The purpose of this study is to analyze Korea’s trade account fluctuations from both demand and supply perspective and come up with possible policy implications through evaluating the relative importance of each factors.
Before 1990s, unlike other developed countries, Korea’s trade account was procyclical; however, after 1990s, it has reversed its cycle. Assuming that both demand and supply shock had impact on fluctuation of trade account, this this study examined two periods – 20 years from 1970-1989 and 17 years from 1981-1997 – through structural variation method. The study concluded that relationship between the supply shock and trade account differed in two periods. Based on the Forecast Error Decomposition, trade account was only slightly impacted by the supply shock in the first period while its impact increased in the latter period. Moreover, in Impulse Reaction Function analysis, it showed that the impact was positive in the first period while it showed negative in the other.
Like the above result, while supply shock seems to be important in this case, one of reasons, which caused negative relationship between two relationships, was due to changes in economic direction of trade account – from positive to negative. In developed countries, reverse trend of trade account is used to emphasize the importance of relationship between supply shock and fluctuations in trade account. This can be applied the same to Korea’s case where increase in supply shock has changed characteristics of trade cycle. It can be assumed that these changes have also contributed to structural changes of the economy. Especially, as liberalization of the economy progressed, settlement of market mechanisms caused these changes.
These results implicates that Korea’s trade account was reflected by the market principle after 1990s, rather than direct control by the government. It also implies that the trade account has become an outcome variable that appears when the structure of economy changes. This is the same pattern that developed countries have. Therefore, the policy should be directed to where structural adjustment is made to absorb the supply shock and refrain from setting the trade account as its purpose.
한국 무역수지 변동의 요인분석(An analysis of the Korea’s trade account fluctuations)
수요 및 공급측면의 상대적 중요성(Relative importance of demand and supply stocks)
|Series Title; No||정책연구시리즈 / 2001-11|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Trade|
|Holding||KDI; KDI School 한국개발연구원; KDI 국제정책대학원|