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This paper investigates the China Effect on FDI competition in East Asia: Does China's FDI crowd out or crowd in FDIs in ASEAN countries? Previous research utilized a gravity equation that has no theoretical foundation for FDI flows. This study applies a theory-based Knowledge-Capital Model modified to incorporate preferential market-openings by FTAs and BITs that directly affect investment and trade costs. Using country-pair data for China and ASEAN with 34 OECD home countries during 1985–2010, panel analyses are performed. The results suggest that China's rise does not threaten ASEAN countries but induces a strong synergetic effect on FDIs into them. In attracting FDI inflows, China and ASEAN countries are friends, not foes.

This paper investigates the under-pricing and long-run performance of 230 A-share IPOs issued in the Chinese markets using comparable firm * The authors wish to thank the journal Editor-in-Chief, Professor Kyung Mook Lee, and three anonymous referees for extremely valuable comments. The last author wishes to acknowledge the financial support of a Strategic Research Grant from ECU. ** Professor, Department of International Trade and Business, Kangwon National University, Korea (chsohn@kangwon.ac.kr). *** Associate Professor, Department of Economics, National University of Singapore, Singapore (ecsatsui@nus.edu.sg). **** Assistant Professor of Finance, David Eccles School of Business, University of Utah, USA (feng.zhang@business.utah.edu). ***** (Corresponding author) Associate Professor of Economics, School of Accounting, Finance and Economics, Edith Cowan University, 270 Joondalup Drive, Joondalup, WA 6027, Australia. Tel: +61 8 6304 5266; Fax: +61 8 6304 5271 (zhaoyong. zhang@ecu.edu.au) 26 Seoul Journal of Business multiples. We find that A-share IPOs are severely under-valued by issuers and underwriters at the offer, but over-valued by investors on the listing day. Both contribute to the severe under-pricing of IPOs in China. Our findings are robust across stock exchanges, classification of firms, criteria for choosing matching firms; absence of CSRC regulation and B-share market prices, respectively. The results also show that those over-valued IPOs by investors on the listing day under-perform those under-valued IPOs in the long-run.

This paper constructs a Cournot-Ricardo model of trade by incorporating Cournot competition in a Ricardian trade model. In this model, the share of intra-industry trade in bilateral trade volume decreases as trading partners become more different in terms of the industry distribution of labor productivity. We show that this relationship is a special case of a more general relationship: the share of intraindustry is decreasing in a specialization index. This specialization index turns out to be equal to the difference in the industry distribution of productivity in the case of our Cournot-Ricardo model, while it is given by the difference in capital-labor in the well-known case of monopolistic competition. As both technologies and factor endowments would be important in shaping specialization patterns in the real world, we conjecture that the share of intra-industry trade is decreasing in two measures of specialization: the difference in the industry distribution of productivity and the difference in capital-ratio. Our OLS estimations strongly support this conjecture. In fixed effects regressions, both measures lose significance in the entire sample, but the industry distribution of productivity is significant in explaining trade between high income countries.

What is the relationship between trade and economic growth? Does trade positively affect economic growth? Owing to the ambiguity of this relationship, the empirical relationship has remained open (Rodriguez and Rodrik, 2001; Baldwin, 2003). This paper introduces “trade structure” variables, borrowed from the paper of Lederman and Maloney (2003), and applies them to the relationship. A dynamic panel estimation for the data of 66 countries during 1991–2004 is used to verify the validity and robustness of the relationship. Trade structure variables show strong evidence of positive effects on growth. Free-trade agreements/areas (FTAs) also enhance economic growth. East Asia shows a different relationship between trade and growth than the world and reflects a weaker role of FTAs in its growth.

In this paper we explore three important areas where deeper trade and financial integration in East Asia can influence: (1) business cycle co-movements in the region, (2) the extent of risk sharing across countries and (3) price co-movements across countries. We find evidence that trade integration enhances co-movements of output but not of consumption across countries. Especially the fact that trade integration does not raise co-movements of consumption as much as that of output is interpreted as trade integration does not improve the extent of risk sharing. Co-movements of price arise most significantly as trade integration deepens, lowering the border effects and allowing better opportunities for resource reallocation across countries. In contrast, financial integration demonstrates much weaker evidence of enhancing co-movements across countries. Deeper financial integration improves price co-movements weakly but does not enhance output or consumption co-movements at all. However, since the current level of financial integration in East Asia is quite low, our evidence is too early to firmly determine the role of financial integration.

The purpose of this paper is to analyse whether FTAs cause the income levels of member economies to converge or diverge. Although existing studies predict the possibility of convergence among FTA members to a certain degree, they fail to provide definitive evidence. By using the concept of accelerating convergence, this study aims to estimate the pure convergence effects of FTAs, separate from the conventional notion of income convergence, so-called β-convergence. The neoclassical model of economic growth has been extended to incorporate varying steady states for an open-economy framework. Applying the system GMM method to a dynamic panel of data consisting of major FTAs – comprising the European Union, NAFTA, Mercosur and AFTA, and encompassing the cases of launching an FTA, expanding membership or deepening FTA integration – we find considerable evidence for the income convergence effect of FTAs.

This paper applies the gravity model to explain South Korea's bilateral trade flows and to extract practical trade policy applications. A trade structure and an Asian-Pacific trade network are included in the gravity equation to characterize the peculiarity of South Korea's trade patterns. The empirical result shows that South Korea's trade follows a Heckscher–Ohlin model more than an increasing returns or a product differentiation model. South Korea has large unrealized trade potentials with Japan and China, suggesting that they are desirable partners for an FTA. North–South Korean trade will expand markedly if bilateral relation normalizes and North Korea participates in APEC.

This paper investigates how intra-industry trade (IIT) is linked to cross-country income difference and foreign direct investment (FDI). We distinguish IIT as either horizontally or vertically differentiated, using bilateral exports and imports data for Japan and the remaining East Asian countries at the SITC five-digit level over 1990–2000. Our results show that the income difference has a negative relationship with the share of horizontal IIT, but a positive relationship with vertical IIT, and that cross-country FDI has a positive relationship with share of horizontal IIT and a negative relationship with share of vertical IIT.

South Korea recently signed a free trade agreement (FTA) with Chile and is currently negotiating or studying bilateral FTAs with about 20 countries. However, some South Koreans oppose such agreements because they fear that trade liberalization would result in costly factor adjustment. Many researchers believe that intra-industry trade expansion generates smaller inter-industry factor adjustment (and therefore lower costs) compared with the costs associated with inter-industry trade expansion. This paper analyzes the extent and nature of intra-industry trade and marginal intra-industry trade in South Korea, to help predict the relative costs it might face upon opening its markets to various countries.

The outbreak of the financial crisis in the Republic of Korea in 1997 exposed the structural weaknesses in the country’s economy. Heated debates have failed to generate definitive answers on just what caused the financial crisis. Considering the importance of restructuring the corporate sector, this paper analyzed how the resolution of corporate debts was accomplished and examined the role of foreign capital in Korea’s post-crisis corporate restructuring. Special attention was given to the measures devised to recover nonperforming loans for the liquidation of corporate debts, to the foreign capital inflows through cross-border M&As or privatization processes, and to the changes in control through corporate governance reforms. This paper concluded that the resolution of corporate debts has been satisfactory and successful and that foreign capital contributed significantly to effective corporate restructuring and debt resolution in the post-crisis restructuring of Korea. HE outbreak of the financial crisis in the Republic of Korea in 1997 revealed the structural weaknesses in the country’s economy. Naturally, policymakers and experts in diverse fields from economics and finance to social policy have sought remedies, not only to address the crisis but also to prevent another one from occurring and to provide a sound base on which to build a healthier economy. Heated debates on just what caused the financial crisis have not yet led to universally agreed answers. However this paper suggests, based on the Korean experience, that the corporate sector played a major role. Realizing the importance of the need for restructuring the corporate sector, this paper aims to analyze how the resolution of corporate debts was accomplished and to determine the role of foreign capital in Korea’s post-crisis corporate restructuring. Emphasis is placed on the measures devised to recover nonperforming loans for the liquidation of corporate debts, including foreign capital inflows through cross-border M&As or privatization processes, as well as the changes in control associated with corporate governance reform. The paper consists of six parts. Following this section, Section II traces the evo

Korean Abstract: 본 연구의 목적은 '중력모형'을 토대로 우리나라의 교역패턴을 실증적으로 분석하고 양국간 교역규모를 결정하는 구체적 요인을 규명함으로써 교역규모를 더욱 확대시킬 수 있는 방안을 모색하고자 하는 것이다. 중력모형을 양국간 교역이 거리에 반비례하고 경제규모에 비례한다는 가정에 기초한 모형으로 그동안 국제무역이론에서 간과되어 왔던 거리, 인구, 인접여부 등의 지리적 요인까지 고려함으로써 양국간 교역량을 설명하는 가장 적합한 모형 중의 하나로 알려져 있다. 본 연구에서는 특히 중력모형의 기본설명변수인 GDP, 거리 및 인구 이외에도 무역보완도지수(TCI)와 APEC을 새로운 설명변수로 추가하여 우리나라의 교역패턴이 헥셔-올린모델과 제품차별화 모델 중 어느 모델에 더 잘 부합하는지의 여부와 지역경제권이 우리나라 교역에 미치는 영향을 살펴보고자 하였다. 중력모형의 예측결과에 따르면 우리나라의 교역패턴은 헥셔-올린모델에 기초한 산업간 교역의 형태를 띄는 것으로 나타났으며 인접한 거리에 있으며, 경제규모가 큰 국가와 교역을 할수록 교역규모가 확대되는 것으로 추정되었다. 그러나 일본 및 중국과의 경우 지리적 요건이나 경제규모로 볼 떄 가장 유리한 조건을 갖추고 있음에도 불구하고 우리나라와의 실제교역량이 중력모형에서 예측된 교역량에 크게 미달하고 있는 것으로 나타나 양국간에 상당한 무역장벽이 존재하고 있음을 예측할 수 있다. 따라서 이들 국가들과 보다 심화된 형태의 무역자유화를 추진함으로써 잠재적인 교역규모를 더욱 확대시키고 교역에 따른 이익을 극대화할 수 있을 것으로 기대된다. English Abstract: The purpose of this paper is to empirically analyze Korea’s trade patterns based on the gravity model and to suggest possible ways to expand trade by identifying important factors determining Korea’s bilateral trade flows. The gravity model assumes that trade flows between two countries are positively related to their economic size and negatively related to the distance between them. In this paper, new explanatory variables, such as the Trade conformity Index and APEC membership, were also included in order to examine the peculiarity of Korea’s trade pattern? whether they follow the Heckscher-Ohlin model or the Differentiated Product Model? and to estimate the influence of a regional economic bloc on Korean bilateral trade flows. According to the regression results of the analysis, it was found that Korea’s bilateral trade patterns fit the basic gravity model well and that inter-industry trade, as explained by the Hckscher-Ohlin model, is more prevalent in Korea’s international trade. Therefore, in order to expand bilateral trade volumes, it spears to be more desirable for Korea to promote bilateral trade with countries in close proximity and having large economies. However, Korea’s actual trade volumes, with countries like Japan and China which, in terms of economic size and distance, present greater advantages, seem to fall short of the trade volumes predicted by the gravity model. This implies that there are significant trade barriers between Korea and these countries. Therefore, by promoting a deeper form of trade liberalization with both Japan and China, Korea is expected to fully exploit its trade potentials and maximize the gains from trade.

Korean Abstract: 본 연구의 목적은 FTA의 체결이 회원국간의 경제수준격차를 수렴시키는지 발산시키는지의 여부를 분석하는 것이다. 기존의 유사연구들은 FTA회원국간 경제수렴의 가능성을 어느 정도 예측하고 있으나 정확한 분석방법이나 확실한 결론을 제시하지 못하였다. 따라서, 본 연구는 수렴도의 측정에 있어서 '가속화된 수렴'이라는 새로운 개념을 제시하고 이를 활용함으로써 FTA 이외의 다른 요인에 의한 수렴효과를 제와한 순수한 'FTA에 따른 회원국간의 경제수준 수렴효과'만을 포착하고자 하였다. EU의 출범 및 회원국 확대의 경우와 AFTA 및 ANZCER 결성의 경우를 실증적으로 분석한 결과, 회원국간에 FTA를 통한 확실한 경제수렴현상이 존재함이 입증되고 있다. 따라서, 우리나라도 FTA를 추진할 경우 가능하면 미국, 일본 등 선진경제국들과 FTA를 체결함으로써 경제수렴에 따른 혜택을 극대화하는 것이 바람직하다는 것을 알 수 있다. English Abstract: The purpose of this paper is to analyze whether the formation of an FTA will converge or diverge the income levels of its member countries. Although similar former studies predicted, to a certain degree, the possibility of economic convergence among FTA members, they failed to provide accurate research methods or reliable conclusions. Therefore, this study focuses on introducing the new concept of ‘accelerated convergence’ for the estimation of economic convergence to fully analyze the pure effects of an FTA on the income level convergence among its members. The empirical analysis from the cases of the creation and expansion of the EU and the formation of AFTA and ANZCER, proves that an FTA will certainly introduce an economic convergence effect on its members. This means that, in the pursuit of an FTA, it is desirable for Korea to establish an FTA with advanced countries, such as the U.S. or Japan, to maximize the benefits of economic convergence.