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The role of exchange rates in Korea’s commodity trade with China

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  • The role of exchange rates in Korea’s commodity trade with China
  • Jo, Gab-Je
  • Korea Institute for International Economy Policy


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Title The role of exchange rates in Korea’s commodity trade with China
Similar Titles
Material Type Articles
Author(English)

Jo, Gab-Je

Publisher

[Seoul]:Korea Institute for International Economy Policy

Date 2010-12
Journal Title; Vol./Issue Journal of East Asian Economic Integration:vol. 14(no. 2)(December 2010)
Pages 29
Subject Country China(Asia and Pacific)
South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Trade
Holding Korea Institute for International Economy Policy

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.