Rebalancing Growth in the Republic of Korea

31 Pages Posted: 12 Jul 2010 Last revised: 20 Sep 2010

See all articles by Joonkyung Ha

Joonkyung Ha

Hanyang University - Ansan Campus

Jong-Wha Lee

Korea University

Lea Sumulong

Asian Development Bank

Date Written: July 1, 2010

Abstract

The current account surplus of the Republic of Korea (henceforth Korea) increased significantly in the immediate recovery period after the 1997–1998 Asian financial crisis. Since then the surplus has gradually diminished, and from 2006 to 2008, the current account was close to being balanced. Econometric analysis reveals that the effect of exchange rate changes on Korea's trade is not robust during non-crisis periods. Exchange rates only significantly affect trade when observations during crisis periods are included. This suggests that exchange rate adjustments alone will not solve the imbalance issue. Korea's external imbalances are not only caused by external factors; they also reflect internal and policy factors such as: (i) saving-investment imbalances; (ii) export-oriented policies; and (iii) the unbalanced structure of manufacturing and services. These internal imbalances result from domestic distortions and structural imbalances arising from market inefficiencies and public policies. These must be addressed to ensure balanced and sustained economic growth.

Keywords: korea economic growth, korea external imbalances, korea trade

JEL Classification: E2, E6, F4, O1, O2

Suggested Citation

Ha, Joonkyung and Lee, Jong-Wha and Sumulong, Lea, Rebalancing Growth in the Republic of Korea (July 1, 2010). ADBI Working Paper No. 224. Available at SSRN: https://ssrn.com/abstract=1638788 or http://dx.doi.org/10.2139/ssrn.1638788

Joonkyung Ha (Contact Author)

Hanyang University - Ansan Campus ( email )

1271 Sa-1 dong
Ansan
Kyunggi-do, 425-791
KOREA

Jong-Wha Lee

Korea University ( email )

Anam-dong, Sungbuk-Ku
Dept. of Economics
Seoul, 136-701
82-2-3290-2216 (Phone)
82-2-928-4948 (Fax)

Lea Sumulong

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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