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A Re-Examination of Korea's Trade Flows

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  • Kevin C. Cheng
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    Abstract

    This paper reexamines Korea''s trade flows. Using the standard demand-based models, the paper finds that owing to the increasing share of electrical and electronic products (EEPs) in total exports, the income elasticity of the Korean export demand has fallen sharply while its price elasticity has risen dramatically. This is a curious result, which begs the question of why. Accordingly, an alternative supply-based model shows that the sharp increase in exports of EEPs is mainly due to Korea''s remarkable ability to make technological improvements in their production. After reestimating the standard import equation, the paper finds estimates similar to those from previous studies. Since most of these imports are industrial inputs, they are jointly determined by consumption, fixed investment, and exports.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/145.

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    Length: 24
    Date of creation: 01 Aug 2004
    Date of revision:
    Handle: RePEc:imf:imfwpa:04/145

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    Related research

    Keywords: Trade policy; Economic models; equations; heteroscedasticity; export volume; export demand; autocorrelation; equation; logarithm; independent variables; standard errors; total exports; export supply; trade flows; homoscedasticity; constant term; supply equations; export unit; rate of change; elasticity of export; share of exports; functional form; export equations; goods for export; total export; statistics; manufactured exports; export prices; export production; export equation; world exports; minimization; real exports; econometrics; import prices; real effective exchange rate; financial statistics; value of exports; empirical model; price of exports;

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    1. James H. Stock & Mark W. Watson, 1991. "A simple estimator of cointegrating vectors in higher order integrated systems," Working Paper Series, Macroeconomic Issues, Federal Reserve Bank of Chicago 91-3, Federal Reserve Bank of Chicago.
    2. Lawrence, Denis, 1990. "An adjustment-costs model of export supply and import demand," Journal of Econometrics, Elsevier, Elsevier, vol. 46(3), pages 381-398, December.
    3. Paul Krugman, 1988. "Differences In Income Elasticities and Trends in Real Exchange Rates," NBER Working Papers 2761, National Bureau of Economic Research, Inc.
    4. Muscatelli, Vito Antonio & Stevenson, Andrew A & Montagna, Catia, 1995. "Modeling Aggregate Manufactured Exports for Some Asian Newly Industrialized Economies," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 147-55, February.
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    Cited by:
    1. Lin, Songhua & Ma, Alyson C., 2012. "Outsourcing and productivity: Evidence from Korean data," Journal of Asian Economics, Elsevier, Elsevier, vol. 23(1), pages 39-49.

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