RIETI Report July 26, 2024

Economic Security and Geopolitics: Insights into Japan-Korea cooperation based on "Economic Security Indicators"

Dear Readers,
Welcome to RIETI Report.
This bi-weekly newsletter will keep you updated with the recent columns, event information and research results by RIETI fellows and other leading economists in Japan and around the world.

In this edition, we are featuring topics related to Japan-Korea economic relations. In the recent BBL seminar, Professor Kim Byung Yeon unveiled the Supply Chain Dominance Index developed by Seoul National University, discussing the importance of evaluating individual countries’ trade power and vulnerabilities. He underscored the critical need for Japan and South Korea to cooperate in enhancing their trade resilience, particularly in light of China’s growing export power and global geopolitical tensions.

We hope you will enjoy it. If you have any feedback, we would love to hear from you (news-info@rieti.go.jp).
Editors of RIETI Report (Facebook: @en.RIETI / X: @RIETIenglish / URL: https://www.rieti.go.jp/en/)

Featured event

Economic Security and Geopolitics: Insights into Japan-Korea cooperation based on "Economic Security Indicators"

Speaker: Byung Yeon KIM (Distinguished Professor in the Department of Economics, Seoul National University)
Commentator: Hyeog Ug KWON (Faculty Fellow, RIETI / Professor, College of Economics, Nihon University)
Moderator: FUKAO Kyoji (Chairman, RIETI / University Professor, IER, Hitotsubashi University)

The Supply Chain Dominance Index: Assessing power and vulnerability

In order to prepare for turbulence that may occur, assessing the degree of strength and resilience of the South Korean economy is crucial. We examined power and vulnerability as two critical factors. Power is a country’s capacity to perturb or influence another country’s established status quo. The opposite concept is vulnerability, which is a country’s susceptibility to the disruptive actions of another country.

Supply Chain Dominance (SCD) means measuring these two concepts by using bilateral trade data. In this case, UN Comtrade data was utilized to look at each country’s trade flows.

We set the threshold of classifying expert power and import vulnerability as follows: (1) Country A is defined to have export power over Country B in a product if the share of its export of a product exceeds 10% of the world export of the same product; (2) Country B is defined to be subject to import vulnerability to Country A in the product if it imports more than 40% of the same product from Country B. For example, China accounts for more than 40% of South Korea’s total lithium imports, China possesses export power and South Korea is vulnerable. Another example would be Russia. In 2021, Russian exports of natural gas made up about 25% of total global natural gas exports, while at the same time 45% of the EU’s natural gas imports came from Russia. In this case as well, Russia had the power to control natural gas and the EU was vulnerable to any disruptive actions of Russia. The data on power and vulnerability is available on the website of the Institute for Future Strategy of Seoul National University.

To read the full summary:
https://www.rieti.go.jp/en/events/bbl/24062001.html

Related papers

“Investigating Japan’s Machinery and Equipment Exports after the Global Financial Crisis”
Willem THORBECKE (Senior Fellow, RIETI)
https://www.rieti.go.jp/en/publications/summary/24030005.html

“The Impacts of Bilateral Value Chains between Japan and Korea on Value-added Creation of Manufacturing Firms”
HUR Jung (Sogang University) / KWON Hyeog Ug (Faculty Fellow, RIETI) / SONG Hangeul (IBK Securities)
https://www.rieti.go.jp/en/publications/summary/23070002.html

“The Impact of Export Controls on International Trade: Evidence from the Japan–Korea trade dispute in the semiconductor industry”
MAKIOKA Ryo (Research Associate, RIETI) / ZHANG Hongyong (Senior Fellow, RIETI)
https://www.rieti.go.jp/en/publications/summary/23030011.html

“East Asian Value Chains, Exchange Rates, and Regional Exchange Rate Arrangements”
Willem THORBECKE (Senior Fellow, RIETI)
https://www.rieti.go.jp/en/publications/summary/19060011.html

Related articles

“The impact of exchange rates on Japan’s machinery exports since 1990”
Willem THORBECKE (Senior Fellow, RIETI)
https://www.rieti.go.jp/en/columns/v01_0212.html
“The impact of export controls on international trade: Evidence from the Japan–Korea trade dispute in the semiconductor industry”
MAKIOKA Ryo (Research Associate, RIETI) / ZHANG Hongyong (Senior Fellow, RIETI)
https://www.rieti.go.jp/en/columns/v01_0201.html

“U.S. Dollar Reliance and International Monetary System in East Asia”
ITO Hiroyuki (Visiting Fellow, RIETI)
https://www.rieti.go.jp/en/columns/a01_0633.html

Our latest discussion papers

“Robots and Wage Polarization: The effects of robot capital by occupation”
ADACHI Daisuke (Fellow (Specially Appointed), RIETI)
https://www.rieti.go.jp/en/publications/summary/24070007.html

“How Oil Prices Impact the Japanese Economy: Evidence from the stock market”
Willem THORBECKE (Senior Fellow, RIETI)
https://www.rieti.go.jp/en/publications/summary/24070006.html

“Forecast Dispersion and Forecast Errors across Firms and Time”
KAWABATA Hatsu (Keio University) / SENGA Tatsuro (Fellow (Specially Appointed), RIETI)
https://www.rieti.go.jp/en/publications/summary/24070004.html

“Subtle Completed Fertility Recovery in Cohorts Who Entered the Labor Market during the Deep Recession in Japan”
KONDO Ayako (Faculty Fellow, RIETI)
https://www.rieti.go.jp/en/publications/summary/24070003.html

[List of discussion papers]
https://www.rieti.go.jp/en/publications/act_dp.html
[List of upcoming and past symposiums]
https://www.rieti.go.jp/en/events/symposium.html
[List of upcoming and past BBL seminars]
https://www.rieti.go.jp/en/events/bbl/

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