Implications of the Global Financial Crisis on Korea's Trade

Sangyeon Hwang and Hyejoon Im
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Hyejoon Im: School of Economics and Finance, Yeungnam University, Kyungsan 712-749, South Korea.

Asian Economic Papers, 2009, vol. 8, issue 3, 46-81

Abstract: In this paper, we examine the channels through which the current global crisis affects Korea's trade and assess the implications thereof. These five important channels under investigation are: (1) world demand, (2) domestic demand, (3) exchange rate, (4) credit markets, and (5) protectionism. We conclude that the world demand channel is the most important factor for the recovery of Korea's exports. We expect that depreciation followed by the crisis should generate only small positive effects on a trade balance in the short run. However, depreciation can erode the long-term competitiveness of domestic firms because it can deteriorate not only firms' balance sheets but also banks' balance sheets. (c) 2009 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.

Date: 2009
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