The Impact Of US Dollar 's Weak Adjustment On Sino - Korea Bilateral Trade

Sino-South Korea bilateral trade has developed rapidly since the. establishment of diplomatic relations between the two countries in1992. South Korea has become China’s fourth exporter and second importer. As the quoted and settlement currency of Sino-South Korea bilateral trade, U.S. dollar has been depreciating against major currencies since2001. This paper investigates the impact of weak dollar strategy on Sino-South Korea bilateral product trade via statistical and empirical analysis.First, calculating Revealed Comparative Advantage (RCA) Index, static and dynamic Intra-industry Trade Index, this paper quantifies the comparative advantages and intra-industry trade levels of Sino-South Korea bilateral trade products which classified by factor imputs. Further, indices of SITC5-digit level products are individually calculated. It is found that:(1) labour intensive and high-tech intensive industries are the most comparative fields for China and South Korea respectively. Both countries’ RCAs on high-tech intensive industries have been rising since1994;(2) intra-industry trade levels are high on primary goods and labour intensive goods, low on high-tech intensive goods;(3) all the five product categories’ marginal trade in most years was intra-industrial.Second, using annual data from2002to2011, this paper esimates both import and export models for the five product catagories and their aggregation group via Panel Corrected Standard Errors and Two-step System General Method of Moments.The estimation results show that:(1) real depreciation of U.S. Dollar against Renminbi reduces China’s real import from South Korea; real depreciation of U.S. Dollar against Korean Won reduces China’s real export to South Korea;(2) real appreciation of Renminbi against Korean Won reduces both China’s real import and export with South Korea, but in smaller degree than that caused by the same amount of change in U.S. Dollar;(3) manufactures with high skill and technology intensity are more defensive against exterior shocks than manufactures with low and medium skill and technology intensity.Last, several suggestions are proposed based on the above analyses:(1) accelerate the establishment of China-South Korea Free Trade Area and Yuan/Won settlement;(2) develop Chinese high-tech intensive industry, minimize the trade flow fluctuation caused by exterior shocks;(3) actively predict possible changes in Sino-South Korea bilateral trade caused by exchange rate change, and look for effective solutions.