The Impact of External Shocks on the Korean Trade through Direct/Indirect Trade Linkages (in Korean)

Moon Jung Choi () and Geun-Young Kim ()
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Moon Jung Choi: International Economics Team, The Bank of Korea
Geun-Young Kim: International Economics Team, The Bank of Korea

No 2015-3, Working Papers from Economic Research Institute, Bank of Korea

Abstract: This paper examines the impacts of external shocks on Korean trade through direct and/or indirect trade linkages. Our empirical analysis focuses on the panel data of Korea and its trading partners for the period from 2002 to 2010. The results show that direct and/or indirect trade intensity appears to play a significant role in the way external shocks affect Korean trade. Specifically, the higher the direct trade intensity index, the greater the effect of appreciation of the Korean Won relative to the currencies of its trading partners and the consequent drop in exports to them. A higher indirect trade intensity index on the other hand provides better mitigation of the shock from the global financial crisis. In addition, stronger financial linkages aggravate the extent of export decline. When the direct trade linkage is strong enough, Korea's exports decrease with FDI. When the indirect trade linkage is rather strong, on the other hand, FDI and trade, by facilitating vertical trade in intermediate goods, are in a complementary relationship with each other. Lastly, it is notable that the shocks from the rise in U. S. interest rates and the shrinkage of global liquidity amid the weak global recovery may exacerbate the drops in Korea's exports to countries with strong direct trade linkages to Korea.

Keywords: Direct/Indirect trade linkages; Shock transmission channel; Dynamic panel (search for similar items in EconPapers)
JEL-codes: F10 F14 F61 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2015-01-23
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