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  • Author: Kim Young Gui
  • Publication Date: 12-2016
  • Content Type: Working Paper
  • Institution: Korea Institute for International Economic Policy (KIEP)
  • Abstract: There have been voluminous contributions such as Daudin et al. (2011), Johnson and Noguera (2012), Koopmans et al. (2010), and Trefler and Zhu (2010) in measuring value added trade based on input-output tables as generalizations of the vertical specialization measures following Hummels et al. (2001). These studies focused on trade in intermediate goods as a key feature of recent global trade. In the case of Korea, about 50% of total exports and 70% of its total imports are intermediate goods trade. This paper contributes to the discussion about the trade in intermediate goods and productivity by revisiting Basu (1995), Jones (2011), and Lee and Pyo (2007) to examine implications of trade in intermediate goods for macroeconomic business cycles and productivity and welfare at the current stage of Korean development. The major revision of the Basu (1995) model is attempted by decomposing intermediate goods into domestically produced intermediate inputs and imported intermediate inputs to investigate implications of the model in a small open economy. The major finding is that the procyclicality of the intermediate goods usage relative to labor usage and TFP changes in both value added and gross-output regressions are significantly weaker in a small open economy like Korea than the large economy of the United States. We also investigate the effects of misallocation and multiplier effects due to intermediate goods on industrial productivity and efficiency following the model of Jones (2011). Since the effects of misallocation can be intensified through the industrial input-output structure of the economy, we calculate the intermediate goods multiplier by Korea's 29 manufacturing industries. We find technical changes and the degree of inefficiency are related with the magnitude of multipliers, but we leave a fundamental identification problem to future research
  • Topic: International Political Economy, International Trade and Finance
  • Political Geography: Asia, Korea
  • Author: Oh Yoon Ah
  • Publication Date: 12-2016
  • Content Type: Working Paper
  • Institution: Korea Institute for International Economic Policy (KIEP)
  • Abstract: This paper examines the determinants of China's development finance to developing countries with a focus on Asia from 2000 to 2012. It uses a recent version of China Aid Data, one of the most reliable and publicly available data sources that systematically collect and differentiate different types of China's official development financial flows. This paper differs from previous studies in two aspects that (1) it analyzes a wider range of developing countries, moving beyond earlier research largely limited to Africa; and (2) it examines regional variation in China's motives for development financing. The findings show that China's allocations decision for concessional development flows, or ODA, has mixed motives of humanitarian, commercial and strategic interests. It is noteworthy that China's ODA appears not to be in competition against, but rather in a complementary form to, established donors in this period. Yet substantial regional variation is observed, suggesting different regional dynamics are at work. On the other hand, it is found that China's allocations decision for less-concessional development financing largely follows commercial considerations. This paper also provides detailed discussion of the trends in China's development finance to Southeast Asia, which is an Asian region critical for China's economic and foreign policy interests. The paper ends with a discussion of the implications of possible shift in China's overseas development finance strategy since 2011.
  • Topic: International Relations, International Political Economy
  • Political Geography: Asia
  • Author: Choi Nakgyoon
  • Publication Date: 12-2016
  • Content Type: Working Paper
  • Institution: Korea Institute for International Economic Policy (KIEP)
  • Abstract: This paper studied the effects of anti-dumping measures on the imports to investigate whether the trade restriction effect of an anti-dumping duty is dominant in the US, the EU, China, and India from 1996 to 2015. Our results indicate that a 1% increase in the anti-dumping duties decreases the import of the targeted product by about 0.43~0.51%. The actual statistics, however, show that the total import of the targeted products increased by about 30 percent while an anti-dumping duty was in force. That indicates that an anti-dumping duty is just a temporary import relief. This paper also investigated whether an anti-dumping duty is terminated in the case that the injury would not be likely to continue or recur if the duty were removed. The increase in market share, MFN tariff rate, and dumping margin turns out to decrease the hazard of termination of an anti-dumping duty, but the increase in value added increases the hazard of termination. Generally speaking, this result indicates that the WTO member countries have regulated the overuse of an anti-dumping measure. It also implies that anti-dumping duties have been used as a tool for trade remedy.
  • Topic: International Political Economy, International Trade and Finance
  • Political Geography: China
  • Author: Yoon Yeo Joon, Whang Un Jung
  • Publication Date: 12-2016
  • Content Type: Working Paper
  • Institution: Korea Institute for International Economic Policy (KIEP)
  • Abstract: We propose a new measure of inter-industry ‘distance’. This is constructed a la Antras et al. (2012). While they measure the distance of an industry from its final use ? what they call ‘downstreamness’ of an industry ? we measure the distance between a pair of industries. Our proposed index is a measure of input-output linkages between industries that incorporates a ‘distance’ flavor. Our measure distinguishes the number of vertical production stages that an industry’s product goes through until it is finally used by another industry by assigning larger weights to the value of input use with longer production chains. Hence our measure contains more information on the relation between two industries along the vertical production chain. We use this index to construct an aggregate measure of ‘industry connectedness’ of regions in the U.S. It measures the degree of industrial linkages of a region. We then empirically establish that each region’s labor productivity is positively associated with the ‘industry connectedness’. The result contributes to the large literature of agglomeration economies that the industrial linkage is one of the main sources of agglomeration economies and productivity growth, as emphasized by Marshall (1920). It also suggests that our index can serve as an alternative measure of the industrial linkages.
  • Topic: International Political Economy, International Affairs
  • Political Geography: Global Focus
  • Author: Han Chirok, Shin Kwanho
  • Publication Date: 12-2016
  • Content Type: Working Paper
  • Institution: Korea Institute for International Economic Policy (KIEP)
  • Abstract: Some countries have persistent current account surplus, contributing to global imbalances up to a level that is worrisome. For example, Germany has been continuously experiencing current account surpluses since 2002, amounting to 8.4% of GDP in 2015. China has never experienced current account deficits since 1997, the year that data is first available. Japan's record is even longer; its consecutive current account surplus started from 1981. Recently, Korea joined this large current-account surplus club: since the currency crisis in 1997, Korea's current account balance has been continuously in the black, expanding even more in these recent years. In this paper, we present an empirical methodology that explains how current account balances are determined and by employing it, try to diagnose factors that account for Korea's current account surplus. In fact, the IMF has introduced a methodology, the External Balance Assessment (EBA: Phillips et al., 2013), to assess exchange rate and current account gaps that are defined as the difference between current levels and those consistent with fundamentals. For example, the 2016 External Sector Report, by utilizing this methodology, demonstrates that Korea's real effective exchange rate in 2015 was 4 to 12 percent undervalued than the level consistent with fundamentals.
  • Topic: International Political Economy
  • Political Geography: Korea
  • Author: Kim Wongi
  • Publication Date: 12-2016
  • Content Type: Working Paper
  • Institution: Korea Institute for International Economic Policy (KIEP)
  • Abstract: In this paper, I empirically examine the effects of uncertainty about government spending policy on economic activity using U.S. time series data. To this end, I constructed government spending policy uncertainty indexes and estimate proxy SVAR model. Proxy SVAR model with constructed indexes shows that an increase in government spending policy uncertainty has negative, sizable, and prolonged effects on economic activity. Moreover, the results imply that the commonly adopted recursive SVAR model in literature on policy uncertainty systematically underestimates the adverse effect of government spending policy uncertainty because of the endogeneity issue. One policy suggestion based on the empirical finding is clear announcement of future government spending path.
  • Topic: International Political Economy
  • Political Geography: Global Focus