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11. The Rise of China and the Rebound in Korea’s Manufacturing Employment

Author:
Kyong Hyun Koo and Unjung Whang
Publication Date:
12-2018
Content Type:
Working Paper
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
Over the last three decades, the world has experienced a substantial in-crease in Chinese import penetration due to the rapid improvement in Chi-na’s supply productivity, which is often called the “China shock” or “China syndrome.” The existing literature have shown that the increase in imports from China due to the China shock adversely affected the manufacturing employment of a number of advanced countries such as the U.S., Norway, Denmark, and Spain. Unlike those advanced countries, South Korea has shown a pronounced increase in exports to China as well as imports from China since the 1990s. Over the same time, furthermore, Korea’s manufactur-ing employment has shown a stagnated downward trend compared to other advanced economies and even rebounded since the mid-2000s. Given these motivations, this study investigates both import and export channels to ex-plore how the China trade shocks affected the exceptional trend in Korea’s manufacturing employment from 1993 through 2015. To capture the overall employment effects of the China shocks, specifically, we consider not only how a Korean manufacturing industry employment is affected by the change in its direct exposure to China trade shocks (direct effects), but also how other industries’ changes in exposure to China trade shocks affect the industry through domestic industrial linkages (indirect ef-fects), largely following the empirical approach employed by Acemoglu et al. (2016). Mainly using firm-level data for almost all Korean manufacturing firms with more than four employees and the 2SLS estimation method, we find that during the period 1993-2015 the increase in Chinese import expo-sure had statistically insignificant direct effects on Korea’s manufacturing em-ployment on average, while 1% point increase in Chinese export exposure directly caused 0.18% increase in employment across Korean manufacturing industries. For the indirect effects of China shocks, in contrast, 1% point in-crease in Chinese import exposures of downstream industries (intermediate goods buyers) led to 3.00% decrease in employment of upstream industries (intermediate goods sellers) on average, while 1% point increase in Chinese export exposures of downstream industries brought 1.70% increase in em-ployment of upstream industries on average. The relatively moderate direct effects compared to the indirect ones are partly explained by two factors: First, Korea has gone through a substantial change in the structure of its trade with China since 2000s, so that within-industry supply chains between China and Korea have become more intertwined for some industries. Second, the Korean industries whose main downstream industries were substantially exposed to the Chinese imports (exports) tended to have a relatively low di-rect Chinese import (export) exposure during the period 1993-2015. Based on the 2SLS estimates above, the increased Chinese import expo-sure turns out to have decreased Korea manufacturing employment by 1,210,000 during the period 1993-2015, mainly through the indirect channel. In contrast, the increased Chinese export exposure appears to have increased Korea manufacturing employment by 1,090,000 during the same period, through the direct channel (210,000) and indirect channel (880,000). In the case of Korea’s manufacturing industry, therefore, most of the job reduction attributable to the China shocks has been also offset by job creation caused by the China shocks. Such a considerable increase in manufacturing jobs due to the rise of China, which has not been reported yet in other advanced economies, appear to have played an important role in generating the re-bounding trend in Korea’s manufacturing employment.
Topic:
Globalization, Labor Issues, Economic Policy, and Trade Shocks
Political Geography:
China, Asia, and South Korea

12. A Study on the Dynamics of Foreign Trade and the Issues of Regional Economic Integration in Central Asia

Author:
Kodirjon Maxamadaminovich Umarkulov
Publication Date:
11-2018
Content Type:
Working Paper
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
At the current stage of globalization, Central Asia (CA) is becoming a focal point for the political and economic interests of global forces because of its rich natural resources and critical strategic position. From this point of view, the CA countries need to form a joint development strategy for solving regional problems and a strong mechanism for countering the main political and economic conflicts in the region. At the same time, the countries of the region need to choose the path of joint development in order to increase the efficiency of their internal capacities and resources, adapt the domestic social and economic infrastructure to modern requirements and improve the living standards of the population. This is directly related to the progress of regional economic integration in CA. Through this integration, the economies of the countries in the region could complement each other and ensure a high level of development in mutual trade and industrial development. However, there are some obstacles and problems hindering the development of economic integration in the region. Most particularly, the weak infrastructure in the region, its economic-geographical isolation from world markets, administrative barriers and political instability hinder trade between the countries of CA. From this point of view, this study focuses on the problems of general and cross-border trade in CA countries, and the opportunities for economic integration in the region.
Topic:
International Trade and Finance, Regional Integration, Economic Policy, and Exports
Political Geography:
Central Asia and Asia

13. A Quantitative Trade Model with Unemployment

Author:
Kyu Yub Lee
Publication Date:
10-2018
Content Type:
Working Paper
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
Over the last decade, quantifying the welfare effects from tariff changes has become one of the main challenges among international trade economists. There are a number of quantitative trade models with micro-foundations which emphasize demand-side (Anderson and Van Wincoop 2003), supply-side (Eaton and Kortum 2002), Bertrand competition (Bernard et al. 2003), extensive and intensive margin (Chaney 2008), etc, and conclude that trade liberalization with tariff reductions leads an economy to reach a higher level of welfare compared to pre-liberalization (Costinot and Rodriguez-Clare 2014). While elegant, these models inducing gravity equations share the common assumption, a perfect labor market. Quantitative trade models with full-employment developed so far have not taken account of labor market frictions when evaluating the welfare effects from tariff changes. This paper aims to fill the gap in the trade literature by explicitly considering labor market frictions. I employ search-and-matching to a multi-country and multi-sector Ricardian model with input-output linkages, trade in intermediate goods, and sectoral heterogeneity, in order to quantify the welfare effects from tariff changes. The paper shows that labor market frictions can be a source of comparative advantage in the sense that better labor market conditions contribute to lower cost in production. Labor market frictions play a critical role in determining the probability of exporting goods to trading partners, and interact with bilateral trade share, price, expenditures, etc. Unemployment and changes in unemployment rates due to tariff reductions contribute welfare changes across countries, implying that welfare effects based on quantitative trade models with full-employment are likely to be biased. I confirm the biased welfare effects by revisiting Caliendo and Parro (2015), who conduct an analysis of the welfare effects from the NAFTA from 1993 to 2005. I show that the welfare gap between theirs and mine has a positive correlation with changes in observed unemployment rates across countries. With the constructed model, I further conduct counterfactual exercises by asking what would happen if China’s tariffs remain unchanged from 2006 to 2015. It turns out that there are mild welfare effects to trading partners in the world trading system.
Topic:
Tariffs, Economic Policy, Trade, Unemployment, and Welfare
Political Geography:
China and Asia

14. Is the Belt and Road Initiative a Chinese-style Regionalism?

Author:
Tu Xinquan
Publication Date:
08-2018
Content Type:
Special Report
Institution:
Korea Economic Institute of America (KEI)
Abstract:
In the last two decades, bilateral and regional trade agreements (RTAs) have been considered a primary force to advance the world trading system because the Doha Development Agenda of the WTO has stagnated since its launch in 2001. The continuous expansion of the European Union and the American-led NAFTA and TPP as well as bilateral FTAs between the United States and EU and their partners best exemplified this phenomenon. However, such an approach is facing serious challenges from rising anti-globalization sentiment originating in the EU and United States in recent years. In June 2016, the United Kingdom decided to exit the EU as a result of a referendum. This is the first time a EU member chose to leave. On January 23, 2017, at the start of his presidency, Donald Trump signed as his first executive order the withdrawal from TPP, which his predecessor spent years concluding with 11 partners. These two consecutive dramatic actions of the previous and current world leaders shocked the globe. Next to the WTO, regionalism is seen as the second-best choice in promoting globalization. Now, two regional initiatives led by developed countries are facing a serious backlash. The world is concerned that this means the end and a reversal of globalization. Since its WTO accession in 2001, China has also been actively negotiating FTAs with its neighbors as well as some remote partners such as Iceland and New Zealand. While its WTO accession package was praised for its ambition and courage, it is difficult to defend Chinese FTAs as comparable to those of developed countries in terms of market access and institutional changes. One explanation for that is China has made very high-level multilateral commitments. Another one is China is not in such a comfortable strategic and economic position as the United States in negotiating FTAs with either developed or developing countries. The former want to obtain more market access concessions and institutional reforms from China, while the latter are afraid to expose their domestic industries to China’s overwhelming competitiveness in manufacturing. In addition, the Chinese government seems more confident in its own institutions and unwilling to change them due to outside pressure, especially after the 2008 global financial crisis. President Xi Jinping proposed the Belt and Road Initiative (BRI) during his state visits to Kazakhstan and Indonesia in September and October 2013, which soon was made a top national priority and even included in the Constitution of the Communist Party of China at the 19th Party Congress in 2017. Nadege Rolland labels this China’s Grand Strategy1 and the organizing foreign policy concept in the Xi Jinping era.2 One key feature of BRI in comparison with RTAs is that BRI focuses more on improving physical connectivity rather than reducing institutional barriers. The logic of physical connectivity is undoubtedly powerful, especially for developing countries with poor infrastructure. The impact of more and better international links on the regional landscape could be huge, not only by boosting trade and commerce but also by easing flows of energy and other resources, stimulating technological innovation, influencing culture and politics, and shaping strategic choices. Given the fact that RTAs are facing serious difficulties, the BRI looks like an attractive and feasible alternative to promote regional economic integration and globalization. However, there are also plenty of uncertainties and ambiguities surrounding the BRI, particularly due to China’s centrality as well as its direction of economic and strategic development. Hence, this chapter explores BRI characteristics in promoting regional economic integration and whether it could become an alternative approach to regionalism and globalization for China as well as the world.
Topic:
Treaties and Agreements, Belt and Road Initiative (BRI), Economic Policy, Trade, and Integration
Political Geography:
China and Asia

15. Ecommerce and Firm Performance: Evidence from Korea

Author:
Kyu Yub Lee
Publication Date:
12-2017
Content Type:
Working Paper
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
Official estimates peg global business-to-business ecommerce at 15 trillion dollars and global business-to-consumer ecommerce at 1.2 trillion dollars in 2013 (UNCTAD 2015). When we turn to official estimates for Korea, it is easy to find that Korea’s business-to-consumer ecommerce market is grow-ing at more than twenty percent per year and has emerged as the third larg-est global ecommerce market in Asia. It is not very much surprising to know the numbers for Korea since Korea is one of the world’s most ad-vanced countries in terms of information and communication technology. However, it is somewhat surprising that we know little about how ecom-merce firms or establishments are distributed in the economy of Korea. In addition, we know little about how ecommerce establishments perform relative to their counterparts of a similar age and size in the same industry. The paper aims to characterize and test performance differences between ecommerce and non-ecommerce firms or establishments. Although the number of ecommerce establishments makes up a small fraction of the economy, ecommerce establishments have a heavier weight in sales, em-ployment, and wage. Due to endogeneity of ecommerce variable, the paper reconstructs the 2010 Korea Census dataset by using Propensity Matching Score and shows that in manufacture ecommerce establishments have, on average, larger sales-per-worker and pay higher wage whereas in services ecommerce ones have higher sales-per-worker but pay no larger wage than their counterparts of a similar age and size in the same industry. It also adds quantile estimates showing that sales-per-worker differences between ecommerce and non-ecommerce establishments in manufacture are positive and statistically significant only at lower quantiles of the distribution. In ser-vices, sales-per-worker differences between them are positive and signifi-cant at most of distribution but turns to be negative, though not significant, at above upper quantile of the distribution.
Topic:
Science and Technology, Labor Issues, and Economic Policy
Political Geography:
Asia and South Korea

16. Getting tough with the dragon? The comparative correlates of foreign policy attitudes toward China in the United States and UK

Author:
Thomas J. Scotto and Jason Reifler
Publication Date:
06-2016
Content Type:
Journal Article
Journal:
International Relations of the Asia-Pacific
Institution:
Japan Association of International Relations
Abstract:
A large body of research suggests mass publics are capable of thinking coherently about international relations. We extend this body of research to show that domain relevant postures – in our case, more abstract beliefs about foreign policy – are related to how tough of a line representative samples of US and UK respondents want their governments to take toward China. More specifically, we utilize a unique comparative survey of American and British foreign policy attitudes to show broad support for toughness toward China. Beliefs about the use of the military and attitudes regarding globalization help explain preferences for tough economic and military policies toward China. In the two countries, the relationship between general foreign policy outlooks and the positions citizens take is robust to the addition of a general mediator that controls for the general affect those surveyed have toward China. Finally, the strength of the relationship between these abstract postures and specific preferences for a China policy are different across the countries.
Topic:
Foreign Policy, Military Affairs, Political Science, and Economic Policy
Political Geography:
China, United Kingdom, Europe, Asia, North America, and United States of America