The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
This paper reexamines Korea's trade flows. Using the standard demand-based models, the paper finds that owing to the increasing share of electrical and electronic products (EEPs) in total exports, the income elasticity of the Korean export demand has fallen sharply while its price elasticity has risen dramatically. This is a curious result, which begs the question of why. Accordingly, an alternative supply-based model shows that the sharp increase in exports of EEPs is mainly due to Korea's remarkable ability to make technological improvements in their production. After reestimating the standard import equation, the paper finds estimates similar to those from previous studies. Since most of these imports are industrial inputs, they are jointly determined by consumption, fixed investment, and exports.