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An Analysis of Trade Patterns and the Effects of the Real Exchange Rate Movements in East Asia

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  • Moon Jung Choi
  • Geun-Young Kim
  • Joo Yong Lee

Abstract

This article investigates the patterns of vertical specialization in trade among China, Japan and Korea, and the effects of real exchange rate fluctuations under a multistage production process. By extending the models of Yi (2003, 2010), we derive two distinct features of vertical specialization and test them using Time-Varying Parameter (TVP) VAR. We find that a positive shock to China’s final good consumption increases the intermediate goods trade between Korea and China, with expanding magnitude over time. In addition, the positive effect of a real exchange rate depreciation on intermediate goods trade is strengthened through the competitiveness-enhancing channel, with this effect being more pronouncing in Korea-China trade than in Korea-Japan trade.

Suggested Citation

  • Moon Jung Choi & Geun-Young Kim & Joo Yong Lee, 2018. "An Analysis of Trade Patterns and the Effects of the Real Exchange Rate Movements in East Asia," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(7), pages 1635-1652, May.
    • Handle: RePEc:mes:emfitr:v:54:y:2018:i:7:p:1635-1652
    DOI: 10.1080/1540496X.2017.1316712
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    Cited by:

    1. ABBAS, Shah & Nguyen, V.C. & YANFU, Zhu & Nguyen, Huu Tinh, 2020. "The Impact of China Exchange Rate Policy on its Trading Partners Evidence Based on the GVAR Model," OSF Preprints cwvqb, Center for Open Science.
    2. Lin Liu, 2022. "Economic Uncertainty and Exchange Market Pressure: Evidence From China," SAGE Open, , vol. 12(1), pages 21582440211, January.

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