Policy Analyses
PUBLISH
Policy Analyses
-
External Adjustment under Increasing Integration in Korean Economy
In this paper, we study the external adjustment of Korea under international product and financial integration by examining the evolution of the external balances, changes in international transactions and trends of the terms of t..
Inkoo Lee et al. Date 2009.12.30
Economic opening, Financial integrationDownloadContentI. Introduction
Ⅱ. Global Financial Crisis and External Balances of Korea
Ⅲ. External Adjustment under Integration
Ⅳ. Conclusions
References
SummaryIn this paper, we study the external adjustment of Korea under international product and financial integration by examining the evolution of the external balances, changes in international transactions and trends of the terms of trade. We first discuss changes in Korean external balances with a focus on the impacts of recent global financial crisis on the exchange rates and net exports in order to understand external adjustments by the external shocks. We then discuss external adjustment under increasing integration in Korean economy by examining changes in international transaction behaviors. We show that (1) trade channel supplements the net foreign debts in Korea, (2) Korea exhibits more risk sharing behavior under increasing economic integration, while home bias in equity market still remains as a puzzling phenomenon, and (3) a crucial factor contributing to the slowdown of private consumption has been a reduction of national income caused by a deterioration of the terms of trade. -
Trade Openness and Vertical Integration: Evidence from Korean Firm-Level Data
Using firm-level data on vertical integration of Korean manufacturers, the paper tests whether trade liberalization is an important determinant of firm's decision on vertical integration. We develop an empirical framework incorpor..
Hea-Jung Hyun et al. Date 2009.12.30
Business management, Free tradeDownloadContentⅠ. Introduction
Ⅱ. Determinants of Vertical Integration: Literature Review
Ⅲ. Empirical Methodology
Ⅳ. Empirical Results
Ⅴ. Conclusions
References
Appendix
SummaryUsing firm-level data on vertical integration of Korean manufacturers, the paper tests whether trade liberalization is an important determinant of firm's decision on vertical integration. We develop an empirical framework incorporating trade openness into industrial organization models; transaction costs theory and theory of internal costs of management. The empirical results of the paper suggest that trade openness is negatively related with vertical integration. A further analysis on firm's decision among four types of organizational forms in international contexts, however, reveals that trade liberalization has positive impact on cross-border vertical integration while it is negatively correlated with domestic vertical integration. -
Portfolio Investment of Foreign Capital and its Impact on Stock and FX Market
Korea has lifted all the barriers against foreign capital in the 1990s, especially after the currency crisis in 1997. As a small open economy, the Korean economy became more volatile due to the movement of foreign capital after th..
Deok Ryong Yoon et al. Date 2009.12.30
Financial liberalization, Financial systemDownloadContentSummaryKorea has lifted all the barriers against foreign capital in the 1990s, especially after the currency crisis in 1997. As a small open economy, the Korean economy became more volatile due to the movement of foreign capital after the capital liberalization. This study focuses on the volatility caused by foreign portfolio investment in the stock market as well as in the foreign exchange market to find a way to stabilize the market.(The rest is omitted) -
Global Financial Crisis and Post-Crisis International Financial Architecture
This study examines the causes and results of global financial crisis, which was triggered by the subprime mortgage crisis in the U.S. It further suggests policy implications to overcome the crisis. Chapter 2 summarizes the causes..
Yonghyup Oh et al. Date 2009.12.30
Economic integration, Financial crisisDownloadContentSummaryThis study examines the causes and results of global financial crisis, which was triggered by the subprime mortgage crisis in the U.S. It further suggests policy implications to overcome the crisis. Chapter 2 summarizes the causes of the U.S. financial crisis and explains its effects on the economic recession. Chapter 3 focuses on the international transmission of the financial crisis in two aspects of both financial and foreign exchange crisis. In addition, it summarizes major countries' policy responses to get over the crisis countries being USA, EU, China, Japan and other Asian countries. The empirical analysis accounts for the international transmission of the financial crisis between the U.S. and Korean financial markets. Chapter 4 provides policy suggestions for national authorities and international cooperations, including the G-20 process at a global level and the CMIM (Chiang Mai Initiative Multilateralization) at a regional level. The last chapter is a conclusion that also looks at the G-20 process as a new feature of the post-crisis international economic order.(The rest is omitted) -
Transport Costs, Relative Prices, and International Risk Sharing
This paper studies the role of the transport costs in accounting for the puzzling behaviors of relative prices and risk sharing across countries. We show that introducing the transport costs in an otherwise standard competitive mo..
Inkoo Lee et al. Date 2009.12.30
Financial integration, Capital marketDownloadContentⅠ. Introduction
Ⅱ. Purchasing Power Parity Puzzle
Ⅲ. International Risk Sharing Puzzle
Ⅳ. Transport Costs
Ⅴ. The Model
Ⅵ. Results
Ⅶ. Conclusions
ReferencesSummaryThis paper studies the role of the transport costs in accounting for the puzzling behaviors of relative prices and risk sharing across countries. We show that introducing the transport costs in an otherwise standard competitive model improves its ability to rationalize the deviations from the law of one price and imperfect international risk sharing. Our analysis suggests that the purchasing power parity puzzle and the consumption correlation puzzle can naturally arise in the presence of real frictions, even under the assumption of complete financial markets.
-
Impacts of Free Trade Agreements on Structural Adjustment in the OECD: Panel Data Analysis
This paper examines the effects of FTAs such as the EU, the NAFTA, and the CER on production, employment, and industrial structure in the OECD. Specifically, this study implements the following two-stage approach. First, it applie..
Nakgyoon Choi Date 2009.12.30
Economic integration, Industrial policyDownloadContentI. Introduction
II. Basic Equation and Database
Ⅲ. Applying Unbalanced Nested Error Components Model to the Pooled Data
Ⅳ. Effects of FTAs on Structural Adjustment by Industries
Ⅴ. Conclusion and Policy Implications
References
Appendix
SummaryThis paper examines the effects of FTAs such as the EU, the NAFTA, and the CER on production, employment, and industrial structure in the OECD. Specifically, this study implements the following two-stage approach. First, it applies an unbalanced nested error components model to the pooled data for the full 30 country, 16 industry, and 24 year sample. Second, it implements both one-way and two-way error component regression models to handle fixed effects and random effects along with country-specific and time-specific characteristics. This paper demonstrates that the coefficient on FTAs is statistically significant and positive, when we apply the nested error components model to the pooled data on the full 16 industries in the OECD, meaning that FTAs tend to enhance production and employment structures. When we analyze the country-specific and time-specific effects using the fixed effects model as well as the random effects model for the six industries, the coefficient on FTAs turned out to have different signs depending on the industry. The FTAs tend to increase the production share of agriculture, metal, and transport industries, while having opposite effects in the case of food, textile, and business services industries. On the other hand, the FTAs tend to increase the employment share of metal and transport industries, but decrease that of agriculture, food, textile, and business services industries. -
Effects of Foreign Investment on Korean Bond and Derivatives' Market
Foreign investment in Korea's financial market attracted attention mainly due to its impact on price and volatility. This study analyzes the impact of foreign investment in bonds and derivatives market in Korea, even though foreig..
Deok Ryong Yoon et al. Date 2009.12.30
Financial liberalization, Financial systemDownloadContentSummaryForeign investment in Korea's financial market attracted attention mainly due to its impact on price and volatility. This study analyzes the impact of foreign investment in bonds and derivatives market in Korea, even though foreigners do not have strong impact on these markets.(The rest is omitted) -
Macroeconomic Structure for the Stable Economic Growth in Korea
Korea is an example of a country that has maintained a policy of export-oriented growth. Due to the small domestic market size and relative low level of GDP per capita, Korea cannot still reduce its reliance on exports. The financ..
Deok Ryong Yoon et al. Date 2009.12.30
Economic opening, Economic integrationDownloadContentSummaryKorea is an example of a country that has maintained a policy of export-oriented growth. Due to the small domestic market size and relative low level of GDP per capita, Korea cannot still reduce its reliance on exports. The financial sector has also become increasingly dependent on foreign capital since the currency crisis in 1997, because the country has removed almost all barriers against external investment. A relatively high level of trade dependency as well as the growing weight of foreign capital in the domestic financial markets caused a concern that the external sector would become more important than the domestic sector. Global financial and economic crisis last year reignited discussions on the appropriate level of Korea's external dependency. In this book, we examine issues and problems related to high external dependency or linkage in various ways. Based on the results of our empirical and analytical observations, we also suggest policy recommendations which may bolster stable economic growth in Korea.(The rest is omitted) -
From ASEAN+1 FTAs to an East Asia FTA
Although East Asian Countries belatedly joined the worldwide regionalism, they concluded many bilateral and plurilateral FTAs within a relatively short period of time. A number of FTAs were concluded among East Asian countries.In ..
Chang Jae Lee et al. Date 2009.12.30
Economic integration, Free tradeDownloadContentSummaryAlthough East Asian Countries belatedly joined the worldwide regionalism, they concluded many bilateral and plurilateral FTAs within a relatively short period of time. A number of FTAs were concluded among East Asian countries.
In addition to the 'Spaghetti bowl phenomenon' that resulted from the proliferation of FTAs among East Asian countries, recently, the global financial and economic crisis prompted East Asian countries to consider seriously an East Asia FTA (EAFTA). In fact, since the United States and the European Union are not expected to continue absorbing exports from East Asian countries in the coming years, there is a growing need for expanding the intra-regional market, and an EAFTA.(The rest is omitted) -
OECD DAC Guidelines and Implications for Korea's ODA Policy
On 25 November 2009, Korea became the 24th newest member of the OECD Development Assistance Committee (DAC). The DAC is a unique international forum where donor governments and multilateral organizations come together to help part..
Yul Kwon et al. Date 2009.12.30
Economic development, Economic cooperationDownloadContentSummaryOn 25 November 2009, Korea became the 24th newest member of the OECD Development Assistance Committee (DAC). The DAC is a unique international forum where donor governments and multilateral organizations come together to help partner countries reduce poverty and achieve the Millennium Development Goals. As a member of the DAC, Korea needs to upgrade its development assistance system and follow international guidelines on development.(The rest is omitted)