The Analysis for Determinants of Korea’s Agricultural Trade Using Gravity Models

Abstract

Purpose This paper aimed to analyze the determinants of Korea’s agricultural trade based on a traditional gravity model. Design/Methodology/Approach To examine the determinants, this paper constructed a gravity model including the specified dependent variables of total trade volume, export and import volumes, and by dividing independent variables with linearized and multiplied relationships. After constructing the models, this paper adopted econometric procedures using panel analysis such as pooled OLS, fixed and random effects Findings As a result of panel regressions, there were slight differences between the linearized and multiplied independent variables. First, in Korea’s agricultural trade, the entire market size and economy of the country of trade with Korea played an important role. The economic situations of major agricultural trade countries with Korea were analyzed as an important factor. Second, the physical distance between trading destinations was the same as that of the previous studies, regardless of the differences in the models, and distance and Korea’s agricultural trade showed inversed relations. Finally, the effect of agricultural trade according to the regional trade agreement increased Korea’s agricultural trade, but the effects of FTAs on Korea’s agricultural exports were not large. Research Implications These results suggest that we need to carefully construct the gravity model with respect to simple combined or multiplied independent variables, and also to intensify FTA utilization for an increase in Korea’s agricultural exports.