The Role of Exchange Rates in Korea's Commodity Trade with China

29 Pages Posted: 1 Dec 2017

See all articles by Gab-Je Jo

Gab-Je Jo

Keimyung University - Department of Economics and Finance

Date Written: December 31, 2010

Abstract

In this paper I investigate the link between Korea’s trade balance and the exchange rate, using both aggregated and disaggregated data. Employing the bounds testing approach to cointegration, and error-correction modeling, when I use the aggregate trade balance as a dependent variable, I find no support for the J-curve in the short-run; and also find that in the long-run, the exchange rate had a significant positive impact on the trade balance. However, in both the short and the long-run, I find that the exchange rate does not play a significant role in deterIn this paper I investigate the link between Korea’s trade balance and the exchange rate, using both aggregated and disaggregated data. Employing the bounds testing approach to cointegration, and error-correction modeling, when I use the aggregate trade balance as a dependent variable, I find no support for the J-curve in the short-run; and also find that in the long-run, the exchange rate had a significant positive impact on the trade balance. However, in both the short and the long-run, I find that the exchange rate does not play a significant role in determining the bilateral trade balance between Korea and China, nor does it improve the disaggregated trade balance. This is because the exchange rate elasticity of the trade balance depends on the nature of the commodity. Especially if the commodity is an intermediate good or a raw material, the exchange rate elasticity in trade balance could be inelastic because the demand for the intermediate good is a derived demand from the final good.

Keywords: Exchange Rate, Intermediate Product, Trade Balance, Elasticity, J-curve

JEL Classification: F30, F42, F14

Suggested Citation

Jo, Gab-Je, The Role of Exchange Rates in Korea's Commodity Trade with China (December 31, 2010). East Asian Economic Review, Vol. 14, No. 2, 2010. pp. 49-76, December 2010, Available at SSRN: https://ssrn.com/abstract=3076758 or http://dx.doi.org/10.2139/ssrn.3076758

Gab-Je Jo (Contact Author)

Keimyung University - Department of Economics and Finance

Dalseo-Gu, Daegu 704-701
Korea, Republic of (South Korea)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
31
Abstract Views
300
PlumX Metrics