KDI - Korea Development Institute - RESEARCH - Research Areas

Summary

Policy Study KOR Impact of Carbon-Neutrality Policies:Focusing on Trade and Environment

This study examines the impact of carbon neutrality policies on Korea and explores potential government responses to the rapidly evolving global policy landscape concerning carbon and trade. Specifically, it focuses on the European Union’s Carbon Border Adjustment Mechanism (CBAM) and how South Korea's carbon neutrality policies might influence the CBAM's impact. In addition, it analyzes the effects of each carbon neutrality policy option on Korea’s economy, including trade and GDP, and emissions.

This study finds that the EU CBAM may not affect Korean exports due to its relatively narrow scope of products and emissions covered in the current version of the policy. However, its influence is likely to grow if the scope of regulated products expands and the range of indirect emissions covered increases. The study then considers carbon pricing, green technology R&D, and green supply chain policies as strategic directions for Korea's government to both respond to global policy changes, such as CBAM, and achieve climate neutrality. Although both increasing carbon prices and developing carbon reduction technologies mitigate the negative impacts of CBAM by decreasing CBAM tariff rates, their effects on Korea's production, exports, income, and welfare differ.

Green supply chain policies involve adjusting trade costs according to the carbon intensity and price of intermediate inputs’ origins. This aims to reduce production's embedded indirect emissions and increase the carbon price already paid in source countries. The study evaluates two opposing approaches to implementing this policy: lowering trade costs for 'green' suppliers and raising them for 'dirty' suppliers. The results indicate that decreasing trade costs, as opposed to increasing them, results in higher GDP, greater export competitiveness, and improved welfare. The study shows that although different policy options are themselves effective in responding to CBAM and reducing carbon emissions in Korea overall, their impact on Korea’s economy and emissions are heterogeneous. Therefore, understanding the complex consequences of these policies and selectively implementing them based on the distinct characteristics of the affected industries is crucial.

Summary

Policy Study KOR Analyzing the Productivity Spillovers of Foreign Direct Investment (FDI) Considering the Characteristics of Industrial Complexes

Using large-scale panel data at the business unit level in South Korea, this study analyzes how the presence of FDI firms in industrial complexes impacts the productivity of domestic firms through vertical spillovers. Due to industrial agglomeration, FDI firms in industrial complexes are expected to engage more in vertical interactions with local firms and to procure a higher proportion of inputs locally compared to those outside the complexes. Therefore, the backward linkage effects of FDI firms in industrial complexes on domestic firms are anticipated to be more significant than FDI firms not operating in these complexes. To test this hypothesis, it constructs an indicator for the backward linkage effects of FDI and analyzes its relationship with the total factor productivity (TFP) of Korean manufacturing establishments.

This study finds that FDI firms located in industrial complexes exhibit significant positive backward linkage effects on the productivity of domestic firms. In contrast, the backward linkage effects of FDI firms outside the complexes are significantly lower and sometimes negative when domestic firm productivity is measured by value added per employee. These results support the hypothesis that, at least from 2010 to 2019, clustering into industrial complexes positively affects the productivity of domestic firms through the backward linkage effects of FDI firms.

Summary

Policy Study KOR Empirical Analysis of Political and Economic Relations between the Korean Peninsula and Surrounding Countries: Focusing on Country Relations Index Using Big Data

Recently, tensions between the US and China have been escalating across various sectors, concurrently with rapid shifts in the international arena due to conflicts such as the Russia-Ukraine war and the Israel-Hamas conflict. The Korean Peninsula is also entwined in the fabric of these dynamics. The Taiwan issue, one facet of the US-China rivalry, is linked to the strategic presence of US forces in South Korea, and semiconductors, South Korea's key industry, are among the most affected by the intensifying tensions between the US and China. North Korea's economic and military ties with Russia, as evidenced by North Korea's supply of conventional weapons and materials to Russia in defiance of international sanctions, are strengthening. Given the complex and grave political and economic environment surrounding the peninsula, evidence-based policymaking grounded in objective data becomes indispensable.

This study utilizes Google's Global Database of Events, Language, and Tone (GDELT) to analyze country relations around the Korean Peninsula. The data provided by GDELT quantitatively measures qualitative variables of inter-country relationships, utilizing machine learning and other state-of-the-art technologies to extend traditional event data methodologies to a vast collection of news articles gathered worldwide by Google. However, despite its strength as one of the most comprehensive and objective event datasets available, it is important to acknowledge and address the limitations such as the reliability and scope of news sources and potential errors in event identification and classification.

Using trade data and GDELT, this study examines the economic and political dynamics between the US and China for time-series econometric analysis―what drives the US-China conflict, which country triggers cooperation and conflict, how the other country responds, and whether these outcomes vary over time. This analysis reveals that before President Xi Jinping's tenure, US-China relations were primarily influenced by trade, with a notable positive correlation between increased trade and more favorable relations. During this period, their interactions appeared to have no significant impact on each other. However, since the beginning of Xi's presidency, China has actively responded to US diplomatic protests and corrective measures. Empirical analysis supports this move, which aligns with China's strategy to assert itself as a global power through expanded political and military influence, underpinned by its economic growth. The shift towards mutual diplomatic and security issues over economic variables in influencing US-China relations indicates that future tensions are likely to arise from areas such as Taiwan rather than trade.

The study further explores inter-Korean relations and the dynamics among countries surrounding the Korean Peninsula, investigating how the US-China power dynamic, bilateral relations, and interactions among neighboring countries influence the two Koreas. Findings indicate that the US-China power dynamic and relations have a significant correlation with South and North Korea's external relations with these superpowers but exert minimal impact on the peninsula's international relations. This suggests that the US-China relationship is a major factor in shaping the external relations of both Koreas without directly affecting the internal tension or peace. However, it is important to acknowledge that the recent escalation in US-China tensions, if it has fundamentally changed the geopolitical context surrounding the Korean Peninsula, might render predictions based on historical data incomplete.

This study showcases an analysis of inter-state relations using quantified objective data. The data, methodology, and findings presented are expected to serve as reference materials for formulating future foreign policies.

Summary

Research Monograph KOR Foreign Exchange Policy in Response to Changes in Macroeconomy and Financial Markets

This study analyzes the relationship between cross-border capital flows and the foreign exchange market in Korea. It aims to propose revisions to the Foreign Exchange Transaction Act to facilitate international transactions and maintain external financial stability in light of changing macroeconomic and financial market environments.

The foreign exchange system is shaped by historical contexts, typically introduced to minimize the negative impact of currency fluctuations during events such as economic recessions or wars. However, as economies develop and financial markets grow, there is an increasing demand for the relaxation of regulatory measures on foreign exchange transactions.

As an open economy highly dependent on external trade, Korea encounters considerable risks to its economic stability from rapid fluctuations in exchange rates. Therefore, understanding the relationship among cross-border capital flows, interest rates, and exchange rates is crucial in crafting an effective foreign exchange system. Despite the projected increase in fiscal spending to address the aging population and enhance the quality of life, Korea's overall savings are expected to grow for the time being. With the domestic potential growth rate declining, it seems that the demand for private external financial investments will persist, indicating an expected increase in cross-border capital movements. The growth in private external financial investments presents an opportunity to ease regulations in the foreign exchange market, as the private sector can serve as an automatic stabilizer against exchange rate volatility by actively participating in the foreign exchange market and restoring normal rates.

Chapter 2 examines the impact of increasing domestic and international capital flows on Korea's financial markets. Analyzing the effects of foreign capital inflows using the Flows Implied by Rebalancing (FIR) index (Pandolfi & Williams, 2019), this chapter indicates that global passive fund inflows are associated with significant increases in bond prices (lower interest rates) and a strengthening of the Korean won (weaker exchange rate). These effects are more pronounced for non-reserve currency emerging market countries like Korea. Furthermore, the study investigates the impact of domestic funds' overseas investments on the foreign exchange market. It uses a synthetic control method to assess the effects of the 2017 policy that recognizes asset duration irrespective of insurance companies’ hedging practices. The findings show that an increase in domestic securities investments abroad leads to a decrease in the real effective exchange rate, resulting in a depreciation of the Korean won. However, there is no evidence that excessive demand in the foreign exchange market rises as swap rates increase, suggesting Korea’s foreign exchange market has gained stability compared to the past. An examination of the correlation between the won-dollar exchange rate volatility and the amount of net foreign assets reveals that more recently, as net foreign assets increase and the ratio of won-denominated liabilities rises, the amplitude of the net foreign asset increase due to non-trading factors tends to rise when the won depreciates, indicating the operation of an automatic stabilizer.

Chapter 3 puts forth the direction and key policy recommendations for the revision of the Foreign Exchange Transaction Act. The focus is on enhancing the efficiency of foreign exchange transactions while pursuing external stability. It suggests recognizing the Foreign Exchange Transaction Act more as a trading law than a business law, aiming to reduce overlaps with individual financial laws arising from its business law characteristics.

More specifically, Chapter 3 explores the history of Korea’s foreign exchange management policies and analyzes their characteristics and problems. Initially designed to curb the outflow of foreign exchange, these policies have since transformed to liberalize foreign exchange transactions across both current and capital accounts. However, the foreign exchange authority has maintained a conservative stance, prioritizing external soundness. Notably, the Foreign Exchange Transaction Act is recognized as a business law, maintaining a bank-centric approach while regulating the foreign exchange operations of non-banking financial institutions. Furthermore, the Act adopts a listing and delegation legislative approach. As a result, the current law is not only vulnerable to changes in the external environment but also faces issues of low legal systematicity, leading to high compliance costs.

Currently, most developed nations operate without legal restrictions on foreign exchange transactions. Countries that initially introduced regulations as a response to economic crises or wars have either eliminated or considerably eased these regulations to improve national competitiveness and foster the growth of their financial industry. Japan, whose foreign exchange system has historically resembled Korea’s, opened up foreign exchange operations to non-banking financial institutions and even non-financial companies as part of its financial big bang in 1998. However, Japan has retained a regulatory role in terms of information collection and monitoring for foreign exchange transactions. It continues to inspect and supervise foreign exchange operations of individual financial institutions under the applicable financial industry laws or laws governing financial product transactions.

This study proposes revisions to Korea’s Foreign Exchange Transaction Act based on international case studies. First, the Foreign Exchange Transaction Act, presently skewed towards business law characteristics, should shift its focus to underscore its role as a trading law rather than a business law. To invigorate foreign exchange transactions, the Korean government should move away from classifying foreign exchange operations as regulatory subjects and instead strengthen the monitoring and reporting systems for transactions. It is advisable to delegate regulation of foreign exchange operations to financial authorities under individual financial industry laws, with the Foreign Exchange Transaction Act stepping in only where foreign exchange operations are not covered under the relevant financial industry laws.

Second, this study recommends transitioning the regulatory approach for foreign exchange transactions under the Foreign Exchange Transaction Act from institutional to functional regulation. Functional regulation involves categorizing operations by their function and applying consistent regulations to identical activities, laying the groundwork for adapting to future changes, such as the digital transformation of finances.

Third, in response to the relaxation of foreign exchange regulations, the study suggests reinforcing liquidity and soundness for non-bank financial institutions. This compensatory measure addresses concerns associated with the shift toward functional regulation, which might essentially eliminate bank-centric practices, posing potential risks to financial stability due to the risk-taking practices of non-banking financial institutions. Specific measures include applying foreign exchange liquidity coverage ratio (LCR) requirements for financial investment firms, enhancing the effectiveness of Net Operation Capital Ratio (NCR) regulations, strengthening the responsibilities of boards and CEOs as licensing conditions for foreign exchange operations, and ensuring continuous supervision and inspections post-authorization. This approach mitigates concerns about functional regulations compromising external soundness by adopting a ‘same taskssame riskssame regulations’ rule at the financial regulatory and supervisory level to respond to systemic risks.

Finally, the study proposes imposing prompt corrective action measures on financial institutions handling foreign exchange transactions to enhance the effectiveness of safeguards before emergencies arise. Corresponding to the extent of regulation relaxation on foreign exchange operations, the Korean government strengthens the liquidity and soundness of financial institutions engaged in foreign exchange operations by enforcing prompt corrective action when various regulatory ratios are exceeded. Such measures not only minimize the broader systemic impact in case of early-stage insolvency but also incentivize companies to uphold sound management practices.

While Korea's foreign exchange system has evolved to reflect changes over time, the pace of these changes has been notably slow. While Korea actively engages with the international community, its efforts to liberalize foreign exchange transactions are constrained as a non-key currency nation. Nevertheless, the need for reform in the current conservative foreign exchange system persists for the sake of economic and capital market development.

Despite Korea’s orientation toward an open economy, its view on openness has traditionally centered around trade. From the early stages of economic development, exports have served as the primary engine of Korea’s economic growth, leading to minimal regulations on current account transactions. Consequently, foreign exchange transactions related to current account activities have been freely permitted. On the contrary, foreign exchange transactions for capital account activities have faced stringent regulations. While strict control over foreign exchange transactions might initially boost financial stability, it could also lower overall economic efficiency and potentially decelerate economic growth. Furthermore, ensuring financial stability requires collaborative efforts and coordinated actions among monetary, fiscal, financial, and financial supervisory authorities to enhance the stability of the financial system.

In conclusion, the study advocates for a significant easing of the regulations on foreign exchange transactions in Korea, recommending adjustments to match the current economic conditions and national competitiveness strategy. Korea’s financial institutions are positioned to lead the development of the financial system, especially as global portfolio diversification emerges as an economically efficient choice. This shift is happening against a backdrop of declining potential growth rates and rising demand for both domestic capital investments abroad and foreign capital investments within Korea. Therefore, it is imperative for the Korean government to comprehensively reassess restrictive regulations that hinder the global expansion of financial institutions, with the restrictions imposed by the Foreign Exchange Transaction Act as a prime example of such regulation in need of thorough reevaluation.

Summary

KDI FOCUS Reshoring: A Study on Firm Characteristics and Influencing Factors

Among multinational manufacturers, firms engaged in reshoring are typically smaller, laborintensive, less productive, and less experienced in overseas production. Moreover, despite receiving sizable government subsidies, the domestic investments by reshorers yield smaller employment impacts compared to similar-sized domesticonly counterparts. Therefore, incentivizing domestic investment for all firms, irrespective of their repatriation, would be more effective in meeting objectives such as stabilizing supply chains, maintaining domestic manufacturing competitiveness, and boosting employment. The solution to the challenges posed by the excessive globalization of production lies in localizing production activities rather than the firms themselves.

- Reshoring, defined as the process of multinational firms bringing their previously offshored production facilities back to their home country, is attracing increasing attention in policy circles.

- Given the lack of proper evaluation in the implementation of existing reshoring policies, this study aims to assess their effectiveness by identifying the key attributes of reshoring firms and exploring the factors that influence their decisions to repatriate.

- Korea determines whether to provide policy support based on selection criteria that embody the lexical definition of reshoring.

- Major economies including the US prioritize overall investment promotion in capacity building for strategic industries, rather than formal requirements like whether a firm is “u-turning” its operations.

- This study categorizes multinational manufacturing companies into four groups by investment type, among which are offshoring and reshoring. Reshoring is defined as investing exclusively domestically while either withdrawing or suspending overseas investments.

- In this study, reshoring hinges on whether multinational manufacturers shift their strategy of overseas expansion to domestic investment, and this concept aligns with reshoring as practiced in major countries.

- Under the definition used in this study, about 24% of the multinational manufacturing firms in Korea have undertaken investment activities that qualify as reshoring.

- The pertinent question is to identify these reshorers and assess their contributions to the Korean economy following their reshoring activities.

- Around 40% of reshorers chose to engage in reshoring again in a few years, while nearly 30% transitioned to suspend or reduce investments, prompting concerns about their mid-to-longterm competitiveness.

- Reshorers in Korea are typically characterized by their smaller size, laborintensive nature, lower productivity, and limited experience in overseas production. Consequently, their likelihood of expanding investments abroad is low, which in turn suggests a diminished potential for contributions to the economy.

- As a result of reshoring, participating companies have seen an average annual employment growth of approximately 2.3%. However, their ratio of net employment to net investment is 1.17 persons per billion won, which is lower compared to expanders (1.32) and domestic-only firms (2.48).

- An analysis of internal factors influencing the four investment choices of multinational manufacturers shows that firm characteristics depicted in Figure 1 (size, productivity, labor intensity, etc.) are indeed important.

- Labor costs, both domestic and overseas, are the most relevant external factor in investment-type decisions by multinational manufacturers, emphasizing that high domestic labor costs are a fundamental barrier to reshoring.

- It is advisable to achieve the objectives of the U-turn support policy, such as stabilizing supply chains, maintaining competitiveness in manufacturing, and employment promotion, through strengthening incentives for domestic investment, independent of whether foreign production facilities are brought back home (reshoring). If the problem is the excessive globalization of production, the solution should focus on localizing production rather than localizing firms.

Summary

Policy Study KOR The Impact of External Uncertainty Shocks in Korean Economy

This paper explores the effects of external uncertainty on South Korea’s real economy. By exploiting variations in geopolitical risks posed by Russia and the uncertainty surrounding US monetary policy ― both of which are plausibly exogenous to the Korean economy, the study reveals that such uncertainties negatively impact Korea’s key domestic macroeconomic variables. Notably, this adverse effect is distinctively evident in sectors like exports and manufacturing due to their high sensitivity to external demand dynamics. Using micro-data, the study further indicates that external uncertainty significantly reduces (i) exports to low-income countries and (ii) exports of capital goods. Additionally, the analysis confirms that financial constraints and the irreversibility of investment decisions play pivotal roles in amplifying the effects of external uncertainties.

This study enriches the existing literature by quantifying the impact of external uncertainty using novel instruments ― the geopolitical risk emanating from Russia and the uncertainty surrounding US monetary policy. These findings can offer insights that can guide the formation of resilient policy, aptly designed for a dynamic external landscape, while providing a comprehensive understanding of how external uncertainty influences real economy at both macro and mirco levels.

Summary

Research Monograph KOR Managing Changes in Korea’sExternal Economic Conditionsamid the US-China Rivalry

This study analyzes tensions between the US and China, employing different viewpoints of international politics, supply chain disruptions, and ripple effects on the real economy and financial market, and presents the following implications. Firstly, the US strategic approach to China shows that, unlike the previous Trump administration, the Biden administration maintains tensions and competition but stays away from direct conflict or confrontation. In response, South Korea should broaden its relations with the US to a more comprehensive diplomatic and economic alliance. At the same time, its strategic communication channel with China should remain open while strengthening its global strategic networks with other major countries. In doing so, South Korea must secure its position as a middle-power nation that can coexist among the great powers. Secondly, supply chain disruptions triggered by the US-China rivalry can be regarded as a geopolitical risk in global supply chains since the disruptions come from trade sanctions and foreign investment restrictions they are using against one another. Accordingly, South Korea needs to set up a risk management framework which includes an early warning system to enable preemptive responses based on risk measurement and evaluation. Thirdly, as the global supply chain shock caused by the conflict between the US and China is persistent and long-lasting, South Korean firms may experience greater shocks than during the COVID-19 pandemic. What would help counter this shock is to lay down the necessary infrastructures to upgrade its supply chains that can support the diversification of supply chains and networks of domestic firms and establish a smart logistics system. Lastly, financial sanctions against China by the US have the potential to significantly decrease foreign capital flows in the Chinese market, escalating capital outflow risks. Hence, it would be desirable for South Korea to monitor its linkages with Chinese financial institutions and to take appropriate preparatory actions to avoid the risk of economic sanctions targeting China by forming a cooperative relationship with the sanctioning authorities in the US.

Summary

Policy Study KOR Fiscal Policy in Open Economies: Capital Accounts and the Crowding Out

We analyze the effect of fiscal policy of open economies, and examine the effect of fiscal policy on domestic corporate investment. Capital flows are important factors in determining the effect of fiscal policies in a small open economy. Fiscal expansion which tries to boost overall demand could, in principle, be restricted by various factors. So-called crowding-out could reduce the effectiveness of fiscal expansions, and thus lower the fiscal multiplier. Capital flows could play an important role in determining the effects as it determines how the revenues for fiscal expansion are financed. Here, we examine the magnitude of the fiscal multipliers with different states of capital flows. Through the structural vector auto regression (SVAR) model using the sign restriction on national panel data from 42 countries, we find that fiscal multiplier is higher when capital inflows and lower when it outflows. And the responsiveness of different states of capital flows are more notable in investment than in consumption, the other component of GDP accounts.

In the second part of the paper, we further examine the corporate investment of Korea. If the crowding-out prevails, fiscal expansions could lower the overall investment. Increased supply of government bonds will substitute corporate bonds in the loanable funds market. However, if it could partially be off-set if firms could fund their investment from international investors. That is, if individual firms could finance their investment from external funds, it could unwind the crowding-out of the fiscal expansions. We analyze Korean firm level data from 2005 to 2020, and confirm that with fiscal expansions, investment ratio decreased especially in companies with high debt-to-equity ratio. However, those negative correlation is not observed in a sample of companies which hold foreign debts or have foreign main banks.

Summary

Policy Study KOR Offshoring vs. Reshoring: Trend, Drivers, and Policy Implications

The discussion on the side effects of offshoring and reshoring has gained momentum since the 2010s, leading to an increasing need for related research. This study analyzed 1,200 multinational corporations in South Korea from 2008 to 2019, classifying their investment types into four categories: (i) expansion with investments in both domestic and foreign markets (expander), (ii) offshoring with reduced or withheld investments domestically while investing abroad (offshorer), (iii) reshoring with reduced or withheld investments abroad while investing domestically (reshorer), and (iv) retention or downsizing with reduced or withheld investments in both domestic and foreign markets (idler). The study examined the characteristics of firms for each investment type, factors influencing investment type decisions, and the overall investment trends.

During the sample period, the overall trends of the four investment types remained relatively stable and evenly distributed. Offshorers and reshorers accounted for approximately 20% and 24% respectively. Moreover, around 40% of reshorers repeated the same investment strategy in the following years, indicating persistence in their decision-making.

Reshorers experienced short-term growth in revenue and employment, but their productivity growth rate was the lowest. Additionally, their activities in the foreign market, such as exports and imports, also decreased. This suggests a high likelihood that the observed short-term growth may not be sustainable. On the other hand, offshorers had a faster growth rate in productivity but had a negative impact on domestic employment. Offshoring and reshoring were thus economically conflicting.

The analysis of factors influencing investment type decisions revealed that expanders showed significantly higher numbers in size, productivity, and R&D investment compared to other investment types. Following expander, offshorer, reshorer, and idler exhibited lower levels of productivity in that order, highlighting the importance of productivity in investment type decisions. Reshorers had relatively high labor intensity, limited experience in overseas production activities, and their investment destination country was closer to South Korea. This suggests that firms with lower fixed costs of foreign investment and less burden in returning to the domestic market tend to choose reshoring as their primary option.

Reshoring policies have gained popularity in major advanced countries due to reasons such as national security, supply chain stability, and promotion of domestic employment. South Korea is also pursuing related policies. However, considering the characteristics of firms engaging in reshoring, it is desirable for the policy to aim at assisting reshoring firms in increasing productivity and eventually transitioning into expansionary investment firms, rather than focusing solely on reshoring itself.

Summary

KDI FOCUS The Global Trade Environment in the Biden Era and Response Strategies for Korea

□ Many expect that the trade war between the US and China will persist, and East Asia’s global value chains will undergo a significant transformation in the mid- to long-term, as China’s contracts while that of ASEAN expands. Accordingly, to effec-tively respond to the coming changes, Korea should adopt proactive strategies to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and attract quality FDI in an effort to realize sustainable growth.

- Biden’s trade policies highlight fair trade, which indicates that the US will maintain its hardline stance toward China.

- The policies of the new administration could drive the transformation of East Asia’s GVCs.

- It is too early to tell if China’s trade will remain sluggish. But, from a midto long-term perspective, East Asia’s GVCs will likely undergo some change due to China’s trade depression and diversion.

- Statistics confirm the structural changes in China which could diminish its share of East Asia’s GVCs.

- The US strategy of remodelling GVCs around itself, particularly in future technologies like 5G and AI, will likely have a huge impact on East Asia’s GVCs, especially in the electric/ electronic industry which accounts for 25% of China’s imports and exports.

- The CPTPP’s rules of origin could change the GVCs in East Asia via the trade diversion effect.

- Concerns over sensitive issues related to the CPTPP, such as market openness, policy loans, and fisheries subsidies are largely based on weak arguments.

- The longer Korea remains a non-member of the CPTPP, the bigger the decline will be in its exports. Accordingly, Korea must at least join the agreement before China.

- Attracting prime FDIs can serve as an effective policy to raise the investment necessary for sustainable growth.

- The US-China trade war presents Korea with an opportunity to attract more high-qualtiy FDIs.

- To take advantage of this opportunity, concession schedules in the Korea-China FTA should be pushed up.

- In the Korea-China FTA, the share of products subject to a five-plus-year tariff phaseout is relatively high in most industries.

- Joining the CPTPP is another effective policy to attract quality FDIs.

- A strategy to attract quality FDI is needed to drive the success of the ‘Korean New Deal’ initiative.

- From an economic policy perspective, the ultimate goal of trade liberalization is to improve the productivity of the overall economy which can be achieved through trade agreements such as the CPTPP.

- The fallout from firms exits due to the high level of trade liberalization should be not countered with trade policy, but with welfare policy.

- The emphasis of trade adjustment assistance should be placed on supporting workers. Meanwhile, agricultural policy should focus on preserving the income of farmers and strengthening their competence through a public-purpose direct payment system.

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