A Short-term Export Forecasting Model using Input-Output Tables

Abstract

Korea’s export performance has exhibited a remarkable downturn since the end of 2014, declining over the 12 months of 2015 by about eight percent in nominal terms. Conjecturing this to reflect depreciation of the Japanese Yen and, during the second half of 2015, of the Chinese Yuan coupled with a sudden decline in China’s import demand, we apply an Armington (1969)-type trade model to match international trade data with input-output tables in order to identify the sources of export variation in Korea to analyze the effect of income (GDP) and exchange rate variation. That Korean exports, given a positive income shock in trading partner countries, tend to be replaced by foreign alternatives reflects a tightening of technology as well as price competition in the global market, and suggests as an optimal export promotion strategy for Korea the pursuit of technological progress and a diversification policy that encompasses both destination and export products.