CLMV(Cambodia, Laos, Myanmar and Vietnam), the latecomer countries of the Association of South-East Asian Nations(ASEAN) and located in the Indochina Peninsula, captures interest due to its increasing importance in the region and the strong economic growth in recent years. Korea’s trade with CLMV also increased by 176.6% from USD 105.8 billion in 2010 to USD 292.5 billion in 2015 and imports surged by 197.0% from USD 35.5billion to USD 105.6 billion in 2015. The rich labor force and low labor costs of the CLMV countries provide a strategic opportunity for Korea to establish a production network in East Asia.

This study examines the direction of bilateral and multilateral cooperation with Korea centered on Vietnam and Cambodia among the CLMV countries with such strategic importance. In the course of economic proliferation of the Global Value Chain(GVC), we looked at ways to strengthen cooperation between the two countries, and at the same time, proposed the direction of Korea’s cooperation through each country’s country risk analysis.

The study first examines the changes in total export value added of each country using OECD TiVA data to examine the diffusion of production value chain in the region. Vietnam’s total export value added in 1995~2011 period shows that the value added to total exports has greatly increased from USD 6.97billion in 1995 to USD 95.56billion in 2011. With the exception of 2009, when the global financial crisis occurred, it continued to grow. Cambodia, on the other hand, did not reach Vietnam in terms of size and growth rate of export value added; in Cambodia, the added value embodied in exports in 1995 amounted to about USD 1.03billion, about one sixth of Vietnam. However, the value added of export in 2011 was about USD 6.91billion, decreasing to about 1/15 of Vietnam’s value added. Although the value added scale was relatively low compared to Vietnam, the growth rate has been steadily increasing since 1995.

In case of country risk, Cambodia has lower rating than Vietnam, which shows that country risk is high. The following are the evaluation factors that show a significant difference in the difference of national risk difference among these countries. The factors that best represent the country risk between the two countries are estimated. As a result of the estimation, it is shown that the foreign exchange reserve, monthly average income, the economic growth rate and the economic risk represent the difference in the country risk between the two countries. Also, in order for Cambodia to lower its country risk to the level of Vietnam, it will be necessary to achieve long-term sustainable economic growth and to improve foreign exchange repayment capacity by increasing foreign reserves. Vietnam also needs to focus on increasing its foreign exchange reserves as pointed out by private credit rating agencies, considering export-oriented economic policies and the size of future trade.

We analyzed the impact of AfT on the vertical specialization of the recipient country and examined the effect of AfT on the participation of the recipient country in the production network. Analysis of bilateral AfT data between 15 AfT donor countries and 130 recipient countries shows that AfT has the effect of promoting vertical specialization between donor countries and recipient countries. However, these effects were strongly supported for high-income countries, while for low-income countries and low-middle-income countries, AfT did not have a significant effect on expanding vertical specialization. This is due to the lack of human resources in low-income countries. As a result, it can be seen that the effect of AfT is higher in the high-income countries with rich human resources.

In order to strengthen the GVC with Vietnam and Cambodia, Korea needs to improve the infrastructure and system improvement that can support the entry base of Korean firms through AfT. Support for trade facilitation such as strengthening production capacity of each country and improvement of customs clearance system, and support for regulatory improvement to eliminate various regulatory should be provided to facilitate Korean companies’ business environment and attract the two countries’ active involvement of regional/global GVC. In addition, it is necessary to cooperate with the industrial policy of the other country and the strategy of national development to find out the industry in which the needs of Korea are common and to support and foster them jointly. Finally, there is a need for efforts at the governmental and/or private level to expand understanding of the other country through not only intergovernmental cooperation but also mutual exchange of human resources.