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  • P-ISSN 1738-656X

한국개발연구. Vol. 32, No. 3, September 2010, pp. 33-69

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Causes of the Decline in Terms of Trade in Korea since the Mid-1990s

Chin hee Hahn

Author & Article History

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This paper examines the causes of the terms of trade decline in Korea since the mid-1990s, using the decomposition methodology suggested by Baxter and Kouparitsas (2000) as well as regression analysis. The main empirical results are summarized as follows. The decomposition exercise of changes in terms of trade showed that Korea’s terms of trade decline for the past decade or so is attributable to goods price effect which were driven by the rise of oil prices relative to manufactures. The decomposition of terms of trade change for 55 countries showed that terms of trade decline due to goods price effect is a phenomenon that was commonly observed for exporters of manufactures since mid-1990s. These results suggest that external factors such as China’s trade expansion, rather than internal factors, are mostly responsible for the decline in terms of trade. In accordance with these results, the regression results suggest that China’s trade expansion contributed to Korea’s terms of trade decline, especially in 2000s, by raising the import prices of oil and raw materials and lowering the export prices of manufacturing products.


교역조건(Terms of Trade), 국별가격효과(Country Price Effect), 재화상대가격효과(Goods Price Effect), 중국효과(Chine Effect)

JEL Code

E30, F14, F43, O11

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