Economics [Working Papers]

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    Trade and innovation in global networks--regional policy implications
    (Honolulu, HI : East-West Center, 2014-05) Ernst, Dieter
    This Think Piece explores how integration into international trade through global networks of production (GPNs) and innovation (GINs) might affect a region's innovation capacity. As regions across the globe are progressively integrated into those global networks--some certainly more than others--these regions are all faced with a fundamental challenge: How might progressive integration of its firms into GPNs and GINs affect learning, capability development and innovation? Will network integration unlock new sources of industrial innovation? Or will it act as a poisoned chalice that will sap and erode the region's accumulated capabilities? The paper presents illustrative examples of how "ubiquitous globalization" increases the diversity and complexity of GPNs and GINs, and briefly discusses the underlying systemic pressures and enabling forces. In order to capture the gains for innovation that a region might reap from global network integration, the paper suggests moving from a one-way analysis of the external impacts on a region's innovation capacity to an analysis of two-way interactions. The paper concludes with Policy Implications and highlights Unresolved Issues for Future Research, including the critically important issues of spillover employment effects and inequality.
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    The microeconomics of North-South Korean cross-border integration
    (Honolulu, HI : East-West Center, 2012-06) Haggard, Stephan ; Noland, Marcus
    Economic integration between North and South Korea occurs through three modalities: traditional arm's-length trade and investment, processing on commission (POC) trade, and operations within the Kaesong Industrial Complex (KIC). In order, these three modalities are characterized by decreasing exposure of South Korean firms to North Korean policy and infrastructure. Through a survey of 200 South Korean firms operating in North Korea we find that these modalities of exchange matter greatly in terms of implied risk. For example, firms operating in the KIC are able to transact on significantly looser financial terms than those outside it. We find that direct and indirect South Korean public policy interventions influence these different modalities of exchange and thus impact entry, profitability, and sustainability of South Korean business activities in the North. In effect, the South Korean government has substituted relatively strong South Korean institutions for the relatively weak Northern ones in the KIC, thus socializing risk. As a result, the level and type of cross-border integration observed in the survey is very much a product of South Korean public policy.
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    Networks, trust, and trade : the microeconomics of China-North Korea integration
    (Honolulu, HI : East-West Center, 2012-06) Haggard, Stephan ; Noland, Marcus
    A central hope of engagement with North Korea is that increased cross-border exchange will encourage the strengthening of institutions, and eventually, a moderation of the country's foreign policy. An unprecedented survey of Chinese enterprises operating in North Korea reveals that trade is largely dominated by state entities on the North Korean side, although we cannot rule out de facto privatization of exchange. Little trust is evident beyond the relationships among Chinese and North Korean state-owned enterprises. Formal networks and dispute settlement mechanisms are weak and do not appear to have consequences for relational contracting. Rather, firms rely on personal ties for identifying counterparties and resolving disputes. The weakness of formal institutions implies that the growth in exchange does not conform with the expectations of the engagement model and may prove self-limiting. The results also cast doubt that integration between China and North Korea, at least as it is currently proceeding, will foster reform and opening.
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    Global trends of multi-factor productivity
    (Honolulu, HI : East-West Center, 2014-03) Lee, Jeong Yeon
    Summary: Multi-factor productivity (MFP) compares the growth of gross domestic product with the growth of combined capital and labor inputs. The growth rate of MFP assumes theoretical significance because it represents the slope of the steady-state growth path, and hence is a major determinant of the long-term growth trend. This paper offers the balanced panel of the estimated growth rates of MFP for 24 OECD countries over 1986-2011. Based on the estimates of MFP growth, a number of notable trends in productivity growth are identified for the entire OECD area as well as three major economies--the United States, the Eurozone and Japan--within the OECD.
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    Is the information technology agreement facilitating latecomer manufacturing and innovation? : India's experience
    (Honolulu, HI : East-West Center, 2013-11) Ernst, Dieter
    A defining characteristic of today's international trading system is that plurilateral trade agreements like the Information Technology Agreement (ITA) are gaining in importance relative to the gridlocked Doha round of multilateral trade negotiations. These more selective trade agreements pose new and so far little understood challenges for the governance of the international trading system, especially with regard to the distribution of liberalization gains among participants which differ in their stage of development, their institutions, and their resources and capabilities. The paper examines India's experience with ITA. Initially, the main concern was to attract inward FDI and to facilitate the growth of its then still nascent IT services industry. For electronics manufacturing however, the analysis shows that gains from trade liberalization were overshadowed by substantial costs - with rising electronics imports inflating the country's current account deficit to unsustainable record highs, while eroding domestic electronic manufacturing and innovation. To improve reciprocity in the distribution of gains from ITA, the paper suggests that latecomers like India deserve, under certain conditions, special and differentiated treatment. In turn, these countries need to agree to reforms that reduce investment barriers in their domestic industries, such as restrictive regulations and discrimination against foreign direct investment.
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