Working Papers
RESEARCH
Working Papers
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Income and Consumption Inequality in Latin America and Policy Implications for South Korea
This study analyzed income and consumption inequality in Chile, Mexico, and Brazil. The motivation for this study is the recent massive protests in Chile and Colombia. The protest in Chile, which began in October 2019..
Sungwoo Hong et al. Date 2021.12.30
Economic Cooperation, Labor Market Latin AmericaDownloadContentSummary정책연구브리핑This study analyzed income and consumption inequality in Chile, Mexico, and Brazil. The motivation for this study is the recent massive protests in Chile and Colombia. The protest in Chile, which began in October 2019, were sparked by 30 Chilean peso increase in subway fare and led to enacting a new constitution in progress. In Colombia, the uprising occurred as people protested against the tax reform bill announced by President Ivan Duque in April 2021.Why is it necessary to examine income and consumption inequality in Latin American in which a variety of social inequalities, including income inequality, have always been perceived as severe? Have the inequalities in Latin America changed significantly over time? The main goal of this study is to answer to these research questions.Chapter 1 describes why a research on income inequality in Latin America is necessary. First, there are not many existing studies that have investigated the inequality of individual countries in Latin America because a number of experts have already recognized the inequality in Latin America as a serious social problem and tend to consider it constant. Second, previous studies have not examined diverse indicators related to the inequality and thus have failed to provide accurate information on the inequality of each country. Third, it is meaningful to analyze income inequality in Latin America since the inequality and economic conditions could be critical variables in forecasting future regime change in the region.Chapter 2 examines inequalities in various sectors in Latin America. In general, indigenous people are recognized as the most economically and socially vulnerable class. They are likely to live in areas with poor transportation, and thus access to public education is difficult. The tax systems of Latin American countries are too dependent on indirect taxes rather than direct taxes, and thus is regressive. There is a large gap in welfare spending among Latin American countries.In Chapter 3, the determinants of income inequality were analyzed using micro data provided by Chile, Mexico, and Brazil, and then the outcomes were compared. As a result, the income of women in these three countries was lower than that of man, despite controlling for other explanatory variables. The income gap between men and women was the lowest in Chile and the highest in Brazil; the income gap gradually narrowed in Brazil, whereas there was no significant improvement in Chile and Mexico. In addition, rural residents had lower income than urban residents in Mexico and Brazil; in Chile, residents in Santiago had lower income than residents in the other regions.Chapter 4 investigates the consumption poverty rate and consumption inequality in order to accurately grasp income inequality in Chile, Mexico and Brazil. In Chile, it was shown that a pattern of income inequality was different from that of consumption inequality, as the consumption inequality was mitigated while the income inequality worsened. These findings suggest that the low-income group may have been facing considerable financial hardship because they could not have decreased their expenditure while their income decreased. In Mexico, trade liberalization in the late 1980s and the entry into force of NAFTA in 1994 markedly reduced consumption poverty rates and consumption inequality. In Brazil, all the indicators of income and consumption inequalities improved over time.Chapter 5 looks into poverty and inequality in Latin America during the COVID-19 pandemic and policy efforts of each country to alleviate these. Due to the contraction of economic activity caused by the pandemic, the middle income class experienced a decrease in income, resulting in falling into poverty. This middle income group suffered from economic hardship because many of them working in the informal sector were not able to benefit from social welfare programs. However, emergency cash aid programs for the workers in the informal sector and the self-employed have mitigated the economic damage to them.This study contributes to existing researches in terms of that this study provides policy implications for the Korean government and firms. First, establishing e-government in Latin American countries could be considered as a KSP (Knowledge Sharing Program) project. Since workers in Latin America are likely to avoid tax, the establishment of e-government can contribute to securing additional tax revenues. Thus, it is expected that Latin American countries could demand the project.Second, Korean firms need to seek to enter the market of Latin America through DIP (Development Innovation Program) operated by KOICA. Improving educational attainment or human capital of the low-income group is a fundamental alternative to alleviating income inequality; therefore, the firms could particularly seek to enter the education sector through the DIP. -
Determinants of Success and Failure of Green Parties in Europe
The Green Transformation that has begun before the COVID-19 pandemic is expected to continue to be a major economic policy of governments around the globe. Major European countries, especially the United Kingdom and Germany, along..
Dong-Hee Joe et al. Date 2021.12.30
Energy Industry, Environmental Policy EuropeDownloadContentSummaryThe Green Transformation that has begun before the COVID-19 pandemic is expected to continue to be a major economic policy of governments around the globe. Major European countries, especially the United Kingdom and Germany, along with the European Union, are at the forefront of this transformation. However, electoral outcomes of political parties focused on climate change (i.e., Green Parties) differ significantly among these cases. Analyzing the reasons of their electoral success or failure can help understanding their role in climate-change policy. This, in turn, can teach how to make climate policy sustainable in Korea where political support for Green Parties is extremely low. We review the history of Green Parties in the UK, Germany and the EU and analyze the reasons for their success or failure. The related literature considers three major reasons for the extremely low electoral outcomes of Green Parties in Korea, namely the public’s attitude, electoral system and major traditional parties’ reactions. Following this, we focus on those three factors.To the concerned readers in Korea, the UK’s case shows, above all, that a substantial presence of Green Parties in the legislature is not a necessary condition for an active climate policy by the government. Instead, it emphasizes the importance of concrete commitments through legislation and institutionalization and wide consensus, including that of businesses, that the additional costs in the short run will result in net economic gains in the long run. The EU’s case shows that creating a platform on which interested parties of various types can actively participate in the discussion and formation of climate policy and putting more focus on “just transition” can be good starting points for achieving this consensus. For Korean Green Parties' electoral prospect per se, the German case hints at the needs to extend the scope and improve the competence of themselves. -
Policy Measures for Foreign Firms to Participate in Inter-Korean Economic Cooperation
This research stemmed from an inquiry into what issues would surface if foreign firms engaged in inter-Korean economic cooperation, recognizing this as a topic that could potentially emerge if inter-Korea relations improve and eco..
Jangho Choi et al. Date 2021.12.30
North Korean Economy, Foreign Direct Investment North KoreaDownloadContentSummary정책연구브리핑This research stemmed from an inquiry into what issues would surface if foreign firms engaged in inter-Korean economic cooperation, recognizing this as a topic that could potentially emerge if inter-Korea relations improve and economic cooperation resumes. So far, the issue of foreign firms participating in inter-Korean economic cooperation has been focused on internationalizing the Kaesong Industrial Complex. Although the issue of foreign firms entering into Kaesong was intermittently reviewed from 2005 to 2016, it did not lead to tangible results.The objective of this research was to examine the various conditions for foreign firms to participate in inter-Korean economic cooperation and propose stimulation measures. For this, we (1) analyzed the theoretical background and the political/industrial incentives for foreign firm participation in inter-Korean cooperation, (2) investigated central and local government policies towards North Korea and case studies of foreign firms which had participated in inter-Korean economic cooperation, (3) examined how other countries utilized foreign firms during economic integration, and (4) reviewed institutional and non-institutional measures to promote the participation of foreign firms in inter-Korean economic cooperation. In addition, we also reviewed foreign firm participation in multiple inter-Korean economic cooperation projects. Our research defined foreign firm activity in inter-Korean economic cooperation as firms partaking in projects implemented in North Korea via South Korea.To begin with, in Chapter 2, we review the need for foreign firms’ participation in inter-Korean economic cooperation from a theoretical background and political/industrial demand. On the theoretical side, we examined the theories of a peace economy and capitalist peace, and reviewed the debate of foreign investment on economic growth. In addition, we also reviewed the political/industrial demand, such as economic incentives for inter-Korean cooperation projects, as well as exploring new methods, financing funds for North Korea’s development while sharing the benefits with the international community, and sectors that foreign firms can advance into when participating in inter-Korean economic cooperation.In Chapter 3, we review the national and local government agenda related to inter-Korean economic cooperation and investigate foreign firms’ experiences with inter-Korean economic cooperation. First and foremost, we introduced the national government’s agenda to internationalize inter-Korean cooperation, such as the New Economic Map for the Korean Peninsula and Northeast Asia Cooperation, the DMZ Peace Zone, the Vision of an East Asian Railroad Community, West Joint Economic Zones/East Sea Tourism Zone, the Comprehensive Plan for Border Area Development and the Kaesong Industrial Complex. For local governments’ agenda on internationalizing inter-Korean cooperation, we examined projects implemented by Incheon City, Gangwon Province, and Gyeonggi Province, and the potential for attracting foreign investment. We also investigated case studies of foreign firms that had previously attempted to enter into North Korea and the issues involved.In Chapter 4, we examine international case studies, focusing on the policy measures aimed at foreign firms and the economic impact of combining capitalist and socialist market systems. We analyzed the regulations and treatment that foreign firms received under the CEPA agreement during China and Hong Kong’s economic integration, and under the ECFA agreement during Taiwan and China’s economic exchange. Then we analyzed the role and investments made by foreign firms in former East Germany during the process of German unification, and what impact these had. These cases provided insight that could be used as reference on evaluating the roles, institutional measures for guarantees, and the economic impact of foreign firms when entering into inter-Korean economic cooperation.In Chapter 5, we explore measures that would improve the laws and institutions to foster foreign firms’ participation in inter-Korean economic cooperation. First and foremost, we looked at the varying legislation that would apply depending on the channels of internationalizing inter-Korean economic cooperation. Then, we analyzed the characteristics of the laws to be applied when foreign firms enter the scene. We also analyzed the incentives and obstacles for foreign firms and identified the legal issues involved and suggested areas of improvement.Overall, we believe that our research will make a positive contribution to a stable inter-Korean economic cooperation. From an economic standpoint, there are relatively sufficient incentives and interest in inter-Korean economic cooperation on the part of foreign firms. However, we found that the political and legal environment was somewhat lacking to provide the necessary support.First, foreign firms’ participation in inter-Korean economic cooperation will contribute to a more stable relationship between the two Koreas. In addition, we can expect foreign firms to function as a safety net and further the quality and scale of inter-Korean economic cooperation. This is because foreign firm participation rests on the assumption of peace on the Korean Peninsula. From the standpoint of peace economy theory, peace on the Korean Peninsula would bring economic benefits not only to the two Koreas but also the international community. In terms of capitalist peace, foreign firm participation would increase the benefits from inter-Korean economic cooperation due to a larger scale of projects and would lead to continued cooperation, thus providing a positive contribution to promoting perpetual peace.The economic incentives that foreign firms can expect represent the potential for economic growth of North Korea and the indirect benefits from inter-Korean economic cooperation projects. First, investment in North Korea carries incentives such as allowing first-mover advantage, low wages, access to abundant mineral resources, and geographic proximity to large markets such as South Korea, China and Japan. In addition, foreign firms can utilize the established legal institutions, such as investment guarantees from the Inter-Korean Cooperation Fund or tax reductions and tariff-free trade between the two Koreas, as well as indirect benefits from Korea’s numerous FTAs. With these incentives, we discovered that multiple foreign firms wanted to advance into the Kaesong Industrial Complex before it was completely shut down in 2016.However, the political and legal environment for foreign firms to actually participate turned out to be weak. Although the South Korean government’s policy on the Peninsula aims to expand cooperation with neighboring countries, and even though there is a potential demand for foreign firms to participate, we maintain that there are currently no specific projects that envision such direction. Although substantial time is required for actual investment to occur, we see that there is a need for policies for foreign investors to be created and disseminated strategically.Given the right conditions, the Korean government needs to take the initiative and draft a successful pilot project. So far, one of the biggest obstacles of inter-Korean cooperation is that it is impossible to predict the outcomes due to the numerous uncertainties involved. No matter how effective the legislation is, few foreign firms will be willing to participate and take the first-mover advantage if this proves unrealistic. Pushing for successful pilot projects would elevate the feasibility of inter-Korean economic cooperations. Ultimately, it is necessary to devise a model for inter-Korean economic cooperation in which the opening of North Korea can be made compatible with the special relationship between the two Koreas.This research differs from previous studies in that it reviews the theoretical and political issues of foreign firms participating in inter-Korean economic cooperation, while providing a comprehensive analysis of their positions, international case studies, and legal/ institutional issues. In addition, this research categorizes different channels of foreign investment into inter-Korean economic cooperation and the issues that would occur with each channel. We expect that our findings will contribute to the South Korean government’s policy initiative for inter-Korean economic cooperation. -
Petroleum Industry Diversification in the Middle East and Its Policy Implications for Korea in the Era of Energy Transition
The aim of this research is to examine various mid-to-long term plans, policies, and business cooperation cases to promote diversification in the Middle Eastern petroleum industry, suggesting policy proposals for cooperation betwe..
Kwon Hyung Lee et al. Date 2021.12.30
Economic Cooperation, Energy Industry Africa Middle EastDownloadContentSummary정책연구브리핑The aim of this research is to examine various mid-to-long term plans, policies, and business cooperation cases to promote diversification in the Middle Eastern petroleum industry, suggesting policy proposals for cooperation between Korea and the Middle East to deepen industrial diversification in the region.Chapter 2 analyzes global factors that have influenced the oil industry, and examines the trends of diversification in the oil industry and characteristics of diversification in major countries. Increasing oil price volatility and the expanding efforts of the international community to make a transition to a carbon-neutral economy have acted as a factor in diversifying the oil industry. As the trend of low oil prices has continued since the second half of 2014, the raw materials for manufacturing petrochemical products have become available at cheaper prices, and this has led to increased investment in downstream sectors such as oil refining and petrochemicals. In addition, as efforts to reduce carbon emissions in the oil industry have expanded, the share of natural gas production increased, investment in hydrogen and carbon reduction technology expanded, and digital technology was actively introduced to increase the efficiency of oil industry operations. In the downstream sector, the United States is focusing on ethylene production using ethane derived from shale gas, and China is continuing its efforts to expand facilities and diversify feed stocks to improve its own production capacity. In the area of hydrogen and carbon reduction, European countries such as Norway and Germany, along with the United States, China, and Russia, are increasing investments in hydrogen utilization and green hydrogen technology development. Efforts in the area of digital technology can be characterized by the introduction of oil field technology in segments such as oil field exploration and development, transportation and storage by multinational oil companies in the United States and Norway.Chapter 3 examines government policies, competitive advantage, and risk factors for the diversification of the oil industry in the Middle East. Saudi Arabia and the UAE are engaged in various mid to long-term plans and strategies aimed at reorganizing the structure of the oil industry, recognizing it as a key industry that is overly biased toward the upstream sector. First of all, the two countries are investing in the petrochemical sector, which is expected to increase in demand even in the era of carbon neutrality. Saudi Arabia is expanding its production capacity of basic and intermediate chemicals through various investments, including the establishment of joint ventures with foreign companies. The UAE has a relatively low production capacity for feedstock and basic chemicals, but has the advantage of diverse products such as plastics and fertilizers. Saudi Arabia and the UAE are also expanding their blue and green hydrogen production capabilities in line with the global demand for green energy. In particular, the Saudi government intends to move early into the hydrogen market by pushing for blue hydrogen exports through Aramco while also advancing the possible production time of green hydrogen. The UAE is still focusing on expanding the production of blue hydrogen, but it has the advantage of having high price competitiveness in green hydrogen and the capacity to produce pink hydrogen using nuclear power. In addition, Saudi Arabia and the UAE are actively promoting the introduction and utilization of digital services or solutions for the digital transformation of the oil industry. However, due to the lack of overall technology to diversify the oil industry in both countries, cooperation with foreign companies is necessary to secure competitiveness and develop technologies.Chapter 4 reviews the direction of external cooperation for diversification of the oil industry and examines specific examples by sector such as petrochemical, hydrogen, CCUS, and digital technology. Saudi Arabia and the UAE are increasing petrochemical or oil refining projects jointly promoted by establishing joint ventures in major overseas export base countries to stably export oil and create added value. Saudi Arabia has acquired stakes in major overseas oil refiners and petrochemical companies or expanded joint investments to secure a stable market for its own crude oil, and has also pushed for equity investments and joint ventures in Korean companies. The UAE is promoting entry into promising overseas markets in the petrochemical sector, while focusing on attracting foreign companies into its domestic market. In addition, both Saudi Arabia and the UAE are actively developing hydrogen based on abundant natural gas and renewable energy. The two countries are promoting cooperation with a focus on exporting hydrogen, based on the price competitiveness of hydrogen produced in their own countries. As major crude oil importers of the two countries, Korea and Japan have been important partners of this cooperation. In the introduction of digital technology, cooperation with US and European companies has been remarkable. Saudi Arabia and the UAE are found to be mainly utilizing solutions for production optimization, integrated supply chain management, asset monitoring and predictive analysis, and safety and efficiency improvement through US and European companies. The two countries plan to foster their own industries and increase job creation by establishing local joint venture companies with global companies and expanding joint R&D.Chapter 5 suggests cooperation policy proposals to further promote industrial diversification in the Middle Eastern petroleum industry. Although Korea and Middle Eastern oil exporters have different industrial environments in the sector, they pursue the same policy goal to attain carbon neutrality. This is the common foundation on which both regions could establish a new energy security cooperation regime. First, stable supply and demand of low carbon energy resources such as hydrogen should be established between Korea and Middle Eastern oil exporters for carbon neutrality and hydrogen economy. For this, both regions need to establish long-term supply contracts on the condition that Korean companies construct the hydrogen production facilities involved. Establishing a Korea-Middle East carbon neutrality fund would ease the financial burden for construction projects. Second, new energy businesses responding to the electrification of energy should be promoted to enhance energy efficiency in national power systems. Consulting projects to establish master plans for efficient power infrastructure and demonstration projects to evaluate consulting results should be conducted, as infrastructure remodelling consumes large amounts of financial resources. Moreover, these projects will require government-to- government cooperation based on mid-to-long term mutual interests. Third, technology collaboration between the two regions should be advanced to attain carbon neutrality. More technological breakthroughs in the sectors of hydrogen production and carbon reduction need to be obtained for future cooperation. Joint study agreements for technology development and a joint research platform should be established for active interaction and mutually beneficial assistance between the two regions. This could be developed into a joint venture for production and sales. -
Japan’s New Trade Strategy Amid U.S-China Confrontation
This research was conducted with the purpose of providing implications for the Korean government and companies amidst the growing US-China conflict by analyzing the trade strategies of a country that shares similar in..
Gyupan Kim et al. Date 2021.12.30
Trade Policy, Overseas Direct Investment JapanDownloadContentSummary정책연구브리핑This research was conducted with the purpose of providing implications for the Korean government and companies amidst the growing US-China conflict by analyzing the trade strategies of a country that shares similar international settings with Korea: Japan.Chapter 2, “US-China Decoupling and China’s Response,” examines US-China decoupling policy, focusing on tariff imposition, export control, technology transfers, foreign investment controls, and government procurement. This study reveals that, although US-China economic relations have deteriorated to the point of partial decoupling or disengagement in high-tech sectors and other select areas of supply chains, it certainly is not up to the level of the US’s containment of the Soviet bloc in the traditional Cold War sense.Chapter 3, “Japan’s Reshaping of the Global Supply Network: Focusing on China,” attempts to verify whether the “China risk”—a notion that has been actively promoted by some in Japan since US-China frictions intensified in 2018, and escalated with the spread of COVID-19 in 2020—actually took place, and evaluates Japan’s “China+1” policy, which is the country’s hedging strategy toward China. The results reveal that although Japan’s import dependence on Chins is significantly high for some import products, this does not seem to bear any serious risk for Japan in that the said products can easily be substituted with imports from other countries.Chapter 4, “Japan’s Economic Security Strategy,” looks into Japan’s new economic security policy, focusing on Japan’s economic statecraft, reinforcing resilient supply chains and strategically important industries, and strengthening global supply chain with its “allies.”Chapter 5, “Japan’s China Policy and Trade Strategy,” reveals that Japan’s position on China’s Belt and Road Initiative and the Asia Infrastructure Investment Bank (AIIB) is somewhat far from the level of containment that the US is demanding of its allies, due possibly to Japan’s strong economic ties to China, or its peace constitution. Regarding Japan’s trade strategy, this study speculates that Japan, while promoting free and fair trade and cooperation with like-minded partners, will try to take the lead in shaping international norms on the emerging trade areas of environment, human rights and labor, and digital trade.The research concludes with Chapter 6, which provides conclusions and political implications for the Korean government and companies. -
The ASEAN Community in the Post COVID-19 era: Challenges and Policy Implications
This report evaluates the performance of the three pillars of the ASEAN community―the Political-Security, Economic, and SocioCultural pillars―at the halfway point of the blueprint to build the ASEAN Community by 202..
Meeryung La et al. Date 2021.12.30
Economic Cooperation, International Politics Southeast Asia OceanDownloadContentSummary정책연구브리핑This report evaluates the performance of the three pillars of the ASEAN community―the Political-Security, Economic, and SocioCultural pillars―at the halfway point of the blueprint to build the ASEAN Community by 2025. The paper also analyzes the impact of the COVID-19 pandemic on the ASEAN Community and comprehensively addresses the existing and newly encountered challenges of ASEAN in the COVID-19 era. Based on these analyses, we derive policy recommendations for cooperation between ASEAN and Korea to support recovery from COVID-19 and successful progress of the ASEAN Community.ASEAN established the ASEAN Community in 2015 and adopted the three blueprints set out in the strategic measures to build Socio-Cultural, Political-Security, and Economic communities by 2025. Chapter 2 introduces the ASEAN Community’s goals and work plans guided by APSC, AEC, and ASCC blueprints, and examined the implementation mechanism to pursue the various measures. We also review the contents and significance of the ASEAN Comprehensive Recovery Framework (ACRF), which is a COVID-19 exit strategy at the ASEAN level, and present our forecasts on the future of the ASEAN Community after COVID-19.In Chapter 3, this paper evaluates the progress of ASEAN economic integration and examined environmental changes caused by COVID-19, and the challenges faced by ASEAN subsequently. According to the results of this study, AEC’s goal of establishing a “highly integrated and cohesive economy” has been successfully implemented in accordance with its work plan, but the actual economic performance appear to fall short of expectations. Therefore, we identify the factors that hinder ASEAN's economic integration and further present ASEAN's challenges to solve them.Chapter 4 analyzes the performance of the ASEAN Political-Security Community (APSC) and examines the prospects of the APSC after COVID-19. First, we reviewed the main contents of the APSC Mid-term Review Report released by the ASEAN Secretariat, and analyzed the fundamental limitations of the APSC blueprint 2025. Then we analyzed the impact of COVID-19 on the building of APSC. Unlike the AEC and ASCC, it is difficult to say that COVID-19 directly affected the APSC’s progress and accomplishments. Nevertheless, the COVID-19 crisis has resulted in accelerating the existing challenges faced by the APSC, including the U.S.-China competition and the regression of democracy in ASEAN member states. In this respect, this chapter analyzed the impact of COVID-19 on the political and security environment in Southeast Asia and the challenges accordingly.In Chapter 5, this study analyzes the performance of the ASEAN Socio-Cultural Community (ASCC) and examined the pending issues after COVID-19. ASCC includes a wide range of cooperation areas, but there is no implementation mechanism that encompasses them;furthermore it is difficult to secure its own driving force. The field of the ASCC tends to be recognized as a national-level issue intrinsically, which acts to limit the implementation of cooperative projects at the regional level. This study examined the limitations of ASCC described above and analyzed the challenges faced by the ASCC amidst COVID-19.Finally, Chapter 6 provided policy directions for cooperation between ASEAN and Korea, and suggested measures that contribute to the progress of the AEC, APSC, and ASCC in the post-COVID-19 era. -
Economic Sanctions against North Korea: Theory and Evidence
The United Nations Security Council adopted eight resolutions from 2012 to 2019, in response to the threats posed by North Korea’s tests of ballistic missiles and nuclear weapons. In this study, we first theoreticall..
Youngseok Park et al. Date 2021.12.30
International Security, North Korean Economy North KoreaDownloadContentSummary정책연구브리핑The United Nations Security Council adopted eight resolutions from 2012 to 2019, in response to the threats posed by North Korea’s tests of ballistic missiles and nuclear weapons. In this study, we first theoretically define North Korea’s political system, and then develop a dynamic game of sanctions against North Korea. Second, using satellite nighttime lights data, we empirically investigate how the ruler (regime) allocates the country’s resources to stay in power as sanctions intensify.The political system of North Korea is defined as a suryong dictatorship, in which the dictator (supreme leader, or suryong) has the absolute power to dictate the country’s resources, including its people. The theoretical definition of the North Korean political system is based on De Mesquita et al. (2005)’s selectorate theory. In light of the selectorate theory, the North Korean regime successfully divides the country’s residents into two segregated groups, the selectorate (elites) and the non-selectorate. The North Korean regime strictly restricts migration within the country, and takes special care of the capital city, Pyongyang. The regime selectively grants the right to reside in Pyongyang. Moreover, it is well known that the regime prioritizes Pyongyang citizens’ welfare and allocates resources to them first and foremost. Acemoglu et al. (2004) define kleptocracy as a political system where the state is controlled and run for the benefit of an individual, or a small group, who use their power to transfer a large fraction of the society’s resources to themselves. They suggest the divide-and-rule strategy as a method that kleptocratic rulers use to stay in power. The divide-and-rule strategy makes it difficult for residents to obtain enough social coordination for revolution against the kleptocratic ruler. On the basis of the evidence and data, we define North Korea’s suryong dictatorship as a kleptocracy.We present a game-theoretical model (a dynamic game) of sanctions on kleptocracy. The kleptocratic ruler stays in power by taxing divided groups of citizens and redistributing the revenues. We assume that only the selectorate can initiate a revolution against the ruler, as the citizens of the selectorate are more educated and productive than the citizens of the non-selectorate. The kleptocratic ruler possesses weapons of massive destruction (WMD). A superpower country can impose economic sanctions on the kleptocratic country to deter the ruler from developing WMDs. The model is expected to have results as follows. If the superpower country imposes economic sanctions on the kleptocratic regime, the citizens are incentivized to initiate a revolution against the kleptocratic ruler. Then the ruler will respond with taxing-and-spending (setting tax rates and amount of transfers to each group), so that he can offset the incentives of revolution against himself caused by the sanctions. Therefore, the ruler is expected to transfer a greater fraction of the country’s resources to the selectorate as sanctions intensify.Next, we empirically test the theoretical hypothesis using satellite nighttime lights data. We use the VIIRS satellite nighttime lights data to proxy for local economic activity in North Korea in the empirical analysis. We find that an additional sanction is associated with an increase in the difference in nighttime lights between the capital city, Pyongyang, and the rest of the country by about 0.4 percent. This implies that the GDP gap between Pyongyang and the rest of the country increases by about 0.12 percent with an additional sanctions event. Manufacturing cities, mining areas, the Chinese border region, and Sinuiju become relatively brighter with an additional sanctions event. The magnitude of the estimate is particularly strong for Sinuiju. Another notable finding is the estimate on the interaction term with the nuclear development facilities areas, which suggests that the ruler diverts resources and electricity from nuclear development activities to other sectors when sanctions increase. In conclusion, the base regression results confirm the theoretical hypothesis. -
Analysis of Chinese Response Patterns to Diplomatic Friction and Its Influencing Factors
Jaichul Heo et al. Date 2021.12.30
International Politics, Chinese Politics China -
The Policy Direction of International Organizations on Immovable Property Tax and Its Impact on the Macro Economy
Since the 2008 global financial crisis, inequality has been increasing worldwide. In particular, levels of wealth (asset) inequality are increasing further than income inequality. And Korea is no exception. This deepe..
Young Sik Jeong et al. Date 2021.12.30
Financial Policy, Tax SystemDownloadContentSummary정책연구브리핑Since the 2008 global financial crisis, inequality has been increasing worldwide. In particular, levels of wealth (asset) inequality are increasing further than income inequality. And Korea is no exception. This deepening of inequality is more worrisome in that it leads to inequality of opportunity while suppressing movement between classes, which in turn deepens inequality, creating a vicious cycle of inequality. This is a bigger problem than the inequality itself. The international communities are calling for stronger property taxes, including recurrent taxes on immovable property, as part of mitigating inequality and promoting inclusive growth. In Korea, there is heated discussion on property taxes, such as recurrent taxes on immovable property including the comprehensive real estate tax. Therefore, this study aims to investigate policy directions in international organizations and major countries on immovable property tax and examine the effect of property tax on the macro economy.This study consists of four parts. In Chapter 2, we examine the direction of international organizations’ tax policy on immovable property and the current real estate tax system of major countries. The international communities, represented by organizations such as the OECD, World Bank, and IMF, have been calling for stronger property taxes, such as recurrent taxes on immovable property, since the global financial crisis in 2008, and this trend has continued even after the COVID-19 pandemic in 2020. In particular, the introduction or reinforcement of a wealth tax, a new type of property tax, has recently become an issue of discussion. When comparing the real estate taxation systems of Korea, the United States, the United Kingdom, Canada, and Singapore, several characteristics become evident for Korea. In terms of the purpose of imposing immovable property tax, these major economies and Korea share the aim of securing local government finances, but the difference is that the international communities are focusing more on inclusive growth and improving inequality, while Korea is more focused on stabilizing the real estate market. As for the tax rate structure, countries except Singapore have a proportional tax rate system, whereas Korea operates an excess progressive tax rate system. It is also characteristic that Korea evaluates the value of real estate based on market price every year. On the other hand, with the exception of some countries, Korea and major countries have in common that the immovable property tax is a local tax, the taxpayer is the owner, the property tax deduction and tax exemption system exist, and the taxable value is based on the total value of the house.In Chapter 3, this study examines international comparisons of immovable property tax burdens using OECD data. First, in terms of time series for OECD countries, the average immovable property tax ratio (to GDP or total tax) has risen since the 2008 financial crisis. The ratio of financial and capital transaction taxes showed a relatively large drop, and inheritance and gift taxes ratio showed a sideways trend. In Korea, the immovable property tax ratio is also showing a modest increase. The ratio of transaction taxes, including real estate acquisition and registration tax, generally flattened during fluctuations, while that of inheritance and gift tax showed a steady rise. Next, in terms of cross-sectional comparison, Korea's immovable property tax ratio was lower than the OECD average level. Based on the effective immovable property tax ratio (immovable property tax revenues to total private real estate assets), which is an indicator of the actual tax burden on immovable property, the average of 15 OECD countries was 0.30%, while Korea recorded 0.17% in 2019. This seems to be due to the relatively high real estate price level, low tax base realization rate, and low immovable property tax rate in Korea. In 2019, Korea's private real estate market capitalization to GDP ratio was 5.54 times, the highest among comparable countries, far exceeding the average of 15 OECD countries (3.75 times). Meanwhile, in the case of financial and capital transaction taxes, inheritance and gift taxes, Korea recorded 1.75% and 0.43% of GDP, respectively, higher than the OECD average of 0.44% and 0.12%. In terms of total property taxes to GDP ratio, Korea recorded 3.12%, which is higher than the OECD average (1.85%).In Chapter 4, we analyze the effect of immovable property tax on housing prices in OECD countries using the dynamic panel model. According to the results of the analysis, an increase in the immovable property tax has a negative impact on the real housing price change rate, Price to Income Ratio (PIR), and Price to Rent Ratio (PRR). This seems to be because the strengthening of the immovable property tax raises the cost of owning a house, which increases pressure to sell houses or weakens the motivation to purchase houses. In particular, the fact that the strengthening of immovable property tax has the effect of lowering not only real housing price but also PIR and PRR has great significance in that it lowers the risk of a bubble in the real estate market. On the other hand, an increase in financial and capital transaction taxes has a positive impact on the real housing price increase rate, PIR, and PRR. This seems to be because the strengthening of transaction tax has a greater effect on deterring housing sales than the effect of weakening housing purchases.In Chapter 5, we investigate how the increase in property tax affects income inequality and economic growth in OECD countries. The analysis is conducted using a country and year fixed effect model, two-stage least squares, generalized method of moments, and three-stage least squares. According to the empirical result, an increase in immovable property tax is closely associated with decrease in income inequality, and at the same time, an increase in property tax can have a negative impact on short-term economic growth. We also find that the increase in income inequality does not lead to an increase in property tax. This decision-making behavior seems to be related to the OECD's policy recommendation to use the property tax as a means to improve income inequality.In Chapter 6, we present policy implications for Korea. First, in terms of the purpose of real estate policy, the Korean policy authorities need to shift toward a more fundamental and broader perspective, such as inclusive growth and sustainable growth, which the international communities are emphasizing, rather than the Korean government’s current focus on stabilizing the real estate market. This change in perception of real estate policy is very important in that it lays the foundation for more fundamental, continuous, and systematic real estate policy. Second, in terms of the real estate tax system, the policy direction and mix of gradually raising the immovable property tax and lowering transaction tax at the same time should be consistently pursued in order to achieve stability in the real estate market, inclusive growth, and sustainable growth. Finally, when improving the property tax system in the future, Korea's unique characteristics – such as a very high real estate price level, the jeonse system, and a low ratio of self-owned houses compared to major countries – should be taken into consideration. -
US-China Conflict, the Analysis on Europe’s Perceptions and Relations with the US and China: Historical Study and Prospects
With the advent of the era of G2, where the U.S.-China hegemony competition intensifies, many countries are struggling to build relations with the US and China. The European Union (EU) has maintained a close political..
Seung-Keun Lee et al. Date 2021.12.30
Political Economy, International Politics EuropeDownloadContentSummaryWith the advent of the era of G2, where the U.S.-China hegemony competition intensifies, many countries are struggling to build relations with the US and China. The European Union (EU) has maintained a close political, security and economic ties with the US. The EU shares identical security vision with the US. In contrast, the EU defined its relations with China as a cooperation partner, competitor and rival. It refers to the EU’s multifaceted relations with China. In climate change, multilateral trades and normative areas, the EU seeks to cooperate with China. However, the EU prompts profit balance through negotiations in the economic sector. Against this backdrop, the EU introduced a concept called ‘strategic autonomy’ by synthesizing the path dependence, Europe’s confronting issues and the EU’s strength and values regarding its relations with the US and China. The EU’s responses to the US-China conflicts are worth further attention.EU-US relations are based on Atlanticism, emphasizing the importance of bilateral cooperation based on identical civilization. Atlanticism emerged mainly in Britain in the 19th century as a concept encompassing democracy and the development of Western civilization. After World War II, it was embodied in the “Atlantic Alliance” formation, and NATO was launched in 1949. The establishment of the post-war European order began by the US’ Marshall Plan. In Europe, France pushed for independent economic reconstruction in 1951 by establishing European Coal and Steel Community (ECSC). In this process, confrontations between European countries were expressed by conflicts between British-centered “Atlanticism,” which values building relations with the United States, and French-centered “Europeanism,” which calls for Europeans to lead the establishment of European order. Since the end of the Cold War, on the one hand, Atlanticism has weakened relatively in the context of trans-Atlantic relations.Europeanism has recently re-emerged due to the expansion of the autonomous cooperation of European States. The clash between Atlanticism and Europeanism intensified, centered on the conflicts between UK/US and France, as Europe-US relations has been established as a ‘competitive and symbiotic relationship’. In January 2017, the emergence of the Trump administration, which promotes US priority and neo-isolationism, served as a decisive opportunity for cracks in the Atlantic Alliance.In terms of economic relations, the United States and the EU are the world’s first and second-largest economies, accounting for 42.7% of the world’s GDP and 29.1% of trade, respectively. They are mutually important trading and investment partners. In this situation, the two sides negotiated the FTA during the 2013-16 period, but it was suspended after the inauguration of the Trump administration, and bilateral trade relations rapidly deteriorated with the emergence of protection trade measures. Simultaneously, China led the establishment of the Asian Infrastructure Investment Bank (AIIB), and as many European countries participated, EU-China relations were also promoted. Amid intensifying trade conflicts between the US and China, the EU and the US agreed in July 2018 to minimize trade friction. Since then, they have cooperated in controlling China in the trade sector. The rise of the Trump administration deteriorated its relations with European states, which led a sharp decrease in supporting President Trump, and European perceptions of the US have changed negatively. The Atlantic alliance was eventually exacerbated. The Biden Administration received the task of recovering the broken Atlantic relations caused by the Trump administration. European perceptions of the US have significantly improved in this respect. During the terms of Trump administration, the negative perceptions about the US were predominant—weakening the US hegemony by viewing China as a leader rather than the US. However, after the Biden’s inauguration, the perception survey results showed that the positive perceptions about the US had increased again, and the US was viewed as a significant partner. The survey respondents recognized the limitation of the US political system and democracy model, so Europe’s perspectives on the US seemed to be changed from the past.The 1975 establishment of EU-China diplomatic relations laid the foundation of trade and economic cooperation, environmental dialogue, bilateral summits and human rights talks. Despite each European state showing different attitudes toward China, the two sides maintained relatively sound relations until the end of the 2000s. However, after experiencing the European sovereign debt crisis around 2010, Europeans started to perceive the importance of revising their approaches or policy instruments toward China. In particular, the COVID-19 crisis and US-China conflicts were the leading causes of changing European perceptions of China. The EU declared China not only as a strategic partner but also as a systemic rival. While requiring economic and investment cooperation with China, the EU are cautious about China’s extreme expansionism, human rights violation and challenges to the liberal democracy. It also emphasizes the importance of strategic responses in a multifaceted relationship.Europe-China relations have undergone the biggest changes in the economic sector. Since the rapid growth of Chinese economy, the EU-China trade volume has significantly increased. As a result, the two parties became their number one trading partners. In this process, the EU’s trade deficit with China increased over 180 billion Euros in 2020. Until the mid-2000s, European businesses mainly invested in China.In contrast, Chinese businesses began to increase their investment toward Europe after the 2008 global financial crisis. In 2017, China’s investment in the EU exceeded the volume of the EU’s investment in China. Recently, China’s investment in the EU is usually implemented as formats of mergers and acquisitions (M&A) in the key industry. It has been a direct cause of the EU’s introduction of a screening system for foreign investment and urging China to sign a bilateral investment agreement.European public perceptions of China have negatively changed. European respondents showed their negative perceptions toward China except for the EU-China trade. However, the younger generation relatively showed more positive attitudes toward China than the older generation, which implies further changes. Currently, EU-China relations have changed into a high-tension status. It is still questionable whether the EU maintain their antipathy toward China in the case of the EU’s future enlargement.Traditionally, the EU’s diplomacy is characterized by multilateralism, promoting active cooperation among multiple actors. It contrasts significantly from the US’ unilateral diplomatic approach. Hence, the EU has shown its leadership in the fields where multilateralism is universally applicable, such as environment, human rights and climate change. However, in recent years, the EU has been strengthening its own capabilities by ‘strengthening strategic autonomy’. Also, the EU has recently been trying to benefit from diplomacy, national defense, industry, and technology.Furthermore, the EU attempts to weigh up its Atlantic partnership with the US against its economic partnership with China. US-China conflict would not be easily resolved under the Biden Administration. On the one hand, the US tried to restore its broken trans-Atlantic alliance. On the other hand, the US established an AUKUS—an alternative alliance with Australia and the UK—which could be regarded as a warning sign. Accordingly, the EU shows its selective cooperation with the US rather than the Union’s complete reliance against the US. Against China, the EU attempted to take a multifaceted approach to each issue. It means the EU’s active support in the areas of trade and investment and the EU’s apparent confrontation against China in the areas of illegal subsidies and unfair practices.International conflicts continue to emerge due to a recent combination between security and the economy. The EU’s ‘open strategic autonomy’ is a byproduct of high coordination and troubles in this process. Europe’s strategy for dealing with the US and China provides implications for Korea’s diplomatic and trade policies. South Korea’s diplomacy is at the crossroads due to the US-China conflict triggered by the Trump administration period. It is because South Korea cannot abandon only its value-based alliance with the US but also its significant geopolitical and economic interests with China. First of all, in diplomacy, South Korea-US relations need to be rooted in their alliance because they have shared common values such as liberal democracy and a market economy system. Simultaneously, it is necessary to find an equilibrium between value and pragmatism through establishing multifaceted relations. South Korea does not share its political values and systems with China, but it is obviously an important partner in terms of its economy, climate change, and geopolitical weight. South Korea needs to advocate norm-based international relations by the active participation of the multilateral international order, taking the leading role by finding out the relevant issues and strengthening its solidarity with like-minded partners.In the field of trade, it is essential to note the competition paradigm has been shifting into a form combining technical advances, trade policy, labor and environmental regulations. In particular, international actors are inclined to combine trade policies with social issues like climate change, labor and human rights for restraining China. Therefore, South Korea needs to implement preemptive improvement of the systems up to the level of advanced countries in these fields. It also needs to implement diverse approaches such as traditional trade policies based on the FTAs, public diplomacy based on democracy and human rights, and CSR activities which are under company units. Additionally, it is necessary to actively respond to the changes in the global supply chain by participating in the chain reorganization supported by the US and the EU or the restoration plan by using bilateral economic cooperation and local corporations of Korean companies.