Trade Complementarity Between South Korea And Her Major Trading Countries: Its Changes Over The Period Of *

Transcription

1 World Review of Business Researc Vol. 3. No. 2. Marc 2013 Issue. Pp Trade Complementarity Between Sout Korea And Her Major Trading Countries: Its Canges Over Te Period Of * Seung Jin Kim** Tis paper analyzes ow Sout Korea s trade intensity wit er major trading countries (i.e., Cina, te USA, and Japan, CUJ in sort ereafter) in 35 industries of te manufacturing sector canged from 2005 to For tis purpose, trade intensity index, trade complementarity index, and special country bias index between Sout Korea and CUJ were measured and analyzed by a trade intensity index model developed by Yamazawa (1970). Te OECD trade matrix, wic reports all te trade data between eac and every OECD member country and non-member countries of OECD from te viewpoint of OECD member countries, was used as data. For example, Sout Korea's trade intensity wit Cina was found to decrease from 8.17 in 2005 to 7.75 in 2009 due to (a) te decrease in Sout Korea's special country bias wit Cina from 6.79 in 2005 to 6.52 in 2009 and (b) te decrease in Sout Korea s trade complementarity wit Cina from 1.20 in 2005 to 1.19 in Exactly te opposite patterns of cange were found in te case of Sout Korea s trade intensity (and trade complementarity, and special country bias) wit te USA. Sout Korea s trade intensity wit Japan turned out to increase from 5.11 in 2005 to 5.49 in 2009 due to (a) te increase in Sout Korea s special country bias wit Japan from 5.51 in 2005 to 6.08 in 2009 and (b) te decrease in Sout Korea s trade complementarity wit Japan from 0.93 in 2005 to 0.90 in Very fortunately, FTA agreement between Sout Korea and te USA was reaced on 15 Marc Terefore FTA discussion between Sout Korea and Cina (and Japan) sould be started soonest as possible in order to enance Sout Korea's special country bias wit Cina (and Japan) by (a) increasing capital movements and economic cooperation and (b) reducing discriminatory tariffs and oter import restrictions between Sout Korea and Cina (and Japan). JEL Codes: F11, F13 and F14 1. Introduction Tanks to laborious and painstaking efforts of bot te US and Sout Korean government, FTA (i.e., Free Trade Arrangement) agreement between two countries became effective from 15 Marc 2012, wic eliminated discriminatory tariffs and oter import restrictions between two countries afterwards. Terefore Sout Korea s special country bias wit te USA is expected to increase in te near future and accordingly Sout Korea s trade intensity wit te USA will also increase in Geopolitically, Sout Korea is located between Cina and Japan and used to ave a very close economic relation wit tem from an ancient time. Very unfortunately, a wole Korean peninsula became a Japanese colony from 1910 to 1945 due to a Japanese imperialism. Terefore tere still exists a strong national sentiment against * Tis work was supported by Hankuk University of Foreign Studies Researc Fund of **Prof. Seung Jin Kim, Dept. of International Economics and Law, Hankuk University of Foreign Studies, 270 Imundong, Dongdaemunku, Seoul , Sout Korea. seunjkim@ufs.ac.kr

2 Japan in Korea. Since Cina elped a Nort Korean regime during a Korean War ( ) by sending er troops to a Korean peninsula and continued to support a Nort Korean regime troug military and economic aids afterwards, tere always exist some tensions between Sout Korea and Cina. Ever since Sout Korea reaced a diplomatic normalization wit Japan and Cina in 1964 and 1992 respectively, Sout Korea s trade volumes wit Japan and Cina ave increased dramatically for te last decades. Despite of tis strengtened economic ties between Sout Korea and Japan (Cina), tere still exist discriminatory tariffs and oter import restrictions between Sout Korea and Japan (Cina). Terefore FTA agreement between Sout Korea and Japan (Cina) sould be reaced in te near future in order for tese tree countries in te Nort East Asia to increase trade volumes among tem and accordingly overcome current global economic crisis wic all tese tree countries are now suffering from. For tis purpose, tis paper aims to analyze ow Sout Korea s trade intensity wit er major trading countries (i.e., Cina, te USA, and Japan, CUJ in sort ereafter) canged over time for te period of For tis purpose, Section 2 will briefly survey a trade intensity index model developed by Yamazawa (1970) and Kim (2004) and metodology and researc design of tis paper will be suggested in Section 3. Section 4 will measure a trade intensity index, a trade complementarity index, and a special country bias index between Sout Korea and CUJ for te period of by using te OECD trade matrix (2011) and analyze ow Sout Korea s trade intensity wit CUJ canged over time. On top of tis, tis paper will also analyze te determinants of Sout Korea s trade complementarity wit CUJ over te periods at bot sectoral and aggregate levels (te analysis on te determinants of trade complementarity at a sectoral level was never attempted in te previous papers and accordingly tis paper is te first attempt wic tries to analyze te determinants of trade complementarity at bot sectoral and aggregate levels so far). Furtermore, Sout Korea's promising and potential exportable products to CUJ will be identified, wic is also te first attempt of tis paper. Section 5 will summarize major empirical results and conclude te paper wit a few remarks. Tis paper is different from te previous studies (e.g., Kim (2009) and oters) in te sense tat it is te most updated one, wic covers up to te year of 2009, and tat it takes care of Korea s trade intensity wit er tree major trading countries of CUJ. 2. Literature Review 2.1 Multi-Country-Multi-Product-Multi-Factor Trade Model According to te Heckscer-Olin type of two-country-two-product-two-factor model, trade patterns between countries will be determined by te comparative advantage structures between te two countries, determined by factor intensities of two products and factor endowment ratios of two countries. In te multi-country model, 65

3 owever, various oter factors are found to play important roles in determining trade patterns among tose countries, as will be elaborated below. Two alternative models ave been developed for analyzing te world trade flows. One is a gravity model (Kim, 2004) i and te oter is a trade intensity index model, wic will be explained in Section Trade Intensity Index Model ii Te trade intensity index model (Yamazawa, 1970; Kim, 2004 and 2009) concentrates on te structure of departures of actual trade flows from trade flows estimated in gravity model. Te index of intensity of country i's export trade wit country j (in sort, trade intensity index) is defined by I = i. /. j (1) were is country i s export to country j, and i.( j i j volume of world trade respectively. iii ),. j ( i ), and ( ) represent te total export of country i, total import of country j, and te total It is easily proved tat, in a simplified gravity model were bilateral trade is solely determined by te GNP's of countries i and j, I is always equal to unity. iv In oter words, I equals unity if te value of trade is proportional to te GNP's of te two countries; exceeds unity if te trade becomes more intensive between te countries, and falls sort of unity if trade becomes less intensive between te countries i and j. Hig trade intensity reflects suc various factors as te strong complementarity in comparative advantage structures, smaller geograpical and psycic distances, and mutually favorable trade agreements between te two countries. Tis trade intensity index can be decomposed into trade complementarity index (C ) and special country bias index (B ) as follows. Country i's patterns of exports to and imports from te world are principally determined by its structure of comparative advantage and disadvantage vis-a-vis te world. Assuming a omogeneous commodity is traded in a world were bot transport costs and artificial barriers to trade are negligible, te country i's export of commodity to country j ( ) is expected to be te product of country j's total import of te -t commodity (. j ) multiplied by te sare of country i in te world trade (i.e., export) of commodity ( i. / ) as follows. =. i. j ( ) (2) In oter words, te exporting country i's expected market sare in te importing country j's market in te trade of te -t commodity ( /. j ) is supposed to be determined by te exporting country i's market sare in te world market in te trade 66

4 of te same commodity ( i. / ) assuming tat tere are no trade barriers and no transportation costs. Tis expected value of country i's export of commodity to country j ( ) can be rewritten as follows. = i.. j (3) Te expected value of total exports from country i to country j is defined as te sum of expected values of all commodities (4) Te country i's trade complementarity to country j (C ) or te country i's expected trade intensity to country j (C ) is obtained by replacing te expected value of trade ( x ) for te actual one ( ) in te equation (1) as sown below. C =. / i. j (5) Te divergence between te expected value of trade and te actual value defines te degree of special country bias as follows. B I /C = = = 1 /{ ) ( B 1 } (6) were B / is te degree of special country bias in te trade of commodity (B = ) and B turns out to be a weigted armonic mean of B. Te first line of equation (6) gives a decomposition of trade intensity into two components as follows. I = C B (7) wic is te basic formula for our analysis. 2.3 Determinants of Trade Complementarity v To find te determinants of trade complementarity (C ), it can be decomposed as follows: C = ( ) S i R j were S i = i. i. /, R j =. j. j / (8) 67

5 S i and R j are te sares of commodity in country i's total exports and country j's total imports respectively bot divided by commodity 's sare in world total trade. (S i is noting but an RCA (Revealed Comparative Advantage) index of country i for commodity, wic was firstly introduced into a pure trade teory by Balassa (1965).) Tey measure te degrees of country i's export specialization and country j's import specialization in commodity respectively. Since teir weigted average over all commodities always takes a constant value of unity, ( ) S i = ( ) R j = (9) eac of tem takes value around unity. S i of over (under) unity implies tat country i exports commodity more (less) intensively tan te world average, and te iger (lower) te value of S i te stronger (weaker) is country i's export specialization in commodity. Similarly, te iger (lower) te value of R j, te stronger (weaker) is country j's import specialization in commodity. Te vector of S i over all commodities, (S i 1, S i 2,., S i n ), sows te structure of export specialization of country i, wic reflects country i's structure of comparative advantage. Higer (lower) value of S i indicates tat country i as strong (weak) comparative advantage in te production of commodity. Te exactly same ting also applies to te vector of indices of import specialization. Te structure of import specialization, owever, is affected not only by te structure of comparative disadvantage but also by protective commercial policies muc more tan tat of export specialization. Te degree of concentration or diversification of country i's export specialization and country j's import specialization is affected by suc important aspects of comparative advantage as te size of a country, skewed resource endowments, etc Tey can be measured in terms of standard deviations of specialization indexes from teir mean (i.e., unity), wic are square roots of te variances defined as follows. σ 2 (S i ) = σ 2 (R j ) = ( ) ( ) (S i - 1) 2 (R j - 1) (10) It can be easily demonstrated tat te lower te standard deviation of export (import) specialization index of a certain country, te more diversified te export (import) specialization pattern of te country. vi Covariance of te indices of country i's export specialization and tose of country j's import specialization is defined as follows. COV (S i, R j ) = ( ) (S i - 1) (R j - 1) = ( ) ( S i R j - S i - R j + 1) = ( ) S i R j - ( ) S i - ( ) R j + ( ) 68

6 = ( ) = ( ) = C - 1 viii S i R j vii S i R j - 1 Kim or C = COV (S i, R j ) (11) Terefore, if country i's pattern of export specialization matces country j's pattern of import specialization closely, tat is, if te indices of country i's export specialization and country j's import specialization are positively correlated (i.e., COV (S i, R j )>0), C will take a value greater tan unity. On te contrary, if tey matc poorly, tat is, if tey are negatively correlated (i.e., COV (S i, R j )<0), C will take a value less tan unity. If tey are independent (COV (S i, R j )=0), C will be equal to unity. Consequently, C measures te degree of complementarity in te specialization structures of two trading countries. Te degree of complementarity, owever, is not only influenced by te matc of te specialization patterns of exports and imports, but also by teir concentration or diversification. A country wit igly concentrated pattern of export specialization tends to ave iger complementarity in er export activities tan te country wit a similar but more diversified pattern of export specialization. ix Terefore, if te correlation coefficient between te specialization structure of exports and imports is calculated, te measure of te degree of matc of te two patterns neutral from te degree of concentration or diversification can be obtained as follows. r = C O V ( S i, R j) ( S ) ( R ) (12) i j Since Korea's promising and potential exportable products to CUJ were not identified in te past studies, we will firstly attempt to find tem in tis paper. 3. Data and Metodology 3.1 Data To calculate a trade intensity index, a trade complementarity index, and a special country bias index between Sout Korea and CUJ for te last five years by adopting an above-stated trade intensity index model developed by Yamazawa (1970) and Kim (2009), we used te OECD (2011) trade matrix, wic reports all te trade data between eac and every OECD member country and non-member countries of OECD from te viewpoint of OECD member countries. As sown in Table 1, our basic sample of industries for te manufacturing sector consists of 35 industries at a SITC 2-digit level, wic is an optimal sample size for our researc. On top of tat, te OECD trade matrix is now publised for tese 35 manufacturing industries. Te classification of manufactured products by factor intensity and end uses is also listed in Table 2. 69

7 Table 1: List of 35 Industries in Manufacturing Sector SITC Code Name of Industry SITC Code 51 Organic Cemicals 71 Name of Industry Power Generating Macinery And Equipment 52 Inorganic Cemicals 72 Specialized Macinery 53 Dyeing, Tanning And Coloring Materials 73 Metal Working Macinery 54 Medicinal and Parmaceutical Pro ducts 74 Oter Industrial Macinery and Parts 55 Essential Oils and Perfume Materials Fertilizers Plastics in Primary Forms 77 Office Macines And ADP Equipment Telecommunications And Sound Recording Apparatus Electrical Macinery, Apparatus And Appliances, n.e.s. 58 Plastics in Non-primary Forms 78 Road Veicles 59 Cemical Materials and Products, n.e.s. 79 Oter Transport Equipments 61 Leater, Leater Manufactures And Dressed Furskins 81 Prefabricated Buildings, Sanitary, Heating and Ligting Fixtures, n.e.s. 62 Rubber Manufactures, n.e.s. 82 Furniture and Parts Tereof 63 Cork and Wood Manufactures (excluding Furniture) 64 Paper and Paper Manufactures Textile Yarn, Fabrics and Related Products Non-metallic Mineral Manufactures, n.e.s. 67 Iron and Steel Non-ferrous Metals 69 Manufactures of Metal, n.e.s. 83 Travel Goods, Handbags, etc. Articles of Apparel And Cloting Accessories 85 Footwear Professional and Scientific Instruments, n.e.s. Poto Apparatus, Optical Goods, Watces and Clocks Miscellaneous Manufactured Articles, n.e.s. 70

8 Table 2: Classification of Manufactured Products by Factor Intensity and End Uses SITC 2 digit Code 1) Labor-Intensive Products ) Capital/Tecnology-Intensive Products ) Nondurable Consumer Products ) Durable Consumer Products ) Capital Goods ) Labor-Intensive Intermediate Products ) Capital-Intensive Intermediate Products Source: Ministry of International Trade and Industry, Government of Japan, Wite Paper on International Trade (1986: ). 3.2 Metodology All te values tat are required for tis study will be calculated by following te next steps. (a) By substituting relevant OECD trade data into Equation (1), we can calculate I KC, I KU, and I KJ were a subscript K, C, U, and J denotes Sout Korea, Cina, te USA, and Japan respectively. (b) By substituting relevant OECD trade data into Equation (3), we can calculate, KC KU,and were = SITC 51 to SITC 89. KJ (c) By summating KC over from SITC 51 to SITC 89 as sown in Equation can be calculated in te same (4), we can calculate KC. Bot KU and KJ manner. (d) By substituting all te relevant data into Equation (5), we can derive C KC, C KU, and C KJ. (e) By substituting all te relevant data into Equation (6), we can derive B KC, B KU, and B KJ. Tese values of B KC, B KU, and B KJ derived by using te first part of Equation (6) sould be equal to tose values of B KC, B KU, and B KJ by using te last part of Equation (6). (f), R C, R U, and R J were = SITC 51 to SITC 89 can be calculated by using te latter part of Equation (8). As explained above, is Sout Korea s export specialization index (or RCA (Revealed Comparative Advantage) index) of commodity ; and R C, R U, and R J are import specialization index of commodity of Cina, te USA, and Japan respectively. By utilizing te former part of Equation (8), we can derive C KC, C KU, and C KJ. Tese values of C KC, C KU, and C KJ derived ere sould be equal to tose values of C KC, C KU, and C KJ derived in Step (d). (g) By utilizing Equation (10), σ( ), σ(r C ), σ(r U ), and σ(r J ) can be calculated. As explained above, σ( ) is a standard deviation of Sout Korea s export specialization; and σ(r C ), σ(r U ), and σ(r J ) are standard deviations of import specialization of Cina, te USA, and Japan respectively. As sown in Endnote vi, te lower te standard deviation of export (import) specialization index of a certain country, te more diversified te export (import) specialization pattern of te country. () By utilizing te former part of Equation (11), we can calculate COV (, R C ), COV (, R U ), and COV (, R J ). As sown above, COV (, R C ) is a covariance of 71

9 te indices of Sout Korea s export specialization and tose of Cina s import specialization. COV (, R U ) and COV (, R J ) can be defined in te same way. It sould be noted tat if we add a numerical number of one to COV (, R C ), it will be C KC. Likewise, if we add a numerical number of one to COV (, R U ) and COV (, R J ), it will be C KU and C KJ respectively. (i) Finally, if we calculate te correlation coefficient between Sout Korea s export specialization structure and Cina s import specialization structure (r KC ) as sown in Equation (12), it will be te measure of te degree of matc of te two patterns neutral from te degree of concentration or diversification. Te exactly same ting can be said on r KU and r KJ. On top of tis, tis paper will also analyze te determinants of Sout Korea s trade complementarity wit CUJ over te periods at bot sectoral and aggregate levels (te analysis on te determinants of trade complementarity at a sectoral level was never attempted in te previous papers and accordingly tis paper is te first attempt wic tries to analyze te determinants of trade complementarity at bot sectoral and aggregate levels so far). Furtermore, Sout Korea's promising and potential exportable products to CUJ will be identified, wic is also te first attempt of tis paper. 4. Findings 4.1 Sout Korea s Trade Intensity, Trade Complementarity and Special Country Bias Wit CUJ Sout Korea's trade intensity, trade complementarity, and special country bias wit CUJ in te manufacturing sector for te period of are displayed in Table 3. Te results sow tat Cina emerged as Sout Korea s major trading partner as sown in te fact tat Sout Korea's trade intensity wit Cina was iger tan Sout Korea s trade intensity wit te USA and Japan (UJ in sort ereafter) for bot 2005 and 2009 even if it dropped from 8.17 in 2005 to 7.75 in Tis is totally due to te following two facts. One is tat Sout Korea's trade complementarity wit Cina decreased from 1.20 in 2005 to 1.19 in 2009, wic means tat Sout Korea's export structure and Cina s import structure became less complementary over te period of Te oter is tat Sout Korea's special country bias wit Cina also decreased from 6.79 in 2005 to 6.52 in 2009, partly due to te decrease in Sout Korea s foreign direct investment (FDI in sort ereafter) to Cina from US$ 2.83 billion in 2005 to US$ 2.18 billion in On te oter and, Sout Korea's trade intensity wit te USA increased from 1.55 in 2005 to 1.69 in 2009, wic advocates tat te USA became more important as Sout Korea's major trading partner for te period of Tis is totally due to te following two facts. One is tat Sout Korea's trade complementarity wit te USA increased from 1.09 in 2005 to 1.17 in 2009, wic means tat Sout Korea's export structure and te US import structure became more complementary for te period of Te oter is tat Sout Korea's special country bias wit te USA increased from 1.42 in 2005 to 1.45 in 2009, partly due to te drastic increase in Sout Korea s FDI to te USA from US$ 1.26 billion in 2005 to US$ 3.57 billion in x 72

10 Table 3: Sout Korea s Trade Intensity, Trade Complementarity, and Special Country Bias Wit Cina, USA, and Japan in te Manufacturing Sector: 2005, 2009 Trade Intensity Trade Complementarity Special Country Bias Year Cina USA Japan Table 3 also tells us tat Sout Korea's trade intensity wit Japan increased from 5.11 in 2005 to 5.49 in 2008, wic proves tat Japan became more important as Sout Korea's major trading partner over te period of Tis is totally due to te following two facts. One is tat Sout Korea's trade complementarity wit Japan decreased from 0.93 in 2005 to 0.90 in 2009, wic means tat Sout Korea's export structure and Japan s import structure became more competitive over te period of Te oter is tat Sout Korea's special country bias wit Japan increased from 5.51 in 2005 to 6.08 in 2009, partly due to te increase in Sout Korea s FDI to Japan from US$ billion in 2005 to US$ 0.38 billion in Sout Korea's trade intensity wit Cina in 2009 is iger tan er trade intensity wit te USA. Tis is totally due to te fact tat Sout Korea's special country bias wit Cina is muc iger tan er equivalent value wit te USA, along wit te fact tat Sout Korea's trade complementarity wit Cina is iger tan er equivalent value wit te USA. Tis means tat lower transport cost, discriminatory tariffs and oter import restrictions, iger economic cooperation wic are prevalent in te economic relations between Sout Korea and Cina do increase Sout Korea's special country bias wit Cina and accordingly raise er trade intensity wit Cina, wic is also reinforced by te fact tat Sout Korea's trade complementarity wit Cina is iger tan er equivalent value wit te USA. Sout Korea's trade intensity wit te USA in 2009 is lower tan er trade intensity wit Japan. Tis is totally due to te fact tat Sout Korea's special country bias wit te USA is muc lower tan er equivalent value wit Japan, even if Sout Korea's trade complementarity wit te USA is iger tan er equivalent value wit Japan. Tis means tat iger transport cost, discriminatory tariffs and oter import restrictions, lower economic cooperation wic are prevalent in te economic relations between Sout Korea and te USA do reduce Sout Korea's special country bias wit te USA and accordingly lessen er trade intensity wit te USA, even if Sout Korea's trade complementarity wit te USA is iger tan er equivalent value wit Japan. Sout Korea's trade intensity wit Japan in 2009 is lower tan er trade intensity wit Cina. Tis is totally due to te fact tat Sout Korea's special country bias wit Japan is lower tan er equivalent value wit Cina, along wit te fact tat Sout Korea's trade complementarity wit Japan is lower tan er equivalent value wit Cina. Tis means tat iger discriminatory tariffs and oter import restrictions, lower capital movements and economic cooperation wic are prevalent in te 73

11 economic relations between Sout Korea and Japan do reduce Sout Korea's special country bias wit Japan and accordingly lessen er trade intensity wit Japan, wic is also strengtened by te fact tat Sout Korea's trade complementarity wit Japan is lower tan er equivalent value wit Cina. 4.2 Determinants of Sout Korea s Trade Complementarity Wit Cina, te USA, and Japan Determinants of Sout Korea s Trade Complementarity Wit Cina As sown in Table 4, Sout Korea as comparative advantage in te production of (a) labor-intensive product, suc as textile yarn, fabrics and related products (SITC 65) and articles of apparel and cloting accessories (SITC 84) and (b) capital/tecnology-intensive products, suc as telecommunications and sound recording apparatus (SITC 76), electrical macinery, apparatus and appliances, n.e.s. (SITC 77), office macines and ADP equipment (SITC 75), rubber manufactures, n.e.s.(sitc 62), oter transport equipments (SITC 79), iron and steel (SITC 67) and road veicles (SITC 78) in 2005 (refer to Table 2 for te classification of manufactured products by factor intensity and end uses. Also notice tat in order to save te space of tis paper only SITC code will be listed from now on. Look at Table 1 for te name of eac SITC code listed). xi 74

12 Table 4: Analysis of Sout Korea's Trade Complementarity Wit Cina in Manufacturing Sector: 2005, 2009 SITC Standard Deviation Covariance & Correlation Coefficient R C RC S K R C R C RC S K =1 = =1 =1.19 COV (, R C ) r KC COV (, R C ) r KC R C In 2008 Sout Korea continues to ave comparative advantage in te production of (a) labor-intensive product, suc as SITC 65 and (b) capital/tecnology-intensive products, suc as SITC 76, SITC 79, SITC 77, SITC 75, SITC 62, SITC 67, and SITC 73. On te oter and, Cina as comparative disadvantage in te production of (a) labor-intensive products, suc as SITC 61 and SITC 65 and (b) capital/tecnologyintensive products, suc as SITC 73, SITC 77, SITC 72, SITC 57, SITC 87, SITC 88, SITC 51, SITC 67, SITC 79, SITC 68, SITC 75, SITC 74, and SITC 76 in In 2008, Cina continues to ave comparative disadvantage in te production of (a) labor-intensive products, suc as SITC 61 and SITC 65 and (b) capital/tecnology- 75

13 intensive products, suc as SITC 73, SITC 77, SITC 87, SITC 57, SITC 72, SITC 88, SITC 68, SITC 51, SITC 74, SITC 67, SITC 58, and SITC 76. Consequently, Sout Korea's promising and potential exportable products to Cina (i.e., te products wic ave a ig value of R C in Table 4) in 2005 turn out to be (a) labor-intensive product, suc as SITC 65 and (b) capital/tecnology-intensive products, suc as SITC 76, SITC 77, SITC 73, SITC 75, SITC 79, SITC 67, SITC 72, SITC 57 and SITC 87. In 2009, Sout Korea's promising and potential exportable products to Cina canges to (a) labor-intensive product, suc as SITC 65 and (b) capital/tecnologyintensive products, suc as SITC 76, SITC 77, SITC 73, SITC 87, SITC 57, SITC 72, SITC 67, SITC 88, SITC 79 and SITC 75. As sown in Table 4, te standard deviation of increases from 0.72 in 2005 to 0.78 in 2009, wic means tat Sout Korea's export specialization becomes more concentrated over time. Te standard deviation of R C also increases from 1.02 in 2005 to 1.03 in 2009, wic means tat Cina s import specialization becomes more concentrated over time for te period of Since Sout Korea's pattern of export specialization and Cina s pattern of import specialization were positively correlated in 2005 (i.e., COV (, R C ) = 0.20), C KC (i.e., Sout Korea s trade complementarity wit Cina) reaced 1.20, wic means tat Sout Korea's export structure and Cina s import structure were complementary wit eac oter in As tis positive correlation coefficient between Sout Korea's pattern of export specialization and Cina s pattern of import specialization was weakened in 2009 (i.e., COV (, R C ) = 0.19), C KC reaced 1.19, wic means tat Sout Korea's export structure and Cina s import structure became less complementary wit eac oter in Accordingly, te correlation coefficient between Sout Korea's export specialization structure and Cina s import specialization structure (i.e., r KC ), wic is te measure of te degree of matc of te two patterns neutral from te degree of concentration or diversification decreased from 0.30 in 2005 to 0.24 in 2009, wic implied tat Sout Korea's export structure and Cina s import structure became less complementary wit eac oter for te period of Determinants of Sout Korea s Trade Complementarity Wit te US As sown in Table 5, te USA as comparative disadvantage in te production of (a) labor-intensive products, suc as SITC 63, and SITC 82 and (b) capital/tecnologyintensive products, suc as SITC 78, SITC 76, SITC 56, SITC 71, SITC 87, SITC 77, SITC 88, SITC 73, SITC 79, SITC 72, and SITC 68 in

14 Table 5: Analysis of Sout Korea's Trade Complementarity Wit te USA in Manufacturing Sector: 2005, 2009 SITC Standard Deviation Covariance & Correlation Coefficient R U RU S K R U R U RU S K =1 = =1 =1.17 COV (, R U ) r KU COV (, R U ) r KU R U In 2009, te USA continues to ave comparative disadvantage in te production of capital/tecnology-intensive products, suc as SITC 56, SITC 76, SITC 78, SITC 87, SITC 71, SITC 75, SITC 79, SITC 77, SITC 51, and SITC 68. Consequently, Korea's promising and potential exportable products to te USA (i.e., te products wic ave a ig value of R U in Table 5) in 2005 turn out to be capital/tecnology-intensive products, suc as SITC 76, SITC 77, SITC 75, SITC 78, SITC 79, and SITC 62. In 2009, Korea's promising and potential exportable products to te USA canges to capital/tecnology-intensive products, suc as SITC 76, SITC 79, SITC 77, SITC 75, SITC 87, SITC 78, SITC 62, and SITC

15 Te standard deviation of R U decreases from 0.90 in 2005 to 0.88 in 2009, wic means tat te US import specialization becomes more diversified over time for te period of Since Korea's pattern of export specialization and te US pattern of import specialization were positively correlated in 2005 (i.e., COV (, R U ) = 0.09), C KU (i.e., Korea s trade complementarity wit te USA) reaced 1.09, wic means tat Korea's export structure and te US import structure were complementary wit eac oter in As tis positive correlation coefficient between Korea's pattern of export specialization and te US pattern of import specialization increased in 2009 (i.e., COV (, R U ) = 0.17), C KU reaced 1.17, wic means tat Korea's export structure and te US import structure became more complementary wit eac oter in Accordingly, te correlation coefficient between Korea's export specialization structure and te US import specialization structure (i.e., r KU ), wic is te measure of te degree of matc of te two patterns neutral from te degree of concentration or diversification increased from 0.35 in 2005 to 0.56 in 2009, wic implied tat Korea's export structure and te US import structure became more complementary wit eac oter for te period of Determinants of Sout Korea s Trade Complementarity Wit Japan As sown in Table 6, Japan as comparative disadvantage in te production of (a) labor-intensive products, suc as SITC 83 and SITC 84 and (b) capital/tecnologyintensive products, suc as SITC 87, SITC 88, SITC 52, SITC 79, SITC 68, SITC 59, SITC 73, SITC 51, SITC 77, SITC 89, and SITC 55 in

16 Table 6: Analysis of Sout Korea's Trade Complementarity Wit Japan in Manufacturing Sector: 2005, 2009 SITC Standard Deviation Covariance & Correlation Coefficient R J RJ S K R J R J RJ S K =1 = =1 =0.90 COV (, R J ) r KJ COV (, R J ) r KJ R J In 2009, Japan continues to ave comparative disadvantage in te production of (a) labor-intensive products, suc as SITC 83, SITC 84, and SITC 85 and (b) capital/tecnology-intensive products, suc as SITC 52, SITC 88, SITC 87, SITC 68, SITC 59, SITC 51, SITC 89, SITC 54, SITC 73, SITC 77, SITC 56, SITC 55, and SITC 72. Consequently, Korea's promising and potential exportable products to Japan (i.e., te products wic ave a ig value of R J in Table 6) in 2005 turn out to be (a) labor-intensive products, suc as SITC 83 and SITC 84, and (b) capital/tecnologyintensive products, suc as SITC 76, SITC 77, SITC 79, SITC 75, SITC 87, SITC 73, and SITC

17 In 2009, Korea's promising and potential exportable products to Japan canges to (a) labor-intensive product, suc as SITC 83 (b) capital/tecnology-intensive products, suc as SITC 76, SITC 77, SITC 87, SITC 88, SITC 73, SITC 52, SITC 79, and SITC 75. Te standard deviation of R J decreases from 1.24 in 2005 to 1.20 in 2009, wic means tat Japan s import specialization becomes more diversified over time for te period of Since Korea's pattern of export specialization and Japan s pattern of import specialization were negatively correlated in 2005 (i.e., COV (, R J ) = -0.07), C KJ (i.e., Korea s trade complementarity wit Japan) reaced 0.93, wic means tat Korea's export structure and Japan s import structure were competitive wit eac oter in As tis negative correlation coefficient between Korea's pattern of export specialization and Japan s pattern of import specialization was strengtened in 2009 (i.e., COV (, R J ) = -0.10), C KJ reaced 0.90, wic means tat Korea's export structure and Japan s import structure became more competitive wit eac oter in Accordingly, te correlation coefficient between Korea's export specialization structure and Japan s import specialization structure (i.e., r KJ ), wic is te measure of te degree of matc of te two patterns neutral from te degree of concentration or diversification decreased from - in 2005 to - in 2009, wic implied tat Korea's export structure and Japan s import structure became more competitive wit eac oter for te period of Conclusion and Limitation From te above analysis on Sout Korea s trade intensity wit CUJ, te following policy recommendation can be suggested. Firstly, it was found tat for te period of Sout Korea s trade intensity wit Cina decreased due to (a) te decrease in Sout Korea s special country bias wit Cina and (b) te decrease in Sout Korea s trade complementarity wit Cina. Terefore Sout Korea s special country bias wit Cina sould furter be enanced by (a) increasing capital movements and economic cooperation and (b) reducing discriminatory tariffs and oter import restrictions between Sout Korea and Cina. In tis respect, FTA discussion between Cina and Sout Korea, in wic te Cinese government is quite interested, sould be started soonest as possible. Secondly, for te period of Sout Korea s trade intensity wit te USA increased due to (a) te increase in Sout Korea s special country bias wit te USA and (b) te increase in Sout Korea s trade complementarity wit te USA. Tanks to continuous efforts of bot te US and Sout Korean governments, FTA (i.e., Free Trade Arrangement) agreement between two countries became effective from 15 Marc 2012, wic eliminated discriminatory tariffs and oter import restrictions between two countries. Terefore Sout Korea s special country bias wit te USA is expected to increase in te near future and accordingly Sout Korea s trade intensity wit te USA will also increase in

18 Tirdly, for te period of Sout Korea s trade intensity wit Japan increased due to (a) te increase in Sout Korea s special country bias wit Japan and (b) te decrease in Sout Korea s trade complementarity wit Japan. Terefore Sout Korea s special country bias wit Japan sould furter be enanced by (a) increasing capital movements and economic cooperation and (b) reducing discriminatory tariffs and oter import restrictions between Sout Korea and Japan. In tis respect, FTA negotiation between Japan and Sout Korea, wic was processed a few years ago but suspended later due to sarp conflicts of national interests and sentiments, sould be continued. Fourtly, Sout Korea's trade intensity wit te USA in 2009 is found to be lower tan er trade intensity wit Cina and Japan (CJ in sort ereafter) due to te fact tat Sout Korea's special country bias wit te USA is muc lower tan er equivalent value wit CJ. As mentioned in te above paragrap, FTA agreement between Sout Korea and te USA eliminated discriminatory tariffs and oter import restrictions between two countries from 15 Marc Terefore Sout Korea s special country bias wit te USA and accordingly Sout Korea s trade intensity wit te USA is expected to increase in te year of Fiftly, Sout Korea's trade intensity wit Japan in 2009 is found to be lower tan er trade intensity wit Cina due to te following two facts: (a) Sout Korea's special country bias wit Japan is lower tan er equivalent value wit Cina (b) Sout Korea's trade complementarity wit Japan is lower tan er equivalent value wit Cina. In tis regard, it is again desirable tat bot Sout Korea and Japan restart FTA negotiation. Sixtly, rapid wage ikes from te late 1980s in Sout Korea forced er to lose international competitiveness in te export of labor intensive manufactured products and start to ave comparative advantage in te production of manufactured commodities wic are relatively capital/tecnology intensive suc as SITC 76, SITC 79, SITC 77, SITC 75, SITC 62, SITC 67, and SITC 73. In order to transform Sout Korea's export patterns more capital/tecnology intensive in te near future, te accumulation of pysical/uman capital troug appropriate incentive scemes sould be pursued in Sout Korea along wit te increases in R&D expenditures. Sevently, Sout Korea's promising and potential exportable products to Cina in te manufacturing sector in 2009 are found to be (a) labor-intensive product, suc as SITC 65 and (b) capital/tecnology-intensive products, suc as SITC 76, SITC 77, SITC 73, SITC 87, SITC 57, SITC 72, SITC 67, SITC 88, SITC 79 and SITC 75. Terefore Sout Korea sould try to export more of tese products to Cina from now on, wic is an original and timely policy suggestion of tis paper. Eigtly, te Sout Korean export products in te manufacturing sector became more concentrated during te period of Since tis kind of ig concentration of Sout Korean export products is not desirable for avoiding any potential economic loss associated wit unfavorable trade-environmental canges against tese export products, it sould be diversified very soon. Nintly, Sout Korea's promising and potential exportable products to te USA in te manufacturing sector in 2009 are found to be capital/tecnology-intensive products, 81

19 suc as SITC 76, SITC 79, SITC 77, SITC 75, SITC 87, SITC 78, SITC 62, and SITC 73. Terefore Sout Korea sould try to export more of tese products to te USA from now on, wic is an original and timely policy suggestion of tis paper. Tently, Sout Korea's promising and potential exportable products to Japan in te manufacturing sector in 2009 turn out to be (a) labor-intensive product, suc as SITC 83 (b) capital/tecnology-intensive products, suc as SITC 76, SITC 77, SITC 87, SITC 88, SITC 73, SITC 52, SITC 79, and SITC 75. Terefore Sout Korea sould try to export more of tese products to Japan from now on, wic is an original and timely policy suggestion of tis paper. Even if te above conclusions were drawn from tis paper, it as its own limitation. Terefore te more in-dept study on tis topic sould be pursued in te near future. Endnotes i ii Refer to footnote 8 in p. 125 in Kim (2004). More detailed survey on te trade intensity model could be seen in pp in Kim (2004). iii Te data for is supposed to use te total trade volume of te world. In order to secure consistency of data set, we ave to use total OECD trade volume wic is smaller tan total world trade volume. Tis migt cause some bias to calculate te indices. Furtermore, we cannot utilize te trade data of Cina wo is not an OECD country but is one of te biggest countries in te trade volume. Tis also could cause a bias of te indexes. Tese biases tat cannot be corrected until wen te world trade volume is available migt be one of te flaws of our researc. iv Refer to footnote 4 in p 62 in Yamazawa (1970). v More detailed explanation about te determinants of trade complementarity could be seen in pp in Kim (2004). vi Refer to pp in Yamazawa (1970). vii According to Equation (9), Furtermore, = 1 S i = R j = 1. viii By Equation (8). ix Refer to te example of Table 1 in p 66 in Yamazama (1970). x If Korea's FDI to te USA was made in te manufacturing sector, Korea's trade intensity wit te USA will increase by promoting trade volume between two countries. For example, Hyundai Automobile Company made FDI to te USA in order to build an automobile factory over tere a few years ago. Ten tis would result in increases of te US imports of Korean automobile parts and components from Korea. Accordingly Korea s trade intensity wit te USA would increase. xi As sown in Tables 4 to 6, te numbers wose value is bigger tan one are italicized. On top of tat, if te relevant product is labor-intensive, te value is printed in red. If te relevant product is capital/tecnology intensive, te value is printed in blue. 82

20 References Balassa, B 1965, Trade liberalization and revealed comparative advantages, Te Mancester Scool of Economic and Social Studies, vol. 33, no. 2, pp , Mancester, England. Kim, SJ 2004, Pure Trade Teory, Yulgok Books Co., Seoul, Korea. Kim, SJ 2009, Canges in Trade Intensity Between Korea and Russia in te Manufacturing Sector, Te Journal of Slavic Studies, vol. 25, no.2, pp. 1-32, Seoul, Korea. Ministry of International Trade and Industry, Government of Japan 1986, Wite Paper on International Trade, Tokyo, Japan. OECD 2011, International Trade by Commodity Statistics, vol. 5, Paris, France. Yamazawa, I 1970, Intensity analysis of world trade flow, Hitotsubasi Journal of Economics, vol. 10, pp , Tokyo, Japan. 83