Impacts of Real Exchange Rates and Volatilities on Korean Exports

The This study analyzes the effects of the three real effective exchange rates and the exchange rate volatilities of the three major trading partners on Korea's exports to the US, Japan and China respectively. Korea has a trade structure in which imports raw materials and intermediate goods and exports after processing them, so import variables are included in the export function in consideration of these characteristics. This study used log-linear regression model, and the analysis period was from January 2000 to March 2017. The results of the analysis are as follows. First, the won-dollar exchange rate and exchange rate volatility both had no significant impact on Korea's export to the US, and their impacts have been weaker than those since the global financial crisis. Second, the effects of won-yen exchange rate and exchange rate volatility on the exports to Japan strengthened since the global financial crisis. Third, China's industrial production index has a significant positive effect both before and after the financial crisis, so the economic situation in China seems to have a significant influence on Korea's exports. Last, even after controlling for the seasonal effects of exports, imports have had a significant positive effect on exports in all periods, presumably due to the characteristics of Korean trade, which imports raw materials and intermediate goods and exports after processing them. Moreover, even after controlling for the seasonal effects of exports, the effect of won-yen exchange rate on exports to Japan after the financial crisis is relatively larger and significant than both the effect of won-dollar exchange rate on exports to the US and the effect of won-yuan exchange rate on exports to China. Therefore, imports should be included when estimating export demand function. Also, it is necessary to implement policies to manage the won-yen exchange rate and exchange rate volatility.