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Revisiting Aggregate Import Demand Function for Korea

김용민|권예경
한국디지털무역연구소 (Korea Digital Trade Research Institute)|2021.11|디지털무역리뷰 (Digital Trade Review)|제19권 제4호|pp. 79-97|DOI 10.17255/etr.19.4.202111.79

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키워드

벡터오차수정모형공적분검정Vector Error Correction Model수입수요함수Cointegration ProcedureFinal ExpenditureImport Demand Function최종지출

초록

Purpose: The purpose of this study is to present an empirical examination of Korea’s short-run and long-run aggregate demand for the imports and demonstrate estimates of partial elasticities of imports with respect to different components of final expenditure based on quarterly economic data for the period 2000-2020. Composition/Logic: A Johansen multivariate cointegration is employed on the data of private consumption, expenditure on investment goods, government spending, exports and relative import prices. The augmented Dickey-Fuller (ADF) unit root tests and cointegration procedure with Trace and Eigen–value tests are also applied for finding the existence of a cointegration, identifying the long-run relationships among variables in Korea’s import demand function. The vector error correction model (VECM) was used to find short-run influences of components on the aggregate import demand. Findings: The results of both the multivariate cointegration procedure and the short-run error correction model suggest that the variables are all cointegrated and there exist significant differences among the long-run partial elasticities of imports with reference to different factors of final expenditure and relative import prices. Partial elasticities with respect to the expenditure on investment goods, exports and import prices are reported to be positive while imports seems to move negatively to changes in private consumption and government expenditure, indicating that an increase in private and government sector consumption could lead to a decrease in demand for imports in the long run. However, the VECM indicates that the imports are influenced by previous changes in imports, expenditure on investment goods, exports and import prices in the short run. Originality/Value: These findings can provide significant implications for policy-makers seeking to improve their country’s trade balances in the long run. In particular, exchange rate policies which have a direct impact on import prices are reported to have significant long-term impact on Korea’s import demand, but only moderate effect in the short term. Policies implemented with a view to increasing the private sector consumption could be of a crucial importance in decreasing aggregate imports in the long term, resulting in further improvement in Korea’s balance of trade.

Abstract

Purpose: The purpose of this study is to present an empirical examination of Korea’s short-run and long-run aggregate demand for the imports and demonstrate estimates of partial elasticities of imports with respect to different components of final expenditure based on quarterly economic data for the period 2000-2020. Composition/Logic: A Johansen multivariate cointegration is employed on the data of private consumption, expenditure on investment goods, government spending, exports and relative import prices. The augmented Dickey-Fuller (ADF) unit root tests and cointegration procedure with Trace and Eigen–value tests are also applied for finding the existence of a cointegration, identifying the long-run relationships among variables in Korea’s import demand function. The vector error correction model (VECM) was used to find short-run influences of components on the aggregate import demand. Findings: The results of both the multivariate cointegration procedure and the short-run error correction model suggest that the variables are all cointegrated and there exist significant differences among the long-run partial elasticities of imports with reference to different factors of final expenditure and relative import prices. Partial elasticities with respect to the expenditure on investment goods, exports and import prices are reported to be positive while imports seems to move negatively to changes in private consumption and government expenditure, indicating that an increase in private and government sector consumption could lead to a decrease in demand for imports in the long run. However, the VECM indicates that the imports are influenced by previous changes in imports, expenditure on investment goods, exports and import prices in the short run. Originality/Value: These findings can provide significant implications for policy-makers seeking to improve their country’s trade balances in the long run. In particular, exchange rate policies which have a direct impact on import prices are reported to have significant long-term impact on Korea’s import demand, but only moderate effect in the short term. Policies implemented with a view to increasing the private sector consumption could be of a crucial importance in decreasing aggregate imports in the long term, resulting in further improvement in Korea’s balance of trade.

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