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A Reexamination of Korea’s Trade Flows; What Has Changed and What Explains These Changes?

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  • Kevin C Cheng

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.

Suggested Citation

  • Kevin C Cheng, 2004. "A Reexamination of Korea’s Trade Flows; What Has Changed and What Explains These Changes?," IMF Working Papers 04/145, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:04/145
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    References listed on IDEAS

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    1. 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 147-155, February.
    2. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
    3. Krugman, Paul, 1989. "Differences in income elasticities and trends in real exchange rates," European Economic Review, Elsevier, vol. 33(5), pages 1031-1046, May.
    4. Lawrence, Denis, 1990. "An adjustment-costs model of export supply and import demand," Journal of Econometrics, Elsevier, vol. 46(3), pages 381-398, December.
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    Cited by:

    1. Liu, Yi Yun & Gan, Christopher & Ward, Bert D., 2006. "The Impact of the Euro on New Zealand’s Bilateral Trade with the European Union," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 59(3), pages 329-354.
    2. Lin, Songhua & Ma, Alyson C., 2012. "Outsourcing and productivity: Evidence from Korean data," Journal of Asian Economics, Elsevier, vol. 23(1), pages 39-49.

    More about this item

    Keywords

    Exports; Korea; Republic of; Imports; Trade equations; equations; heteroscedasticity; export volume; export demand; autocorrelation; Trade: General; Country and Industry Studies of Trade;

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