Trade Channel, Financial Channel and Export Dynamics in Korea

Bomi Yun and Sunghyun Kim
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Bomi Yun: Sungkyunkwan University
Sunghyun Kim: Sungkyunkwan University

East Asian Economic Review, 2026, vol. 30, issue 3, 437-459

Abstract: When the U.S. dollar appreciated significantly beginning around 2021, exports in Korea did not improve as predicted by conventional trade channel through price competitiveness. This paper examines whether dollar credit conditions, via the financial channel, help explain this pattern using firm-product-level data for Korean exporting firms. Estimation results show that a strong dollar is associated with tighter financial conditions and weaker exports, indicating the presence of a financial channel. The role of the financial channel is more pronounced for firms with positive dollar debt exposure. When we consider both channels, the traditional trade channel dominates the financial channel's effects on exports. However, the effects of both trade and financial channels become less pronounced during periods of sustained dollar strength. These findings suggest that the relationship between exchange rate and exports in Korea cannot be understood through price competitiveness alone and that financial conditions may also be relevant to explaining this relationship.

Keywords: Credit supply; Exchange Rate; Exports; Financial Channel; Trade Channel (search for similar items in EconPapers)
JEL-codes: F14 F31 F49 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ris:eaerev:023657

DOI: 10.11644/KIEP.EAER.2026.30.3.471

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