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BOK Working Paper No.2018-22, Import Demand of Advanced Countries and Korea’s Exports

Economic Research Institute (82-2-759-5540) 2018.08.02 3784

Title : Import Demand of Advanced Countries and Korea’s Exports

Author : Moon Jung Choi(BOK), Kyung Kuen Kim(BOK)


<Abstract>


This paper investigates the effects of demand for imports in advanced countries on Korea's exports to them, and how these effects have changed since the global financial crisis. As a measure of import demand, we use import intensity-adjusted demand to take into account heterogenous import intensities across components of aggregate demand. Our estimation of a dynamic panel regression model reveals that Korea's exports to G7 countries were elastic with respect to the import demand of these countries until the period of the global financial crisis, but have shifted to become inelastic since the crisis. Furthermore, we separately estimate the effects of the different components of G7 countries' aggregate demand (private consumption, public consumption, investment and exports). The results show that the decrease in private consumption in G7 countries during the crisis had a significant impact in causing the decline in Korea's exports to them, but that the increase in their public consumption since the crisis has had a significant effect in driving the increased Korean exports to them. The  effects of G7 countries' exports on Korea's exports to them remain positive and significant during both the pre- and the post-crisis periods. The effects of G7 countries’ investment on Korea's exports are also positive and significant, but the positive effect has weakened since the crisis. Our findings suggest that the overall effect of changes in G7 countries' import demand on Korea's exports to them has weakened compared to the pre-crisis period.

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