The S-curve dynamics of trade between the US and Korea: Evidence from commodity trade

Abstract

The S-curve hypothesis in international economics postulates that while cross-correlation coefficients between past values of a country's trade balance and its current exchange rate may be negative, the same coefficients between future values of the trade balance and the current exchange rate may be positive. Previous research has tested and ultimately supported this hypothesis for Korea by using aggregate trade flows. In this paper we consider the trade between Korea and the US and disaggregate their trade flows by industry. We then test the S-curve at the commodity level to identify industries that will benefit from currency depreciation. Out of 74 industries examined, 39 enjoyed the S-curve pattern, including the three largest industries that account for more than 30% of the trade between the two countries.