Exports and job creation in South Korea: industry-level analysis

Purpose The Korean manufacturing sector has undergone structural changes in a transition from labor- to capital-intensive industries. These changes seem to be relevant to the weakening of the export effect on employment that began in 1990. In light of the importance of exports in the Korean labor market, the purpose of this paper is to shed light on the primary reasons why export growth does not lead to sufficient job creation as it did in the past. Design/methodology/approach The authors first use the growth accounting approach to show that the weakening of the linkage between exports and employment is closely related to the composition of export products, which has changed toward being more labor-saving. An empirical analysis (i.e. first difference A-B generalized method of moments estimator) on the employment effect of exports confirms that as the capital-intensity of exports increases employment effect decreases. Findings The main findings of the study can be summarized as follows. First, the reduction in the export effect on exports is highly correlated with changes in the composition of export products. Second, an increase in exports leads to an increase in manufacturing jobs, and the export elasticity of employment decreases as capital-intensity increases. Third, the export elasticity of employment tends to be higher when the export proportion of SMEs’ products is larger. Originality/value Despite the many literatures on the link between exports and employment, there is no consensus on this topic. However, it is generally agreed that the employment effect of exports has been considerably weakened, compared to that of the past, at least in Korea. Nevertheless, few studies attempt to address why this trend has occurred. In this paper, we focus on the structural factors that are the major cause of the weakening of the virtuous cycle between exports and employment. This allows us to provide valuable information to policy makers who are concerned with developing export policies that are related to effective job creation.

The moderating effect of international trade on outside director system in Korean firms

Purpose The purpose of this paper is to investigate the moderating effect of international trade on outside director system in Korean firms. The authors expected that Korean firms highly depending on international trade would mitigate the resource provision function of outside director system in order to reduce information asymmetry among global business partners. In addition, the authors tried to find out the functions of outside director system: the control function based on agency theory and resource provision function based on resource dependence theory. Design/methodology/approach The authors tested the hypotheses by Poisson regression with 2011 and 2002 Korean-listed manufacturing firms. The dependent variable is the number of excessively appointed outside directors and independent variable is CEO type: family CEO or professional CEO. The moderating variable is the dependency on international trade measured by export proportion out of total sales. Findings The authors found that not control but resource provision function was a main role of outside director system in Korean firms. The authors also found negative moderating effect of dependency on international trade, which means that firms highly depending on global market tended to consider outside director system as control function, namely “global standard.” Originality/value This paper is the leading study that tries to analyze empirically the relationship between international trade and the function of governance mechanism; outside director system in Korean firms. It also confirms that Korean firms adopted outside director system on the basis of the resource dependence theory.

Diversification effect of ship investment funds in South Korea

Purpose The purpose of this paper is to examine the diversification effect of the Korean Ship Investment Fund (KSF) under Markowitz portfolio theory by analyzing short-term and long-term relationships with stocks and bonds. Design/methodology/approach For this purpose, unit root, correlation and cointegration tests are performed. Monthly data from 2004 to 2015 for stocks, bonds and KSFs are obtained for this study. Findings The correlation coefficients indicate that KSFs are uncorrelated with stocks and negatively correlated with bonds, and no long-term equilibrium relationships exist with all three variables by the Johansen and Engle-Granger cointegration tests. Research limitations/implications This paper makes contribution to the literature as follows: first, whereas the previous literature investigated diversification effect of ship investment using freight indices or freight rates which are not able to represent returns from ship investment, this study is the first study to use actual stock prices of the KSFs to the authors’ best knowledge; and second, diversification effect of ship investment represented by KSFs is empirically verified in the both short term and long term. Practical implications Policy-makers and managers of shipping companies can have sound ground that the KSFs are alternative and attractive assets to investors. It is also shown that the KSFs have potential to improve risk and return structure of investors on their own regardless of existence of incentives. Therefore, decisions of policy-makers can be made free from expectations for stronger incentives provided by the government. In addition, those countries that do not have such a ship investment platform may consider introducing a similar ship investment fund in order to revitalize the capital markets of the country. Originality/value This study holds its significance in investigating diversification properties of the KSFs for the first time in Korea since the KSFs were introduced.

Reduction clause in an advance payment guarantee (AP-bond) under an overseas construction contract

Purpose The purpose of this paper is to review characteristics and functions of an advance payment guarantee (AP-Bond), and to analyse some legal and practical issues concerning a “reduction clause” in an AP-Bond under an overseas construction contract. Design/methodology/approach This paper compares relevant provisions of the URDG 758, the UN Convention, the ISP 98, and the FIDIC Silver Book, and also cites relevant case laws of the USA, UK and Korea. This paper also refers many Korean scholars’ views on characteristics of an independent guarantee including an AP-Bond. Findings A demand for payment under an AP-Bond shall not be honoured in the event that an employer wrongfully refuses to issue documents required for reduction of an AP-Bond. A beneficiary shall not be favoured by independence nature of an AP-Bond in case of fraud or abuse of right. Originality/value This paper originally analyzes a “reduction clause” in an AP-Bond. This paper provides logics that a demand for payment shall not be honoured in the event that a beneficiary wrongfully refuses to issue documents required for reduction of an AP-Bond.

How does the duration of FTAs and BITs affect FDI attraction?

PurposeThe purpose of this paper is to analyze the effect of the duration of free trade agreement (FTA) and bilateral investment treaty (BIT) on the foreign direct investment (FDI) flows between OECDs and different level of income countries such as upper- and lower-middle-income countries.Design/methodology/approachThe authors applied the gravity model by adding more variables of interest such as trade openness, export volume, dummy and cumulative variables of FTA and BIT to find out the proper determinants of FDI attraction. Through Hasuman test, the authors find the fixed model is appropriate methodology. Hence, the authors basically use the fixed models to find the effect of the duration of FTA and BIT on FDI flows between different groups of countries.FindingsThe main results of the study are briefly summarized briefly as follows. First, the effects of FTA dummy variables and its cumulative variables are greater than those of BIT dummy variables and cumulative variables. If an FTA signifies attracting FDI as well as bilateral trade, and contains an investment agreement provision in it is included in the FTA, it can be seen that the FTA is more effective way of attracting FDI than BIT because FTA is more comprehensive agreement dealing with not only investment issues but also non-investment ones. Second, the BIT effect on FDI is only meaningful when developed countries invest in developing countries. In other words, when a country decides to invest in a developing country with a relatively poor investment environment, whether to enter into a BIT will provide investors with investment stability to gage the investment climate of the host country. Third, the BIT cumulative year effect showed a positive and significant results on FDI inflow and outflow of all cases, unlike the BIT effect. While the fact that BIT cumulative effect has a relatively less positive effect than the BIT dummy effect, implying that BIT effect was evident as time elapsed after fermentation.Originality/valueThe main contribution of this study is that we consider the duration of FTA and BIT explicitly in the model. Previous related studies tried to find out the effects of FTA and BIT on FDI by simply applying dummy variables of them. In this paper, by applying both dummy variables and cumulative variables of FTA and BIT that capture the duration effect, we can deeply understand the effects of national agreements dealing with investment clauses on FDI more dynamically.

Accounting of gross exports and tracing foreign values in the global pharmaceutical value chain

Purpose The purpose of this paper is to document for the first time the vertical specialization structure of the global pharmaceutical value chain. Design/methodology/approach The paper adopts Wang et al.’s (2013) gross exports decomposition method to trace foreign values in bilateral trade between major pharmaceutical producers, using the 2014 WIOT database. Findings The paper shows that as in other sectoral value chains, the pharmaceutical value chain is heavily regional. The paper identifies a strong European regional value chain, and a less intensive, Asian regional value chain. Korea is positioned in the middle of the Asian value chain, and is connected to the European regional value chain as a second-tier supplier. Originality/value The paper documents the vertical specialization structure of the global pharmaceutical value chain through gross exports decomposition method, making use of the World Input–Output Table Database 2014 which disaggregates pharmaceuticals in its industry classification for the first time.

Court’s intervention on arbitral tribunal’s jurisdiction

Purpose The purpose of this paper is to analyze provisions which are related to court’s intervention over an arbitral tribunal’s jurisdiction under the revised Korean Arbitration Act (2016) and the UNCITRAL Model Law. Design/methodology/approach The author studies a theory about court’s intervention over an arbitral tribunal’s jurisdiction by studying some scholarly writings and compares the revised provisions in the KAA (2016) with those in the KAA (2010) and the UNCITRAL Model Law (2006). Findings There is no clear and internationally unified answer to which theory between the prima facie test and the full review test is appropriate for court’s intervention to arbitration. The analysis of the provision shows that the revised ones in the KAA (2016) will make arbitration to be conducted faster and more efficiently by giving practical answers to issues raised. Research limitations/implications It has been just over one year since the KAA (2016) became effective, so it limits evaluation on whether these revised provisions related to court’s intervention over jurisdiction of arbitral tribunal is successful or not. Originality/value This study is comparatively new one after the KAA (2016) became effective. So, it is expected to provide a guidance for further studies.

Does FDI crowd out domestic firms? Micro-level evidence from the Republic of Korea

PurposeThe purpose of this paper is to investigate the impact of the foreign investment on the exit and sales of the domestic firms. Furthermore, it studies whether domestic firms undergo different influences by foreign firms according to the size of domestic firms.Design/methodology/approachKorean firm-level data for the period of 2006 through 2013 provided by Statistics Korea are used to study the impact of the foreign investment on the exit and sales of the domestic firms.FindingsThe result shows that foreign firms crowd out small firms from the market and take their shares in the domestic market. On the other hand, larger firms rather enjoy positive spillover effect from foreign firms, reducing its exit probability and increasing sales. It may be that large firms have enough competitiveness and ability to learn and apply the advanced technology of the foreign firms.Practical implicationsDespite the strong belief on the positive impacts of the foreign firms such as knowledge spillovers or job creation, there might be crowding-out or market-stealing effect from the presence of foreign firms. If the latter effect is larger than positive effect, the incentives provided by host country government to the multinational firms cannot be justified. In this regard, the question addressed in this paper is very important.Originality/valueWhile most of previous papers have focused on the impacts of the foreign firms on productivity of the domestic firms, this paper deals with their impacts on the exit and sales of the domestic firms in order to examine more direct crowding-out and market-stealing effect of foreign firms.

Services in global value chains – the cases of Taiwan and Korea

Purpose The purpose of this paper is to explore the value added of exports of services, which increasingly involve intermediate inputs to manufacturing and are indirectly embodied in intermediate and finished good exports to the global market earned by Taiwan and South Korea. Design/methodology/approach This paper uses the World Input-Output Database to examine and compare the competitiveness of service industry between Taiwan and South Korea in China from 1995 to 2011. The author measures the value added of export in two ways: value added in trade (VAiT) and trade in value added (TiVA). Findings The proportion of domestic (intermediate and final demand) VAiT was created by Taiwanese and South Korean exports to China. The services amount share of value added embodied in Taiwanese electrical and optical equipment (ELE) exports to China increased gradually (38.0–45.7 percent) from 1996 to 2011, that was more than that of South Korea (26.7–23.3 percent). Taiwanese financial and business (F&B) service contributed to Taiwanese ELE production exported to China. In service sectors, the proportion of VAiT of Taiwanese F&B service embodied in ELE exports to China increased annually (9.8–11.5 percent), that was similar to that of South Korea (12.2–11.3 percent). Thus, F&B sector played an increasingly important role in service sectors. Taiwanese F&B promotes the ELE export to China with higher efficiency than South Korea does. Originality/value Over the past two decades, the development of information technology and the growth of international specialization and fragmentation of production processes have brought about a global value chains (GVCs) phenomenon in services, which has already been taking place in manufacturing for a long time. Intangible value added of services increasingly involved intermediate inputs from manufacturing and were indirectly embodied in intermediate and finished goods exported to the global market. The focus of this paper is to analyze how the service industry participates in the development of the GVC, with emphasis on the export of ELE production to China in the bilateral trade of Taiwan and Korea with China. In addition to the value-added components, the exports of F&B intermediate products to China have been increasing year by year, and Taiwanese is higher than South Korean. In the bilateral trade between Taiwan or Korea and China, for ELE production exported to China, double counted part of intermediate products is increasing year by year. In terms of the value added of the double counting of F&B exports to China, Taiwan is higher (PDC, 31.23–17.26 percent) than South Korea. (PDC, 8.7–15.12 percent). South Korea and China are not as closely related as Taiwan and China.

Trade-employment linkage of FTAs in Korea

Purpose The purpose of this paper is to empirically examine the link between trade liberalization and employment through the export channel under Korea’s FTAs by distinguish firm heterogeneity (i.e. size) as well as sector-level international competitiveness (i.e. comparative advantage). Design/methodology/approach Using the firm-level data during 2000–2009, the authors drive the difference-in-difference-in-difference model on Wagner (2007) with the dependent variables of labor productivity and employments and the independent variables of free trade agreement, revealed comparative advantage, firm size and payroll costs. Findings The authors find that the economic benefit of FTAs in Korea is not concentrated in large enterprises or firms with comparative advantage. Accordingly, the authors conclude that FTA or trade liberalization brings positive effects to business as a whole, rather than to specific industries or group of firms. Research limitations/implications The Korean Government has continued its policy of supporting small and medium-sized enterprises (SMEs) for a long time by recognizing them as socially underprivileged. According to the results of this study, an increase in export through FTAs improves firm’s labor productivity and increases employment, especially for SMEs, which can be a practical and efficient support for them. Originality/value The paper provides the empirical evidences that how the effects of trade liberalization on labor depend on firm heterogeneity, industrial competitiveness and/or both and thus how labor is reallocated in response to trade liberalization in Korea.