Impacts of Exchange Rates on Korea’s Trade Balance by Industry and Region

Abstract

Korea, a country with a high dependency on trade, has focused on dollar exchange rate in its foreign exchange market. This paper questioned whether dollar is still the most important for Korea’s trade and analyzed the impacts of exchange rates on Korea’s trade. The results of VAR impulse response analysis have confirmed the followings: First, the exchange rates of dollar, yen, and yuan have influence on overall trade balance, light industry trade balance, trade balance with the US, and trade balance with Europe. However, dollar has still the biggest impact on Korea’s trade. Second, the exchange rate of euro has influence on the IT industry trade balance and the trade balance with Japan.Third, the impact of the Chinese yuan became greater to be similar to that of the dollar.