The Recent Drop and Recovery of Korean Exports: Structural and Cyclical Aspects

Abstract

Since late last year, Korean exports seem to be recovering from the long tunnel of negative growth that continued for 20 consecutive months. It might be, however, too early to predict whether Korean exports will sustain the growth in the future. The long-run trend of Korean exports has been unusually eventful in the last decade and both cyclical and structural components lie behind it. The trade drop in 2015 has strong cyclical aspects. The exceptionally low oil prices drove down export prices and total exports while the quantity of exports kept growing. But, there is evidence that the overall slowdown of Korean exports has structural aspects: (1) the so-called 'China factor' is found in the analysis of trade-income elasticity of the world and China for imports from Korea. (2) The number of protectionism measures has surged since 2012. (3) The bilateral trade barriers between Korea and its important trading partners are universally tightening. Trade slowdown brings up concerns because Korea's revealed comparative advantages of most manufacturing industries are falling as well. It is advisable to diversify main export products to lower the effect of oil prices on export prices and to strengthen the cooperation with ASEAN countries, whose trade barriers have exceptionally diminished throughout the last decade.