tariffs, quotas and export taxes but also subsidies, bailouts, preferential public procurement practices. The global crisis also deepened disenchantment with the structure and operation of the international monetary system. It was already a commonplace that a system in which the U.S. dollar enjoyed the “exorbitant privilege” of providing the vast majority of global foreign exchange reserves was dangerously prone to imbalances. Chapter 4 sketches likely future trajectories for the international monetary arrangements. The author is dismissive of far-reaching reforms ranging from a regime based on Special Drawing Rights on the one hand to restoration of a gold-based system on the other. But he is equally skeptical about the viability of a dollar-centric monetary system like that of the recent past. The remaining option being a system organized around several national currencies – not just the dollar but also the euro and the Chinese renminbi, the question then becomes how to ease the transition to such a system and to smooth its operation once it arrives.
Among the notable long-term consequences of the crisis has been the emergence of the Group of Twenty (G20) as the de facto steering committee for the world economy, displacing earlier advanced-country-centered groupings, notably the Group of Seven/Eight (G7/8). But, institutionally, the G20 remains a work in progress. As explained in Chapter 5, it has no permanent staff or written constitution. It has no global mandate; why it includes the countries it does reflects the particular historical process out of which it emerged. The details of how the G20 will work with multilateral organizations such as the International Monetary Fund and Financial Stability Board when additional problems arise remain to be determined. As the growing prominence of the G20 reveals, another consequence of the crisis has been to enhance the weight of emerging markets in the world economy. Their economies held up best in the face of the shock, and they continue to grow robustly. Chapter 6 marshals a number of indicators showing just how fast the emerging markets have grown and how importantly they now figure in the world economy. At the same time, as the author explains, these countries face serious challenges in the post-crisis environment. Stagnation in the advanced countries is a challenge for their traditional strategy of export-led growth. Chapter 7 focuses more closely on the challenges facing the emerging markets of East Asia in particular. The global crisis of 2008-09 and, more recently, financial turmoil in Europe had relatively little impact on East Asia’s fast-growing economies. The emerging markets of East Asia, it was increasingly asserted, had successfully decoupled from the advanced-country world. The authors ask in the chapter whether this will remain the case going forward. As global liquidity strains rose again in the latter part of 2011, a number of East Asian currencies weakened substantially, highlighting the region’s continuing dependence on external financial conditions. But if the challenges that emerging markets will face in the new post-crisis environment will be formidable, they pale in comparison with those that will confront the advanced economies. The advanced economies as a group emerged from the crisis with large budget deficits and heavy debts. Winding down those deficits without derailing recovery and damaging the prospects for growth will not be easy. All this takes place against a gloomy demographic backdrop that implies rising old-age dependency ratios, heavy pension obligations and health care costs, and a declining share of the population participating in the labor force. Chapter 8 takes up these issues. The authors frame their analysis around a number of distinctions. Notwithstanding numerous differences among economies, medium-term fiscal challenges are daunting across the advanced-country world. Under any plausible projection of the evolution of macroeconomic variables, current policies are not sustainable. Difficult decisions are unavoidable.
The global financial crisis has cast a long shadow. It has profoundly affected the advanced economies, emerging markets and the balance between them. The implications for the international trade, the monetary and financial system, and global governance are far reaching. Drawing out those implications and beginning to comprehend what they mean for the future is the task the authors take up, collectively, in this volume.

The Northeast Asian region is one of the most dynamic economic centers of the world, having China, Japan, and Korea as major players, with productive linkages to resource-rich Russia and Mongolia, and to the Pacific and North America. In contrast to the region’s robust economic growth, regional security has long been fragile, mainly due to the geopolitical conditions resulting from the Cold War era. In the twenty-first century, if the countries in Northeast Asia wish to further their development and prosperity, they will have to learn to harness their dynamic economies and create a region in which peaceful coexistence and common prosperity prevail. North Korea, Mongolia, the Russian Far East, and the northeastern provinces of China constitute a northern sub-region that is well-endowed with latent natural and human resources. This sub-region has the potential of becoming a valuable source of natural resources for the entire region, and what is needed is to realize that potential through cross border infrastructure development. Energy security and efficiency, the environment, and green growth, for example, constitute an important area of cooperation, as the three major countries of China, Japan and Korea are heavily dependent on energy imports and are highly vulnerable to energy crises. Financing requirements for the necessary cross-border infrastructure are likely to be large, and a regional financial institution is a key to meeting that financing need. This volume, which is the third in the series of volumes entitled, Financing for Regional Economic Integration for Northeast Asia, comprises papers, research reports, and summaries of a main conference and several specialized meetings, as well as affiliated activities, that took place under this project. The results of this project represent activities contributing to the regional economic integration and have been carried out in a spirit of cooperation.

The regions of study for this particular project are parts of North Africa, especially the Maghrib region covering Morocco and Algeria where a series of recent political unrests that have taken place in Arabic World are latent among the various tribes living there. The reason we call the two countries “Maghrib” is that they both share the same historical experience, memories and cultural heritages.
Both countries, Morocco and Algeria, were colonized by France and also are where a majority of Berbers natives live. Most of them have converted to Islam and they have become a part of Islamic world. However, the Berbers have their own language and cultural traditions. That’s what separates the Maghrib from the rest of the Islamic countries. Although they had lived harmoniously with Arabics without much conflict, they have strongly voiced their own cultural autonomy since they gained independence in the mid 20th Century. Such demands have continuously come into conflicts with the national plans to turn the countries into Arabic Islamic nations.
This study pays close attention not only to the aspects of self-identity, language and culture, but also to the conflicts arising from the dichotomic nature of being Arabic and Berber at the same. And then we will look further into the past and the present of the region. In order to fully comprehend this subject matter, we have carried out extensive field works by taking a long trip to the region in addition to studying various texts. We have focused our observation and research on Kabylia, Aures and M’Zab in Algeria and Rif in Morocco. It was the intent of this study to find out their place in their own countries besides various characteristics of the region. The followings are what we have studied and included in this research.
First, in order to help understand the Berbers in Maghrib, we have looked at the geological features of the region, structural characteristics of the various tribes, the present state of each Maghrib’s nations, and overall review of the region.
Second, we have looked into the Berbers, the primary subject of this project; who they are, what their own language means to them and how they have accepted and at the same time resisted the Arab Islamic culture.

Third, we have studied their history of coexistence and conflict, especially how the Arabs and the Berbers have confronted each other which forms the important basis in understanding them. We also pay attention to their continuous search for their own identity in the dichotomic state. In addition, we have looked at various examples of conflicts currently going on in Algeria and the significance of constitutional reform in Morocco which could possibly pose a big turning point to them.

Fourth, we have covered the regional characteristics of Berbers in Algeria, Morocco which we have found through our field studies. And we have discussed not only the values of Berber’s young generation, but also the problems they face everyday.

The purpose of this study is to conduct comparative analysis on the characteristics of political power structure of the Middle Eastern countries which is going through dramatic political change. In order to do so, it tries to categorize the countries according to types of power structures, so as to understand the region better, and eventually contribute to make korea’s policy toward the Middle East.

This study suggests its own standard of classification, by adopting some previous analyses by several scholars. As a result, it categorizes ten selected Middle Eastern countries into ’Republic Bunker states’, ’Republic Bully states’, ’Monarchy of exclusive nepotism’, and ’Monarchy of inclusive nepotism’. Based on this classification, this study raises questions; ’what is the characteristics of power structure of the Middle Eastern countries and how does it manifest according to the political system?’. In order to answer the questions, this study examines the nature of political institutions of each country, the role of various political elites, and the variables of political instability not only in political arena, but also in social, tribal and religious aspects.
Consequently, this study generalizes the characteristics of political power structure as follows. As for bunker states, first of all, they share critical features that the family, tribe and religious sect of the leader exclusively occupy key posts both in politics and economy, prompted by coercive rule. However, dynamics of political relations among the elites are distinct from each other, based on whether they have tribalism or sectarianism.
Second, bully states have less autonomy in authority than bunker states. In the bully states, patronage system and crony capitalism are the driving force of long-term dictatorship. Since the fall of several autocrats, Islamic parties have received attention leaving a question whether they can grow up as political elite group. On the other hand, bully states would be suffered from instability due to the conflicts between existing elites and opposition figures, or among opposition leaders themselves. Moreover, they also would have possible conflict between Islamists and secularlists, and have economic problems such as high rate of unemployment.
Third, in monarchies of exclusive nepotism, where a certain family monopolizes the political power, the role of legislature and judiciary is quite limited. In those countries, political reform is one of the strategies to relive domestic dissatisfactions. Meanwhile, the basic source of legitimacy of the regime, and constitutive characteristics of political elites are various according to countries.
Fourth, monarchies of inclusive nepotism shows a difference from the exclusive ones, in terms of their distribution of power. When it comes to the principles of checks and balances, and limitations on constitutionalism, these type of countries have in common with the exclusive monarchies. However, the causes of political instability, including power struggle within the regime, tribal feud, and resistance of the Islamists, are different from country to country.
Finally, considering that the generalization of political power structure cannot give an answer to fully understand the indigenous features of each country, this study tries to explain unique characteristics of the countries as well.