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External Adjustment under Increasing Integration in Korean Economy

Author

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  • Lee , Inkoo

    (Soongsil University)

  • Huh , In

    (Korea Institute for International Economic Policy)

Abstract

In this paper, we study the external adjustment of Korea under international product and financial integration by examining the evolution of the external balances, changes in international transactions and trends of the terms of trade. We first discuss changes in Korean external balances with a focus on the impacts of recent global financial crisis on the exchange rates and net exports in order to understand external adjustments by the external shocks. We then discuss external adjustment under increasing integration in Korean economy by examining changes in international transaction behaviors. We show that (1) trade channel supplements the net foreign debts in Korea, (2) Korea exhibits more risk sharing behavior under increasing economic integration, while home bias in equity market still remains as a puzzling phenomenon, and (3) a crucial factor contributing to the slowdown of private consumption has been a reduction of national income caused by a deterioration of the terms of trade.

Suggested Citation

  • Lee , Inkoo & Huh , In, 2009. "External Adjustment under Increasing Integration in Korean Economy," Working Papers 09-9, Korea Institute for International Economic Policy.
    • Handle: RePEc:ris:kiepwp:2009_009
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