Korean Trade in 10 Service Industries and Role of the Won? An Asymmetric Analysis

Abstract

International trade includes trade not just in goods but also in services. Introduction of internet technology has helped to boost trade in services by more than trade in goods. What has been the role of the exchange rate in this journey? While many studies have investigated the link between the exchange rate and trade in goods, only three studies in the literature have assessed the impact of exchange rate changes on trade in services. Two have used data from the U.S., and one from China. We add to this new emerging literature by assessing the symmetric and asymmetric effects of changes in the real effective exchange rate of the Korean won on Korean trade in 10 service categories with the rest of the world. Considering the symmetric (linear) models and asymmetric (nonlinear) models to be complementary, we find short-run effects of imports and exports of almost all 10 service industries. Short-run effects translate into the long run in little over 50% of industries. These findings did not change significantly when we considered real trade in services versus nominal trade. Our findings were industry-specific.