The Economic Impact and Application Plan of the Visa-Free Regime between Korea and Russia


Yeo-Cheon Jeong, Soonchan Park, and Boo Gyun Kang



Korea and Russia, for years, have had informal discussions in both government and private sectors on the need for an introduction of visa-free regime between two countries. And at the 9th bilateral consular affairs talks held in March 2010, two countries finally started an official dialogue to establish mutual visa-free travel. In particular, during the 2012 APEC summit, leaders from both countries agreed to open negotiations for mutual visa-waiver agreement (VWA), and then at the 12th bilateral consular affairs talks held in May 2013, the both sides reached agreement on general contents of the agreement.

The political-economic judgement takes a main role in promoting Korea-Russia visa-waiver agreement. Since the establishment of diplomatic ties in 1990, Korea-Russia relationship has been steadily moving forward. At the 2008 summit, the two leaders agreed to upgrade bilateral ties from the status of a comprehensive partnership to that of a strategic cooperative partnership. And in 2012, Korea's trade volume with Russia amounted to 22.5 billion dollars, an increase of 117 times over 20 years. The number of mutual personal exchange between both countries also increased up to 280 thousand people in 2012.

The purpose of this study is to analyze the background and economic impact of the Korea-Russia VWA, and come up with propositions for its efficient application plan. The study is consisted of five chapters. The first chapter introduces background and purpose of the study and previous research. Then, an overview on the background and contents of the agreement is presented in the second part. In the third chapter, the status and charateristics of visa-waiver agreements that are already in existence discussed.

In the fourth chapter, the economic impacts of the Korea-Russia VWA are analyzed. In particular, this study evaluates the economic benefit that the VWA brings to the Korea, including increased tourist-business trips and reduced expenditure on visa issuance. In order to capture the net effect of the VWA – the increased tourism and business trips due to VWA – the author uses the difference-in- differences method as well as random effect and fixed effect model based on statistics of inbound and outbound visitor trends for 64 countries, which with Korea made a VWA. Also the author calculates the trade stimulating effect between Korea and Russia using gravity model and conducts input-output analysis for Korean tourism. However, the results of this study show minimum riffle effect of Korea-Russia VWA, as it is based on average indicators of VWA already achieved between Korea and 64 individual countries.

The chapter five summarizes previous parts and presents challenges and measures to enhance cooperation between Korea and Russia, by VWA as a momentum. The visa-waiver agreement can be either an opportunity or an instrument for boosting economic cooperation, but it is hard to be an immediate factor. Therefore, comprehensive policy tools needs to be prepared to maximize its effect.

Companies have set up global value chains by fragmenting the production processes including product design, outsourcing, assembling, and marketing to subsidiary and cooperative firms since the 1990s. As a result, recent trade patterns have been transformed from trade in goods to trade in tasks.
The rise of global value chains has changed the trade and investment patterns in East Asia. The East Asian intra-regional trade and investment has increased substantially in recent years. Specifically, the intra-regional trade of intermediate goods in East Asia turned out to increase compared to the EU and the US, and East Asian value chains have grown rapidly in recent years.
This paper calculates the indicators to show how the global value chains have deepened in each region by using the World Input-Output Tables which cover 41 countries and 35 sectors during 1996~2009. The indexes of global value chains have been proposed by Fally(2011), Fally(2012), Antras and Chor (2011), Antras et al.(2012), Koopman et al. (2010), OECD(2012), Meng et al. (2006). We calculated international downstreamness and upstreamness indexes based on the international input-output tables. The international downstreamness index in case of East Asia turned out to be relatively high compared to the EU and NAFTA. It is notable that the East Asian international upstreamness index also increased substantially during the same period.

This study also decomposes the trade in value added into domestic and foreign contributions in order to analyze the effects of global value chains on the East Asian intra-regional value added. It uses the data for the 41 countries and the 35 industries contained in the World Input-Output Tables. This study investigates the shares of intra-regional value added for the East Asian countries by FTA scenarios, applying the methodologies developed by Koopman et al.(2010) and Hummels et al.(2001). It is not surprising to see that the shares of intra-regional value added turn out to be dependent on the number of countries joining FTAs, which implies that the positive effects of global value chains will be magnified with the deepening regional integration.
This study also analyzed the economic effects of value chain structure in East Asia by various FTA scenarios. We used the recursive dynamic computable general equilibrium(CGE) model to analyze the value chain structure in trade and industrial linkages. The policy simulations based on rules of origin are expected to provide more realistic results and meaningful implications consistent with previous research. According to the results, the economic growth effect of a KC FTA is greater than other FTAs regardless of strictness of rules of origin. The simulation results also indicate that the effects of FTAs decrease as rules of origin become stricter and relative decreases in ratios of economic integration are less than those of bilateral FTAs. The value chain structures turn out to magnify the effects of KC FTA and RCEP, but decreases those of the KJ FTA because Korea’s trade dependency on China and ASEAN are relatively intense.
The results from this study provide some policy recommendations as follows. Global trade liberalization is needed to maximize the positive effects expected from the global value chains. East Asian countries also need to harmonize the border measures including standards, SPS, and TBT which are expected to facilitate global value chains in the region. The liberalization of services such as distribution, finance, and business services among others are also expected to contribute to efficient movement of goods and materials in the intra- and inter-region trade. Specifically, the East Asian countries need to harmonize the intra-regional bilateral FTAs to reduce the so-called noodle bowl effects.

 

Executive Summary 1. Introduction 2. Trade Model with Labor Market Friction 2.1. Environment 3. Simulation Results 3.1. Trade Liberalization between Symmetric Countries 3.2. Trade Liberalization between Asymmetric Countries 3.2.1. Difference in output elasticity with respect to labor 3.2.2. Difference in population 3.2.3. Difference in productivity 4. Calibration of Korea-Japan FTA 4.1. Background 4.2. Parametrization 4.3. Results 5. Conclusion References

We study the welfare implications of a bilateral free trade agreement. The model is based on the recent trade literature that considers search and matching frictions
in the labor market. We extend the model by incorporating country-level heterogeneity in terms of production technology, population, and productivity endowment.
Model simulation results show a simultaneous tariff cut between symmetric countries to reduce unemployment rates and increase prices in the product market
due to higher long run demand, while nevertheless benefiting the economy owing to a more rapid rise in consumer income. In the case of asymmetric countries,
we find that larger gains from greater openness to trade accrue to a country with (relatively) more elastic supply occasioned by capital-intensive production
technology that accommodates more flexible adjustments to output in response to increased demand. We calibrate the model to Korean and Japanese data in
order to assess the expected outcome of the potential trade liberalization between those countries. With a scenario of symmetric level of trade liberalization (in
terms of trade cost reduction), when we assume the same population size in a counterfactual way, we find Japan to receive greater benefits from the opening
because its relatively more capital intensive production allow for quicker output adjustment upon trade liberalization. When we presume, however, that Japan’s
population is 2.5 times that of Korea, the results show Korea to enjoy a slightly more surplus due to the market size effect.

Prospects and Implications of the Pacific Alliance


Taekyoon Lim and Siun Yi

The Pacific Alliance, which was officially launched by four Latin American countries on the Pacific coast (Chile, Colombia, Mexico, Peru) in June 2012, has been making fast progress and is expected to open up new horizons in economic integration in Latin America. Under the circumstances that existing regional communities such as MERCOSUR and ALBA are faltering, the Pacific Alliance is drawing attention from the world as it advocates Open Regionalism.

According to our quantitative analysis on prospect of the Pacific Alliance based on the macroeconomic indicators of the member countries, the Pacific Alliance shows a positive but somewhat limited prospect. When it comes to various qualitative aspects, however, the future of the Pacific Alliance is quite positive. In terms of institutional aspect, the Pacific Alliance avoids institutionalization and bureaucratization. Given that existing regional communities in Latin America focused on institutionalization and failed to produce practical outcomes, the minimal institutionalism of the Pacific Alliance is expected to achieve pragmatic development as a new model of regional integration. From the approach of natural market, the Pacific Alliance has a high level of socio-cultural homogeneity. Though the member countries are located somewhat spread out, this potential geographical disadvantage has not been an issue. In terms of economic aspects, the member countries of the Pacific Alliance have relatively good business environment and high economic freedom in Latin America, and this well supports the characteristics of its Open Regionalism pursuing Asia-Pacific markets. Still, the very high percentage of agricultural products in exports may be a potential issue when the Pacific Alliance tries to abolish tariffs completely. In political terms, the member countries of the Pacific Alliance has rightist or center-leftist, liberal dispositions and a high level of democracy. It has little concern about security within or outside the Pacific Alliance, and the external hegemon, the United States, is quite in favor of the Pacific Alliance. Also, the political will of each member government is very strong, which makes the prospect of the Pacific Alliance very positive.

It might be too early to discuss concrete cooperation with the Pacific Alliance at the moment since it is currently focusing on the deepening of its internal consolidation. However, it is necessary to make the foundations for future cooperation as the Pacific Alliance begins serious discussion about cooperation with the Asia-Pacific in the near future. Thus, we will have to have a medium- and long-term rather than a short-term view. In the first place, we will have to reduce the gap in interests between the Pacific Alliance and us, and we will have to pursue investment in the member countries of the Pacific Alliance in the areas that they want FDI such as mining, transportation infrastructure, and renewable energy. Through gradual and steady efforts to improve the relationship with the Pacific Alliance, we will have to take a better position in future cooperation than our competitors including China and Japan.

Executive Summary

I. Introduction

II. Agricultural Development in East Asian APEC Economies
1. The Economic Importance and Productivity of Agriculture
2. Food Security and Agricultural Production
3. Food Self-Sufficiency

III. Challenges Facing Agricultural Development and Trade in East Asian APEC Economies
1. Agricultural Prices and Trade
2. Stagnating Agricultural Productivity: Land, Investment and Technology

IV. Agricultural Technical Cooperation in APEC
1. Advantages and Future Possibilities
2. Requirements for Effective Technical Cooperation

V. Conclusion

References

Appendix

East Asian APEC economies should expand cooperation, as they have common goals to achieve greater food self-sufficiency and food security by 2020. In Asia, the issues of undernourished (particularly China), small-scale farming due to limited farmland and consequently low levels of mechanization, aging and feminizing farm workforce are crucial. These problems will be exacerbated to be solved due to increasingly open markets through the proliferation of free trade agreements.
To tackle these challenges, through increasing agricultural productivity and production, and adequate agricultural trade development, economies should improve food security and tackle related social issues. In this regard, agricultural technical cooperation among East Asian APEC economies has advantages: they share relatively common problems of and approaches to agricultural labour force and agricultural economy; in addition, agricultural trade among APEC Asian economies is growing faster than any other region. They can form collective responses while sharing best practices and experiences, technical and financial assistance, common responses to environmental and climate change issues, development of data infrastructure, minimizing the negative impact from agricultural open market.
Concretely, East Asian APEC member economies can better gather and share alternative indicators that measure emerging contemporary agricultural issues by including them into statistical systems. Through this, they can build more adequate policies. It is also necessary to create collective solutions for transition of agricultural labour force, especially small-scale farmers, into higher-value and ecological farming or productive non-farm sector through skills development and for better coping with consequent shocks and adjustments from increasing free trade agreements. In order to do so, they need to bring up collective commitment to agricultural development and investment for the long term.
Achieving such cooperation will require strong, effective, and well-resourced driving agents. Despite the limitations of APEC’s current institutional bodies on agricultural technical cooperation, if APEC is committed to the Food Security Road Map of improving food security by 2020, then it must extend its cooperative efforts such as the Agricultural Technical Cooperation Working Group (ATCWG) and Policy Partnership on Food Security (PPFS) to be increasingly focused and include a wider range of actors, including farmers – the true agents of change in any agricultural system.  

Executive Summary

I. Introduction

II. Role of European Parliament in the EU’s Trade Policy
1. EU’s Trade Policy and the EP’s Involvement
2. Changes in EP’s Competences after the Lisbon Treaty

III. Literature Review of Voting Patterns of European Parliament
1. The Voting Patterns of European Parliament
2. US Congressional Voting on Trade Policy

IV. Econometric Analyses
1. Trade Legislations Examined
2. Votes by Political Groups and Countries
3. Empirical Test of Votes (Probit Model)

V. Conclusion

References

This paper reviews changes in role of European Parliament (EP) in EU’s trade policy since the Lisbon Treaty. The Treaty brought about important changes in EU governance, and in particular, strengthening of the role of the EP. EP’s competences in trade policy were also strengthened. All trade agreements with third countries require a consent from the EP in the ratification procedure and all trade-related legislations must be jointly decided by the Council and the EP.
This paper examines the determinants of voting patterns for EU’s trade legislations including EU’s Free Trade Agreements (FTA) with Korea and Colombia/Peru. The results confirm that Members of European Parliaments (MEP) still tend to vote with others in their political groups in trade legislations and their voting pattern is not very different from the previous pattern. This trend is confirmed by both the comparison of intra-voting cohesion index and the empirical test based on the probit model. Country-specific variables do not explain well the voting behavior of MEPs. However, it is noteworthy that some MEPs voted in line with their national interests in case of Korea-EU FTA.
It is expected that influences of the EP on EU’s trade policy would increase over time, as MEPs realize their new powers and learn how to use it to reflect their opinion on EU’s trade agenda. As the EU expands its FTAs to the United States and Japan, much larger trade partner than the EU ever negotiated, more active involvements from the EP are expected. This means that various interest groups, such as trade associations and NGOs will attempt to exert greater influence on the European Parliament as well as the European Commission.

Executive Summary
I. Introduction

II. Trend of Trade and FDI between India and East Asia
1. Trade
2. FDI

III. Literature Review and Distinction

IV. Data, Methodology and Estimation
1. Analyzed Countries and Data
2. Methodology
3. Estimation

V. Conclusion and Policy Implication

References

Appendix

Executive Summary 

I. Introduction 

II. The Panel Smooth Transition Regression Error Correction Model 

III. Empirical Analysis 
1. Data 
2. Panel Unit Root and Cointegration Tests 
3. Results from the PSTR Model 

IV. Conclusion 

References 

 

This paper investigates nonlinear effects of government debt on private consumption in 16 OECD countries. The estimated consumption function shows smooth regime switching depending on the debt-to-GDP ratio, and the threshold level of regime switching is found to be the ratio of 83.7 percent. The results reveal that a higher level of government debt crowds out private consumption to a greater extent, and that the degree of the crowding out effect has deteriorated since the global financial crisis.

China’s Rural Consumption Market: with Focus on the Suburbs of Beijing


Furong Jin and Jonghyuk Oh






As the Chinese government changed the economic growth paradigm to domestic demand economy after the 2008 financial crisis, Korean enterprises now should view China as the domestic demand market rather than a production base and accelerate advancement into the China market. To do so, Korean enterprises need to pay attention not only to the urban regions but also to the rural market that is recently being vitalized. The future urban market is expected to expand continuously on the strength of the Chinese government’s rural consumption vitalization policy.

Under the circumstances where Chinese rural areas emerge as the important market, this research derived the ways for Korean enterprises to advance into the Chinese rural market through analysis on current conditions of Chinese rural consumption market, characteristics of rural consumers, and the case analysis on the enterprises that have advanced into the rural market. To conduct effective analysis, this research used diverse analytical methods such as statistical analysis together with literature research, questionnaire survey, and case study.

The analysis results of the current rural consumption market conditions showed that the average annual expansion of the Chinese rural consumption market is 9% in terms of absolute size. In the 2000s, however, the size of the Chinese rural consumption market has continuously decreased due to the urban population increase, along with urbanization and rapid growth of income level of urban households. Furthermore, the rural area consumption composition has changed and the food expenditure has decreased drastically, whereas the expenditures on clothing, housing, durable consumption goods, and transport communication service have increased.

The rural consumption in China has been restricted by slow income growth, low purchasing power, obsolete infrastructures, low-level public services, and inadequate distribution system. However, the Chinese government is currently promoting policies, such as the increase in rural household incomes, promotion of short-term consumption boosting policy, construction of modern distribution network and supply chain, and improvement of the social welfare system. As a result, the rural consumption market is expected to be gradually vitalized.

In order to determine the characteristics of rural consumers, a questionnaire survey was conducted on rural households in the suburbs of Beijing. The results of the survey showed that the rural consumers preferred high-quality, inexpensive, and practical products. They acquired the information on these products mainly through TV and word-of-mouth. The survey results regarding the knowledge of Korean products showed that in the image of Korean products, “so-so” was the most responses, and regarding the decision factors for purchasing Korean products, quality was most cited, followed by price and design, and regarding the preferred Korean products, home appliances were most cited, followed by health food, stationery, baby products, and cosmetics.

The enterprises, which were successful in the Chinese rural market, consisted mostly of Chinese local enterprises. However, the foreign capital enterprises, including the Korean enterprises, are still limited to the first-tier large city markets. In addition, their advancement into the rural areas, which are latent markets, is minimal. The foreign capital enterprises are unaware of the characteristics of the rural markets. Moreover, they are less competitive in brand awareness, price, distribution network, and convenience in after-sales service than the local enterprises. The key success factors of the enterprises, which have been successful in the Chinese rural market, included sufficient market analysis, development of products based on the demands of the rural consumers, construction of broad distribution network and supply chain, and friendly customer service.

The research suggests some promising fields for advancing into the Chinese rural market, such as leisure food and baby food (food sector), heating facilities and sanitary equipment (housing), cellular phones (durable consumer goods), baby goods and cosmetics (daily necessities), additional services for cellular phones (transportation and communication), and stationeries (education, cultures and entertainment services). Meanwhile, the advancement ways of Korean enterprises into the rural market have been derived.

First, rural areas in the suburbs of large cities, instead of the complete rural areas, should be targeted. The rural areas near the large cities have high levels of income and consumption. Furthermore, the purchasing power is formed to a certain extent, accessibility to large cities is satisfactory, and the urban consumption culture is influential. As a result, the risk involved for the advancement into a rural market can be reduced.

Second, practical and inexpensive products should be developed for the consumers in the rural areas as opposed to expensive and high-tech products, which are equipped with diverse functions.

Third, rural and natural environment-specialized products should be developed. During the stage of product development, characteristics of rural consumers and special environment factors of the rural areas (such as frequent thunderstorm and unstable voltage) should be considered.

Fourth, the existing distribution network should be actively utilized and the broad supply chain should be built. Direct sales seemed difficult for small and medium-sized enterprises to adopt; however, indirect sale methods via distributors have to be utilized positively. If the supply chain is not secured properly, the distribution cost will rise, thereby affecting the product prices and rural consumption.

Fifth, the TV and the surrounding people should be utilized for product promotion. Contrary to urban consumers, who acquire product information mainly through the Internet, newspapers, or magazines, rural consumers collect product information through TV and acquaintances. As a result, TV should be actively utilized and brand promotion should be performed through word of mouth by the influential people in the corresponding areas.

Sixth, a strategic marketing plan for the rural area is also important. In some part of the rural areas, customary consumption during events, such as consecutive holidays or big holidays, still remains; therefore, this needs to be positively utilized.

In addition to these, the meticulous pre-survey on the market, customized advancement through market segmentation and selection of target market, construction of broad service network and friendly customer service, enhancement of quality competitiveness and coping with infringement of intellectual property rights, reinforcement of CSR, positive utilization of the government policies, and establishment of the relationship with the government, all of which can be applied equally to the urban market, should not be neglected.

The government should reinforce research on the rural market, build a network between the central and local governments, and make efforts to raise the national image.