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Structural Change of the Korean Economy and the Effect of the Exchange Rate

Author Seonguk Hong, Sang-ho Lee, Duyong Kang Date 2016.02.01 Page 12
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Despite the recent low yen, there are discussions regarding the possibility in which the effect of exchange rate fluctuations has been reduced compared with the past, while having less impact on exports compared to some expectations. Some have argued that the effect of exchange rate affects exports, but there are not many studies specifically assessing the directions or extent of changes in the effects of exchange rates by period and analyzing the causes.
Given that fluctuations in the exchange rate have significant effect on far wider areas in economies with high external dependence
such as the Korean economy, it is needed to look into the possibilities of the changing effect of the exchange rate from a wider
perspective.
Based on this perception, this study aims to specifically estimate the extent of the effects from exchange rate changes on major sectors of the real economy and assess the causes of such changes. In addition, given that changes in economic structures can be one of the major reasons from a comprehensive perspective, this study examines the possibility in which changes of exchange rate have impact on the economic or industrial structure. By doing so, it would be possible to empirically verify fragmentally suggested assertions on changing effects of the exchange rate.
This study focuses on the following topics. First, this study analyzes the effect of the exchange rate on the macro economy and the industry in Korea, focusing on exports, profitability, and employment. It also assesses the changes of the effect by period. Second, the study analyzes the cause of changing effects of the exchange rate based on the above estimation. In this study, a quantitative estimation will be conducted concerning the significance of some of key factors as much as possible such as behavioral changes of internal or external environments and economic players, and changes of economic structures that have been discussed only qualitatively. Specifically, this study assesses the effects of the exchange rate on industrial and distributional structures. In general, considering that changes of economic structure are conceived as major factors triggering changes, this article tries to inversely explore how the domestic economic structure in Korea is impacted by the changes of the exchange rate.
Although the effects of exchange rates have been reduced compared to the past, it is certain that given the Korean economy’s high dependence on exports and the trend of expanding external openness, the changes of exchange rate and the effects are still important variants. In that sense, I think that a study like this one would have implications effective for policy perspective such as the establishment or outlook for economic policies, academic perspective and business management.