This study seeks to examine Korea’s weakening export-competitiveness due to capital liberalization and the resulting influx of foreign capital; thereby to devise a policy response that addresses the phenomenon.
The persistent liberalization of capital has in consequence increased the inflow of foreign capital into the country. As a result, the appreciated Korean Won and other negative impacts are rising again as potential threats. Although having been depreciated since the 1990s in reflection of the current account deficit, the Won-Dollar currency rate is still over-evaluated compared to its level of balance. Because of this, policymakers need to take a more active role in reinforcing the country’s international competitiveness. The over-valuation of the Won-Dollar currency rate also results in a negative influence on export competitiveness, which also reaches out to all factors regarding export, including product quality, marketing, and ability to provide supplies.
Trade in general is assessed in accordance with the real effective exchange rate. But because calculating for the real effective exchange rate depends upon arbitrary judgments of selecting the reference point which also reacts dynamically to interventions in the foreign exchange market, to external changes in regulations on capital flow, and to changes in international affairs, it is rather difficult to find meaning in the value itself. Yet, making assessments with the real effective exchange rate as it is a generally used variably points out the fact that the current level of the Won seems to be over-evaluated, but not to the point that exports may receive a negative impact.
At present, Korea’s production costs (excluding capital expenses) have greatly increased from 1988 to 1991, which such costs then became stable as productivity increased and wages slowed down during its increase. As a result, production costs during 1993 recorded an annual increase of 2.2%, falling to half of the rate of 1991. Although this marks a significant improvement compared to the late 1980s in comparison with the major competing countries of Asia, more work is needed. Export-competitiveness can be reinforced by controlling wages from increasing and sustaining productivity increases.
In addition, alleviation must be leveled off in accordance with the real effective exchange rate, while government should maintain a stable position to swiftly address issues including the development of the capital market or by quickening deregulation of foreign exchange transactions. On the other hand, this should not be achieved by artificial devaluations of exchange rates or interest rates. There is a need to reflect on past experiences when a wide-scale expansion of export-supportive policies impeded structural reform and hindered the improvement of the macroeconomic indicators’ of competitiveness. And finally, burdens on liquidity management and pressures on the appreciation of the Korean Won must also be resolved.
수출경쟁력의 실태와 정책대응방향(Study of the conditions of Korea’s export-competitiveness and directions of policy responses)
[서울] : 한국개발연구원
|Series Title; No||정책포럼 / 제47호(9417)|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Trade|
|Holding||KDI; KDI School|