Korea–China Trade Dynamics: Exploring the Role of Crude Oil Prices

This research examines the short‐ and long‐term impacts of macroeconomic variables, such as real income levels and exchange rates, on Korea's trade flows with China, focusing on 33 specific commodity groups. By employing the Autoregressive Distributed Lag (ARDL) methodology, this study incorporates oil‐related factors – namely crude oil prices and their volatility – into traditional export and import models. The results demonstrate that real income levels in Korea and China considerably influence trade dynamics, affecting exports and imports across various periods. The bilateral exchange rate has a significant impact, with its effects being more pronounced on exports in the long term and imports in the short term. Furthermore, the research highlights that crude oil prices and their volatility significantly, yet varied, affect trade flows, contingent on the trade's nature and duration. These findings offer valuable insights for policymakers, particularly in understanding the recent shifts in Korea's trade balance with China and in formulating economic and trade strategies to manage fluctuations in the trade balance.