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Determinants of the Terms of Trade & Implications

Author Hong Sungwook, Shin Hyonsoo, Min Sunghwan, Park Sungkeun, Kang Duyong Date 2016.12.28 Page
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South Korea has an economy that is extensively dependent on trade. The makeup of its exports also differs dramatically from the makeup of its imports. Changes in the terms of trade therefore exert profound effects on the Korean economy. Analyzing how changing terms of trade affect the Korean economy and industries as well as the factors that decide such changes therefore carries much significance in Korea. Although numerous studies have been undertaken, in and outside Korea, to understand the macroeconomic impact of changing terms of trade in general, there are relatively fewer studies exploring the determinants of such changes. The growing volume of intra-industry trade has also raised the importance of the terms of trade at the industrial level. Few studies have ever been attempted that analyze the impact of changing terms of trade on industries.

 

In acknowledgement of these gaps in the literature, we analyze the trends in changing terms of trade and their determinants at both the macroeconomic and industrial level, with a view to understanding how these changes affect the Korean economy and industries. We also analyze the effects of changing terms of trade on industry competitiveness and explore the implications.