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BOK Working Paper No.2021-12, The Causes of Decline in the Income Elasticity of Korea’s Exports

연구조정실 (02-759-5362) 2021.08.18 500

Title : The Causes of Decline in the Income Elasticity of Korea’s Exports
Author : Kyungkeun Kim(BOK)

<Abstract>

This paper investigates the causes of decline in the elasticity of Korea’s goods exports  with  respect  to  global  income  in  the  post  global  financial  crisis.  Using international input-output tables from the years 2000 to 2019, I show that both the change in the international production structure and the change in the global final demand structure contributed to the decrease in the income elasticity, with the effect of the former relatively larger. The effect of the change in the international production structure on the income elasticity was driven by the steady localization of intermediate inputs in China, while the technological structure in countries such as the United States  and  China  changed  in  higher  input  share  of  services  which  are  low trade-inducing. In addition, the change in the global final demand structure was found to lower the income elasticity through increased service demand and substitution for imported goods. However, there were no negative effects from the increased share of emerging economies in global final demand. In the future, continuing expansion of service sectors in global economy and the localization of production to reduce global supply chain risks are likely to constrain the expansion of Korea’s exports even during a global economic recovery.

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