Alternative Approaches to Long-term Industrial Forecasting: An Empirical Case Study of Export Demand in the South Korean Materials Sector

Mijung Choi and Sung Keun Park
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Mijung Choi: Korea Institute for Industrial Economics and Trade
Sung Keun Park: Korea Institute for Industrial Economics and Trade

Industrial Economic Review from Korea Institute for Industrial Economics and Trade

Abstract: The primary purpose of economic forecasting is to support rational decision-making under uncertainty and to provide information for the efficient allocation of limited resources. Mid-term industrial forecasts are essential for formulating national economic strategies in response to structural changes, and model-based approaches must therefore specify variables and functional forms in ways that reflect these dynamics.

As demographic shifts, advances in artificial intelligence, and global fragmentation reshape long-run economic fundamentals, forecasting models need to flexibly accommodate evolving relationships among variables while maintaining parsimony to mitigate the growing uncertainty of exogenous inputs.

This study proposes time-varying coefficient models and their extension, functional-coefficient panel models, as alternatives that satisfy these requirements. Applying these models to long-term export demand forecasts for South Korea’s materials industries shows that income elasticities have shifted significantly over time and that models that account for structural change achieve superior predictive performance compared to traditional fixed-coefficient or short-term time-series models.

Keywords: exports; export demand; materials industry; industrial forecasting; long-term forecasting; economic forecasting; structural transformation; time-varying parameters; demand modeling; South Korea (search for similar items in EconPapers)
JEL-codes: F14 F17 F21 (search for similar items in EconPapers)
Pages: 12
Date: 2025
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Published in KIET Industrial Economic Review Vol. 30, No. 6

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