• East Asian Economic Review
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• 제16권3호
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• pp.249-272
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• 2012

This paper examines how a Korean automobile firm price-discriminates between the Korean and the U.S. markets. We argue that a Korean automobile firm's pricing behavior depends on the differences in price elasticity over the segmented markets between the countries. Our findings are that differences in price elasticity may help explain why a medium-class car's price is higher in Korea than that in the U.S. while a small-sized car's price is higher in the U.S. than in Korea, which implies that a Korean automobile firm $3^{rd}$ degree price-discriminates on the same or similar products between Korea and the U.S. This type of $3^{rd}$ degree price discrimination differs from a typical home-bias effect (charging higher prices to domestic consumers) because a small-sized car which is produced domestically sells at higher price abroad. This finding can be added as a source that violates the law of one price.

• East Asian Economic Review
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• 제17권1호
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• pp.81-100
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• 2013

This paper investigates the new link between the export-creating effects of Korea's tied aid and the export-diverting effects coming from China's export expansion, which have been rarely explored by the existing studies. A panel data consisting of 98-104 aid recipients of Korea through the period of 1995-2009 shows that the net export-creating effects are weaker at the export destinations where the export competition between Korea and China is fierce, while they are stronger at the export markets where it is not so severe. These findings applies to consumption goods rather than capital and intermediate goods.

• East Asian Economic Review
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• 제17권1호
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• pp.27-53
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• 2013

In this paper, we look at the relationship between international trade and the rule of law, using the World Justice Project Rule of Law Index, which include index figures on human rights, limits on government powers, transparency and regulatory efficiency. Based on regression analyses using the rule of law index figures and international trade figures (merchandise trade, service trade, exports and imports as percentage of GDP,) international trade and basic human rights seem to have little relationship; but trade has a close positive relationship with strong order and security. Somewhat surprisingly, regulatory transparency and effective implementation seems to have little or no effect on international trade and vice versa. International trade shows a clear positive relationship with the country's criminal justice system, but the relationship with the civil justice system is not as clear as such. For regulatory implementation and civil justice, services trade positively affect these institutions, but these institutions in turn affect exports more strongly than services trade. Finally, the effect of trade on rule of law is stronger on a medium to long term (10-20 year) time horizon.

• East Asian Economic Review
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• 제17권1호
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• pp.3-25
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• 2013

This paper evaluates whether the proposed FTAAP is a desirable policy option for APEC member economies and the world economy. More specifically, this paper qualitatively investigates whether the FTAAP satisfies conditions for a trade bloc to generate positive and sufficient net trade creation effect. In addition, this paper estimates the likely impact of the FTAAP by using a CGE model analysis. From the qualitative analysis based on statistical data, this paper strongly argues that the FTAAP can be a desirable regional trade bloc able to generate positive gains from freer trade. From the ex-ante scenario analysis using both static and capital accumulation CGE Models, this paper concludes that the FTAAP has great potential for improving welfare of participating APEC economies and will boost economic growth in the region. In particular, the FTAAP would be even better if it can be linked with liberalization of trade in services and enhanced trade facilitation.

• East Asian Economic Review
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• 제21권2호
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• pp.147-165
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• 2017

This study quantifies the dynamic interrelationship between the KOSPI index return and search query data derived from the Naver DataLab. The empirical estimation using a bivariate GARCH model reveals that negative contemporaneous correlations between the stock return and the search frequency prevail during the sample period. Meanwhile, the search frequency has a negative association with the one-week- ahead stock return but not vice versa. In addition to identifying dynamic correlations, the paper also aims to serve as a test bed in which the existence of profitable trading strategies based on big data is explored. Specifically, the strategy interpreting the heightened investor attention as a negative signal for future returns appears to have been superior to the benchmark strategy in terms of the expected utility over wealth. This paper also demonstrates that the big data-based option trading strategy might be able to beat the market under certain conditions. These results highlight the possibility of big data as a potential source-which has been left largely untapped-for establishing profitable trading strategies as well as developing insights on stock market dynamics.

• East Asian Economic Review
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• 제21권2호
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• pp.123-146
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• 2017

This paper examines the persistence of relative consumer price indices for 15 regions in Korea including 6 metropolitan cities and 9 provinces over the period of 1990-2016. In particular, we ask if relative regional price indices contain a common stochastic trend and find that they are not. We then investigate how quickly these relative prices converge to their long run value and find that a half-life of a deviation from the long run value is in the range of 13 to 22 months for the aggregate consumer price indices and in the range of 7 to 13 months for the tradable goods price indices, which is much quicker than the estimates of previous studies. These estimates suggest that existing monetary models with the realistic duration of price rigidities can generate the persistence in relative price indices.

• East Asian Economic Review
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• 제21권2호
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• pp.167-197
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• 2017

I build a small open economy (SOE) dynamic stochastic general equilibrium (DSGE) model to investigate the effect of a heterogeneous wage contract between regular and temporary workers on a macroeconomic volatility in a financially fragile economy. The imperfect financial market condition is captured by a quadratic financial adjustment cost for borrowing foreign assets, and the labor market friction is captured by a Nash bargaining process which is only available to the regular workers when they negotiate their wages with the firms while the temporary workers are given their wage which simply equals the marginal cost. As a result of impulse responsesto a domestic productivity shock, the higher elasticity of substitution between two types of workers and the lower weight on the regular workers in the firm's production process induce the higher volatilities in most variables. This is reasoned that the higher substitutability creates more volatile wage determination process while the lower share of the regular workers weakens their Nash bargaining power in the contract process.

• East Asian Economic Review
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• 제21권2호
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• pp.103-121
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• 2017

This paper experimentally studies the performance of negotiation considering individual and party, like a country, share of benefit over the best ones. It experiments two-stage bargaining games, internal and external negotiations. From the experimental results, this paper shows strong tendency to select fair allocation in the internal negotiations, but the tendency would be weaker with attractive outside option. In addition, the outside option may claim difference in individual benefit. From the regressions on individual performance in the negotiations, being a proposing party would matter to enhance the performance. However, relative individual performance within party fairness matters. Still attractive no-agreement options happen to break the tendency. As policy implication for trade negotiation, this paper warns that possible loss in individual benefit from not active participation to the external negotiations, no active role of proposer in case that players stick to internal allocations, and deviation of advantageous sector due to attractive outside options.

• East Asian Economic Review
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• 제22권3호
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• pp.275-306
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• 2018

Amid a general rise in protectionism and a trade war between the world's two largest economies, this paper analyzes changes in gains from trade for the world over a decade marked by rapid global economic integration preceding the global financial crisis of 2007-08. It employs state-of-the-art quantitative trade models based on the gravity equation to estimate autarky gains from trade, as well as a recently introduced ANOVA-type structural estimation of the gravity equation to obtain trade costs free of residual trade cost bias. Between 1995 and 2006, the cost of moving to autarky increased by about 45% on average. A decomposition exercise suggests most of the increase in autarky gains from trade on average was due to increases in import shares in total spending, with a limited role for reallocations of spending across sectors with varied trade elasticities. Changes in trade costs between 1995 and 2006 are found to have increased autarky gains from trade, as measured in 2006, by up to 100%.

• East Asian Economic Review
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• 제22권3호
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• pp.337-370
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• 2018

This paper discusses the design of monetary policy in a New Keynesian small open economy framework by introducing nominal wage rigidities and incomplete exchange rate pass-through on import prices. Three main findings are summarized. First, with the existence of an incomplete exchange rate pass-through and nominal wage rigidities, the optimal policy is to seek to minimize the output gap, the variance of domestic price and wage inflation, as well as deviations from the law of one price. Second, the CPI inflation targeting Taylor rule is welfare enhancing when there is a technological shock to the economy. The exception occurs when there is a foreign income shock, which minimizes welfare losses under the domestic inflation targeting Taylor rule. Last, two stylized Taylor rules turn out to be a bad approximation, but the modified Taylor rules that respond to the unemployment gap rather than the output gap are a closer approximation to the optimal policy.