Mapping Korea's International Linkages Using Generalised Connectedness Measures

51 Pages Posted: 28 Mar 2015

See all articles by Hail Park

Hail Park

Kyung-Hee University

Yongcheol Shin

University of York (UK) - Department of Economics and Related Studies

Date Written: June 9, 2014

Abstract

Korea is a textbook example of a small open economy which is susceptible to conditions overseas but cannot affect them itself. Policymakers in Korea would therefore naturally benefit from an enriched understanding of the connections that exist between the Korean and global economies. We provide a detailed summary of these linkages using the generalised connectedness methodology introduced by Greenwood-Nimmo, Nguyen and Shin (2013b). Among our principal findings is the observation that domestic conditions are only generally important in the short to medium term, with overseas conditions exerting a dominant influence on Korea’s economic prospects in the long run. The economies which exert the strongest effect on Korea are the US, Europe, China and the ASEAN group, with a considerable role also played by global energy markets. Furthermore, we find that the ongoing global financial crisis is associated with greater connectedness of the Korean economy with advanced economies and its reduced connectedness with emerging economies.

Keywords: Small Open Economy of Korea, Global VAR, Forecast Error Variance Decomposition, Generalised Connectedness Measures

JEL Classification: C32, C53, E17

Suggested Citation

Park, Hail and Shin, Yongcheol, Mapping Korea's International Linkages Using Generalised Connectedness Measures (June 9, 2014). Bank of Korea WP 2014-16, Available at SSRN: https://ssrn.com/abstract=2580633 or http://dx.doi.org/10.2139/ssrn.2580633

Hail Park (Contact Author)

Kyung-Hee University ( email )

Yongcheol Shin

University of York (UK) - Department of Economics and Related Studies ( email )

Heslington
York, YO1 5DD
United Kingdom

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