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21. Trade Liberalization along the Firm Size Distribution: The Case of the EU-South Korea FTA

Author:
Sonali Chowdhry and Gabriel Felbermayr
Publication Date:
07-2021
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
How do firms of different sizes react to trade liberalization? Leading theories suggest that, amongst continuing exporters, lower trade costs should boost exports of smaller firms by the same or a greater rate than those of larger firms. However, studying the entry into force of the ambitious EU-South Korea Free Trade Agreement (EUKFTA) with French customs data, we find robust evidence to the contrary. Applying a triple-difference framework, we report that the FTA increased sales in the top quartile of continuous exporters by 71 percentage points more than in the bottom quartile. More than 90 percent of that growth premium is driven by a stronger effective reduction in broadly defined non-tariff barriers (NTBs); the remainder by a higher sensitivity to trade costs. These findings have implications for both heterogeneous firm trade models and for the capacity of FTAs to magnify inequality. In contrast, on the entry margins, our results are in line with the literature with the FTA selecting intermediate-sized firms into exporting to South Korea.
Topic:
International Cooperation, European Union, Trade Liberalization, and Trade
Political Geography:
Europe, Asia, and South Korea

22. Trade Liberalization along the Firm Size Distribution: The Case of the EU-South Korea FTA

Author:
Sonali Chowdhry and Gabriel Felbermayr
Publication Date:
02-2021
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
In 2011, the EU-South Korea Free Trade Agreement (EUKFTA) entered into force. With its focus on non-tariff barriers (NTBs), it is a leading example of a deep new generation agreement. Using detailed French customs data for the period 2000 to 2016, we investigate how exporters of different size have gained from the agreement. Applying a diff-in-diff strategy that makes use of the rich dimensionality of the data, we find that firms with larger pre-FTA sizes benefit more from the FTA than firms at the lower end of the size distribution, both at the extensive (product) and the intensive margins of trade. The latter finding is in surprising contrast to leading theories of firm-level behavior. Moreover, we find that our main result is driven by NTB reductions rather than tariff cuts. In shedding light on the distributional effects of trade agreements within exporters, our findings highlight the need for effective SME-chapters in FTAs.
Topic:
Economics, International Political Economy, Treaties and Agreements, Tariffs, and Trade
Political Geography:
Europe, South Korea, and European Union

23. The Vision Group on U.S.-ROK Relations: Insights and Recommendations

Author:
KEI
Publication Date:
01-2021
Content Type:
Working Paper
Institution:
Korea Economic Institute of America (KEI)
Abstract:
The Korea Economic Institute of America (KEI), with the generous support of the Korea Foundation, organized six “Vision Group” roundtable conversations with leading American scholars and commentators to discuss the United States’ relationship with the Republic of Korea. The first was held in December 2019, the last in November 2020. The intent was to consider the future of relations during a time of change. The Vision Group comprised a wide range of expertise and opinion. This record conveys some of the insights and recommendations that arose during the conversations.
Topic:
International Relations, Security, Foreign Policy, Economics, and Human Rights
Political Geography:
China, Asia, South Korea, North Korea, and United States of America

24. Limits of Public Diplomacy and Soft Power: Lessons from the THAAD Dispute for South Korea's Foreign Policy

Author:
Maximilian Ernst
Publication Date:
04-2021
Content Type:
Working Paper
Institution:
Korea Economic Institute of America (KEI)
Abstract:
This paper examines South Korea’s foreign policy towards China before, during, and after the Terminal High Altitude Area Defense (THAAD) missile defense dispute to investigate the limits of South Korea’s public diplomacy and soft power. South Korea’s official public diplomacy has the objective to “gain global support for Korea’s policies,” following Joseph Nye’s narrow definition of soft power. South Korea furthermore ranks high in the most relevant soft power indices. Based on the case of Chinese economic retaliation against South Korea in response to THAAD deployment, this paper argues that public diplomacy and soft power only work in the absence of traditional security contentions, but fail in the presence of such security contentions. The THAAD case also demonstrates the utility of traditional diplomacy, based on high-level summits and negotiations, to solve the very disputes that South Korea’s latent public diplomacy and soft power were unable to alleviate.
Topic:
International Relations, Foreign Policy, Diplomacy, Economics, and Weapons
Political Geography:
China, Asia, South Korea, and Korea

25. Adapting the U.S.-South Korea Alliance to an Indo-Pacific Regional Architecture: Challenges and Prospects

Author:
Andrew Yeo
Publication Date:
05-2021
Content Type:
Working Paper
Institution:
Korea Economic Institute of America (KEI)
Abstract:
This paper addresses the U.S.-South Korea alliance in the context of Asia’s evolving security architecture. At the crux of the issue is the Biden administration’s desire to uphold the rules-based international order by reinforcing the network of inter-Asia alliances and multilateral institutions, on one hand, and the Moon government’s relative reluctance to deepen and expand security ties linked to an Indo-Pacific strategy that counter-balances China, on the other hand. Leveraging the existing alliance relationship, the Biden administration should encourage Seoul to coordinate with other like-minded countries committed to sustaining a rules-based regional order while assisting Seoul in mitigating potential strategic vulnerabilities. Conversely, as a middle power, South Korea must not shy away from the region’s security architecture, but instead actively coordinate with other actors in shaping the region’s strategic environment. By working in concert with other countries in the Indo-Pacific, Seoul can reduce its geopolitical vulnerability while advancing its national and regional interests.
Topic:
International Relations, Security, Foreign Policy, Regional Cooperation, Geopolitics, and Alliance
Political Geography:
Asia, South Korea, North America, and United States of America

26. Advancing South Korea-Southeast Asia Security Ties: Between Opportunities and Challenges

Author:
Prashanth Parameswaran
Publication Date:
05-2021
Content Type:
Working Paper
Institution:
Korea Economic Institute of America (KEI)
Abstract:
South Korean President Moon Jae-in’s New Southern Policy (NSP)—the most recent effort by Seoul to boost relations with Southeast Asian countries and India and diversify its relationships beyond four major powers: China, Japan, Russia, and the United States. Yet, at the same time, less of a focus has been placed on how to advance the security aspect of the NSP despite some of the inroads that have been made, as well as the underlying convergences of concerns and interests between South Korea and the countries of Southeast Asia. This paper addresses this gap by providing insights into South Korea’s security ties with Southeast Asia, based on a close analysis of South Korean and Southeast Asian accounts as well as conversations with officials and scholars on both sides. It makes three arguments. First, while South Korea’s efforts to advance security ties with Southeast Asian states as well as with the Association of Southeast Asian Nations (ASEAN) as a bloc may have been met with mixed results so far, the inroads made still deserve attention and are rooted in several domestic, regional, and global drivers. Second, though these security ties create opportunities for Seoul’s relations with ASEAN countries, they also pose challenges that should not be ignored. Third and finally, advancing security relations between South Korea and Southeast Asian countries will require actions not just on the part of Seoul or ASEAN nations, but also other actors.
Topic:
International Relations, Security, Foreign Policy, and Diplomacy
Political Geography:
Asia, South Korea, and Southeast Asia

27. 2021 Report on American Attitudes towards the U.S.-ROK Alliance and North Korea Policy

Author:
Troy Stangarone and Juni Kim
Publication Date:
05-2021
Content Type:
Working Paper
Institution:
Korea Economic Institute of America (KEI)
Abstract:
KEI’s 2021 Report on American Attitudes on the U.S.-ROK Alliance and North Korea Policy summarizes results from a survey commissioned by KEI and conducted by YouGov on May 6th to May 10th, 2021 in advance of the U.S.-ROK summit on May 21st, 2021. The survey asked Americans their views on the U.S.-South Korea relationship, North Korea policy, and the U.S.’ role in the East Asian region.
Topic:
International Relations, Security, Foreign Policy, Economics, and Domestic Politics
Political Geography:
Asia, South Korea, North America, and United States of America

28. Developing Effective Benchmark-Based Allocation for Industrial Sectors: The Case of the Korean ETS

Author:
Dong-Hyeok Kwon and Alistair Ritchie
Publication Date:
06-2021
Content Type:
Working Paper
Institution:
Asia Society
Abstract:
Emissions trading systems (ETS) are increasingly being introduced as a way of cost-effectively reducing greenhouse gas emissions to meet ambitious national climate change targets, including Nationally Determined Contributions and net-zero long-term goals under the Paris Agreement. A key concern for governments and industry, however, is how to protect industry’s global competitiveness and prevent “carbon leakage”, that is, the transfer of production to world regions with less ambitious climate policies that would lead to an increase in total emissions. To address this concern, ETS allowances are typically allocated for free to greenhouse gas (GHG)-intensive or trade-intensive industries at risk of carbon leakage. The type of free allocation design is important because it directly impacts on the financial performance of companies. It also determines how companies are rewarded. Those that have invested more in GHG reduction technologies will be rewarded better under a benchmark (BM)-based allocation approach, where allocation is based on the level of production multiplied by an emissions intensity benchmark. Those that have invested less in such technologies will be rewarded better under a grandfathered approach, where allocation is based on historic emissions. However, while BM-based allocation is generally regarded as a fairer method, it is also considered more difficult to design and implement. This Asia Society Policy Institute issue paper, Developing Effective Benchmark-Based Allocation for Industrial Sectors: The Case of the Korean ETS, shows how BM-based allocation has been successfully implemented for some of Korea’s most important industrial sectors, steel and petrochemicals. It provides valuable insights and recommendations for other countries to develop an effective allocation system in a timely and efficient way.
Topic:
Climate Change, Trade, Carbon Emissions, and Paris Agreement
Political Geography:
Asia, South Korea, and Korea

29. South Korea Beyond Northeast Asia: How Seoul Is Deepening Ties With India and ASEAN

Author:
Kathryn Botto
Publication Date:
10-2021
Content Type:
Working Paper
Institution:
Carnegie Endowment for International Peace
Abstract:
Under South Korean President Moon Jae-in and his administration, Seoul has undertaken its first unified diplomatic initiative aimed at advancing ties with India and the Association of Southeast Asian Nations (ASEAN). This initiative is known as the New Southern Policy (NSP). Though Moon’s efforts toward securing inter-Korean peace have received the most publicity, the NSP has arguably sustained more momentum than any of the administration’s other flagship foreign policy initiatives. Looking beyond South Korea’s relationships in Northeast Asia, it is also important to assess the NSP’s progress toward its goal to “elevate [South] Korea’s relations with ASEAN member states and India in the political, economic, social and cultural spheres, among others, to the same level [South] Korea maintains with the four major powers (the United States, China, Japan and Russia).”1 The NSP is an extension of South Korea’s need to diversify its economic and strategic relationships amid the uncertainty posed by competition between its closest ally, the United States, and largest trading partner, China. By elevating ties with India and Southeast Asia, particularly in the economic realm, Seoul hopes to insulate itself from the risks posed by trade and strategic friction between the two great powers. Moreover, it hopes to advance its middle power diplomacy and improve ties with India and Southeast Asia commensurate with their growing economic and strategic importance. Though India and ASEAN countries have strong ties to South Korea and share many of the same values and interests, they have not featured as prominently in Seoul’s diplomacy as major powers around the peninsula in the past. While it has clear logic behind it, the NSP’s implementation and outcomes so far are mixed. Of the policy’s three pillars—prosperity (economic cooperation), people (sociocultural cooperation), and peace (political and strategic cooperation)—the prosperity pillar has received the most emphasis. Under this pillar, South Korea has initiated new negotiations for free trade agreements and launched an official development assistance (ODA) strategy aimed at six NSP partner countries. However, cooperation with India has often lagged while cooperation with Vietnam has outpaced attention to most other ASEAN member states. The peace pillar, by contrast, has been relatively underdeveloped and focused mainly on nontraditional security issues while avoiding sensitive strategic issues confronting the region. This pillar showcases how South Korea’s concerns about Chinese influence both motivate and constrain the policy—though Seoul wants to diversify its economic portfolio and strategic partnerships to mitigate its reliance on China, it also must tread carefully to avoid retaliation from Beijing. Even so, while ASEAN, India, and South Korea share common interests on freedom of navigation in the South China Sea, stability in the Taiwan Strait, and denuclearization by North Korea, South Korea’s main security concerns revolve around Northeast Asia, while those of India and ASEAN do not. Seoul’s hierarchy of priorities in the security realm will continue to differ from that of its NSP partners, posing another obstacle to security cooperation. That said, the policy has made progress in strengthening South Korea’s diplomatic infrastructure and institutional apparatus to devote more attention to NSP partner countries, even in just four short years and after being disrupted by a global pandemic. Considering this short period, many of NSP’s projects will take time to show results. Even so, the broad and far-reaching policy has sometimes struggled to define its goals or unify its wide range of elements under a clear strategy. It would benefit from a more well-branded approach to India and Southeast Asia that highlights core projects under each pillar.2 To that end, the Moon administration should strive to evaluate the outcomes of the NSP in its final year in office. Although it is typically difficult to maintain continuity in foreign policy due to South Korean presidents’ limit to one five-year term, the geopolitical and economic imperatives driving the NSP will remain under a new administration in 2022. Given the staying power of these drivers and the continuously growing importance of India and Southeast Asia, South Korea’s next president will have every reason to keep emphasizing these regional partnerships as well.
Topic:
Foreign Policy, Diplomacy, Regional Integration, and ASEAN
Political Geography:
India, Asia, and South Korea

30. Consumer Responses to Price Shocks of Wine Imports in Korea

Author:
Chul Chung, Min-chirl Chung, and Bonggeun Kim
Publication Date:
07-2021
Content Type:
Working Paper
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
The main purpose of the study is to develop a methodology that divides consumers' responses to FTAs or commodity taxes into quantitative and qualitative margins, which cause exogenous price changes for some specific goods. The use of unit values as a dependent variable for consumers' qualitative choice, unlike the usual method of utilization of unit values as a proxy variable for market prices, showed that qualitative response to price changes exists and its size is significant. The methodology of separating and estimating qualitative responses to income changes as in economic crises is also presented, and the empirical analysis using this methodology showed that much of the existing income effects were qualitative responses. As a key result, the price elasticity of -1.178 estimated by the usual demand model based on a single commodity assumption is reduced to -0.712 for the quantitative margin only, and the qualitative margin is the remaining -0.466, accounting for more than a third of the overall response. The significant degree of qualitative response estimates suggests that policy makers and researchers should consider qualitative response as an important factor when analyzing the effectiveness of FTAs, especially on consumption.
Topic:
Imports, Consumer Behavior, and Price Shocks
Political Geography:
Asia and South Korea