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BOK Working Paper No.2018-24, Accounting for the Sources of the Recent Decline in Korea's Exports to China

Economic Research Institute (82-2-759-5540) 2018.08.13 5353

Title : Accounting for the Sources of the Recent Decline in Korea's Exports to China

Author : Moon Jung Choi(BOK), Kei-Mu Yi(University of Houston)


Following a two-decade period of double-digit growth, South Korean exports to China have declined since 2013. We investigate the sources of this recent decline using two complementary methodologies, an accounting decomposition and a model-based decomposition. First, we decompose the changes in Korea's exports to China as a share of output into within-industry and between-industry effects using disaggregated industry-level data. Our results show that during the high export growth period of 1990-2009, the within effect dominated; in the export slowdown period of 2010-2014, the within effect contributed to the slowdown in that individual sectors, on net, exported a smaller fraction of their output to China. Second, we apply a dynamic multi-sector, multi-country general equilibrium model to decompose the shocks that cause the decline in Korea's exports to China. The results reveal that in 2013-2016 China experienced a sharp reduction in its desire to accumulate capital and to consume manufactured goods. All else equal, these forces would imply fewer imports by China from Korea of manufactured goods. Given that Korea's exports to China are highly concentrated in manufactured intermediate and capital goods, these shocks could, in principle, explain most of the decline in Korea's exports to China during this period.