• Korea Trade Review
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• v.41 no.1
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• pp.159-186
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• 2016

This study analyzes the degree of dependency and comparative advantage of each country for intermediate goods trade in East Asia, which predicts the comparative advantage of the intermediate goods trade and fragmentation in East Asia when the FTA arrangement in East Asia is implemented. The results are as follows. First, the share of intra-regional trade in the intermediate goods in East Asia has increased over time, implying the deepening of interdependency in intermediate goods trade within the East Asia. Second, Korea is a net exporter in intermediate goods trade for China and ASEAN, whereas it is a net importer for Japan. Japan is a high net exporter for all East Asia, while China is a net importer for Korea, Japan and ASEAN. If FTA arrangement in East Asia is implemented, Japan and Korea will be key suppliers of the intermediate goods for East Asia, while China and ASEAN will play a role of the manufacturing factory through the import of intermediate goods. Third, Korea has a comparative advantage in intermediate trade of electric and electronics and transport vehicle industry in East Asia. Japan has a comparative advantage in all of electric and electronics, transport vehicle, precision instrument, general machinery industry, whereas China has a comparative advantage only in electric and electronics intermediate trade in East Asia. The intra-industry trade of the intermediate goods in precision instrument, general machinery industry is expected to grow among Korea, Japan and China.

• Korea Trade Review
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• v.46 no.5
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• pp.83-98
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• 2021

This study aims to examine the effects of international trade in intermediate input on the implications of international business cycle properties in Korea. To do this, I have extended standard one goods New Keynesian international business cycle model to incorporate the role of intermediate inputs. After constructing the DSGE model, I have analysed the impulse response function and varian decomposition results. The results show that the model could introduce a new channel, that is, "cost channel" like Eyquem and Kamber (2014). In other words, the model has changed the dynamics of aggregate inflation by the cost channel. When the trade in intermediate goods increase, which is measured by openness of foreign input, the volatility of output, consumption and inflation increase two or three times. However, the model itself fails to explain the full account of cycle behavior of historical data, but the results imply that the trade in intermediate input assumption can help to improve the forecasting ability of international business cycle models.

• East Asian Economic Review
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• v.21 no.4
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• pp.295-315
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• 2017

This paper derives the gravity equation with intermediate goods trade. We extend a standard monopolistic competition model to incorporate intermediate goods trade, and show that the gravity equation with intermediates trade is identical to the one without it except in that gross output should be used as the output measure instead of value added. We also show that the output elasticity of trade is significantly underestimated when value added is used as the output measure. This implies that with the conventional gravity equation, the contribution of output growth can be substantially underestimated and the role of trade costs reduction can be exaggerated in explaining trade expansion, as we demonstrate for the case of Korea's trade growth between 1995 and 2007.

• Journal of Korea Trade
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• v.25 no.8
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• pp.25-44
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• 2021

Purpose - This research aims to provide empirical evidence that highlights the importance of imported intermediate goods in long-term economic growth. To this end, this paper develops an index that measures the productivity gains associated with a country's intermediate goods imports using highly disaggregated trade data. Design/methodology - The basic hypothesis is that countries sourcing higher-productivity (or higher-quality) inputs from developed economies derive a larger benefit from foreign R&D. To explore this hypothesis, standard cross-country growth regressions are performed using the highly disaggregated data from the United Nations (UN) Commodity Trade Statistics Database (COMTRADE). To address the endogeneity issue, I apply an instrumental variable (IV) approach. Findings - The results of this study demonstrate that the index predicts subsequent economic growth in middle- and low-income countries. This finding is consistent with previous studies that have argued that developing countries can achieve substantial productivity gains by importing intermediate inputs from developed countries. By contrast, there is no evidence of a significant association between the index and economic growth in high-income countries. Originality/value - This paper contributes to our understanding of the causal relationship between international trade and economic growth. From an economic policy perspective, the results suggest that developing countries with limited technology endowment can boost growth from input-tariff liberalization.

• Korea Trade Review
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• v.46 no.4
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• pp.205-217
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• 2021

This paper examines the effects of intellectual property protection policies on upstream firms' R&D investments in order to derive policy implications in relation to the fostering of the intermediate goods industry. To that end, the dependence on import of intermediate goods and the degree of protection of intellectual property rights are introduced into the model to analyze the effects of R&D investments on the dependence on imports and the effects of intellectual property rights protection policies on the level of R&D investments in order and the social welfare effects are also checked. The policy implications derived in this paper, which used an oligopolistic market model with a vertical specialization structure, are as follows. As R&D investments expand, upstream firm begins to have price competitiveness, the dependence on import of intermediate goods by downstream firm decreases, and social welfare increases. That is, in order to strengthen the independence of the intermediate goods industry, R&D investments by upstream firm should be expanded, and to promote this, the government should strengthen the protection of intellectual property rights.

• Korea Trade Review
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• v.41 no.2
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• pp.97-121
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• 2016

This study evaluates industrial competitiveness of 34 industries in the 41 countries in terms of several trade indices such as value-added RCA(VRCA) and value added intra-industry trade(VIIT). Conclusions are as follows: First, China is still showing week evidence to replace or overtake Korea in terms of VRCA. Second, it is not supportive of the assertion that the gap between Japan and South Korea had widened in the 1995-2011 period. Third, Korea's exports pattern in the manufacturing sector has shifted from the one featured by developing countries(re-exportation of final goods produced using imported intermediate inputs) to that of the developed (exportation of intermediate goods). According to dynamic panel analysis regressing the RCA gap on the IIT gap, intermediate-goods RCA and the market share gap, the estimated coefficient of the gap between value-added IIT and gross IIT is 0.253 and statistically significant at the 2% level. This implies that increases in IIT or intermediate-goods trade to sustain the global competitiveness are the main reasons for the gap between value-added RCA and gross RCA.

• Korea Trade Review
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• v.43 no.3
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• pp.169-198
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• 2018

The purpose of this paper is to investigate the impact of exchange rate volatility on the export of Korean machinery intermediate goods to East Asian countries using the export demand model. In order to secure the validity of the estimation of the exchange rate volatility for the export of machinery intermediate goods, various methods of volatility measurement are used including the GARCH model, the moving average standard deviation and the 12-month fixed average standard deviation. The long-term relationship between variables was analyzed by applying the panel cointegration tests and DOLS & FMOLS panel estimations. Analysis results found that prior to the global financial crisis in 2008, the total exports of machinery and exchange rate volatility positively affect the exports of intermediate goods such as general machinery, electronic machinery and transportation equipment, but did not affect the exports of precision machinery intermediate goods. After the global financial crisis, however, exchange rate volatility negatively affected total exports and the exports of all machinery intermediate goods. When analyzing the period before and after the global financial crisis, it had a positive impact on exports of precision machinery intermediate goods and a negative effect on total exports and the exports of other machinery intermediate goods.

• Korea Trade Review
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• v.45 no.3
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• pp.119-132
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• 2020

In this paper we explore the two analyses to know the urbanization effect on trade. First, the granger causality test to examine the relationship between trade and urbanization. The Granger causality test is a statistical hypothesis test for determining whether one time series is useful for forecasting another. The results indicated that the existence of a bidirectional causality running from trade to urbanization when six lags were applied. When eight lags were applied, we found unidirectional causality running from urbanization to trade. Second, gravity models were used to investigate the urbanization effect on trade. The production cost and specification are affected by the economies of scale, and the economies of scale increased as the greater geographically agglomeration. However, the gravity model to explain the bilateral trade flows ignores the urbanization variables. Therefore we added the urbanization variable represented as the geographically agglomeration into gravity model. The results show that the degree of urbanization of both countries has statistically positive effect on trade (export and import) and the bigger coefficients of trade partner's urbanization. The reason is that the trade share of industrial supplies, intermediate goods and capital goods is much higher than finished consumer goods. The urbanization is more important the improved the efficiency of production than demand market.

• Korea Trade Review
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• v.43 no.2
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• pp.1-22
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• 2018

Utilizing OECD-WTO's Trade in Value Added (TiVA) data, this study investigates the effects of economic integration (EI) on TiVA Empirical results obtained from structural gravity specifications reveal that EI increases trade between member countries, irrespective the types of exports in final goods and intermediate goods as well as foreign value added in total exports and domestic value added in total exports. The empirical results also reveal that EI does not decrease the share of domestic value added in total exports.

• Journal of Technology Innovation
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• v.18 no.2
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• pp.91-120
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• 2010

This paper examines the effect of bargaining power over intermediate goods prices on innovation and economic growth using a Schumpeterian growth model. The notion of "intermediate goods prices" broadly indicates the reward to innovators including innovative SMEs as well as intermediate goods producers that are vertically integrated to big businesses. From this viewpoint, this paper sets up a Schumpeterian growth model that incorporates the market power between final goods producers and intermediate goods producers. The results show that the reduction of intermediate goods prices slows down long-run growth rates as it erodes the reward to innovations. Lower intermediate goods prices decrease marginal productivity of capital and real interest rates. However, the harmful effect of lower profits on innovations outweighs the beneficial effect of lower interest rates. Simulations using Korea's data for various cases show that in all cases the policies that raise the share of intermediate goods producers are as powerful as the R&D subsidy policies in raising growth rates. Therefore, fair trade policies that enable intermediate goods producers-especially SMEs to obtain more fruits of innovations will be helpful for long-run economic growth.