Your browser does not support the PubReader view.
Go to this page to see a list of supporting browsers.
Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 35, No. 3, pp.291-315
ISSN: 1225-0279 (Print)
Print publication date 31 Aug 2022
Received 09 Jul 2022 Revised 03 Aug 2022 Accepted 04 Aug 2022
DOI: https://doi.org/10.22904/sje.2022.35.3.004

How Sustainable Are Trade Balances in China, Japan, and Korea?

Manuchehr Irandoust
Manuchehr Irandoust, Independent Researcher, Mellbystrand, Sweden, Tel: +46-721631811 manuch.dost@gmail.com

JEL Classification: F30, F31

Abstract

Previous studies of trade flows have been based on bivariate analysis and residual-based panel cointegration techniques. This paper studies the long-run relationship between exports and imports in China, Japan, and Korea by applying the likelihood-based panel cointegration technique and multivariate analysis. The results indicate that there exists a long-run steady-state relationship between exports and imports. The policy implications of our findings are that trade flows do not lead to the violation of international budget constraints and, more importantly, there is no productivity gap between the domestic economy and the rest of the world. This implies a lack of permanent technological shocks to the domestic economy. The existence of cointegration between imports and exports in the sample countries also suggests that their macroeconomic policies are effective in bringing exports and imports into balance.

Keywords:

Imports, Exports, Cointegration, China, Japan, Korea

Acknowledgments

The author would like to thank an anonymous referee for his/her useful comments. The usual disclaim applies. And the author reports that there are no competing interests to declare.

References

  • Afonso, A., Huart, F., Tovar Jalles, J., Stanek, P. “Long-run relationship between exports and imports: current account sustainability tests for the EU,” Portuguese Economic Journal 19 (No.2 2020): 155–170. [https://doi.org/10.1007/s10258-019-00168-x]
  • Ahmed S. “Government spending, the balance of trade and the terms of trade in British history,” Journal of Monetary Economics 20 (No.2 1987): 195–220. [https://doi.org/10.1016/0304-3932(87)90014-6]
  • Allen, C. “Revisiting external imbalances: Insights from sectoral accounts,” Journal of International Money and Finance 96 (2019): 67–101. [https://doi.org/10.1016/j.jimonfin.2019.05.002]
  • Apergis, N., Katrakilidis, K. P., Tabakis. N.M. “Current account deficit sustainability: The case of Greece,” Applied Economics Letters 7 (No.9 2020): 599–603. [https://doi.org/10.1080/13504850050059087]
  • Arize, A.C., Bahmani-Oskooee, M. “Do imports and exports adjust nonlinearly? Evidence from 100 countries,” Global Economy Journal 18 (No.1 2018), article number: 20170094. [https://doi.org/10.1515/gej-2017-0094]
  • Artis M. J., Bayoumi T. A. Saving, investment, financial integration, and the balance of payments. IMF Working Paper, 1989: 89–102, IMF, Washington, DC. [https://doi.org/10.5089/9781451948318.001]
  • Bahmani-Oskooee, M. “Are imports and exports of Australia cointegrated?” Journal of Economic Integration 9 (No.4 1994): 525–533. [https://doi.org/10.11130/jei.1994.9.4.525]
  • Bahmani-Oskooee, M., Rhee, H-J. “Are imports and exports of Korea cointegrated?” International Economic Journal 11 (No.1 1997): 109–114.
  • Bekkers, E., Koopman, R. B., Rêgo, C. L. “Structural change in the Chinese economy and changing trade relations with the world,” China Economic Review 65 (2021): 101573. [https://doi.org/10.1016/j.chieco.2020.101573]
  • Bencivelli, L., Tonelli, F. China’s International Projection in the Xi Jinping Era. Springer Briefs in Economics, 2020. [https://doi.org/10.1007/978-3-030-54212-2]
  • Breusch, T. S., Pagan, A. R. “The Lagrange multiplier test and its applications to model specification in econometrics,” The review of Economic Studies 47 (No. 1 1980): 239–253. [https://doi.org/10.2307/2297111]
  • Comtrade, https://comtrade.un.org, /
  • Chen, S.W. “Current account deficits and sustainability: Evidence from the OECD countries,” Economic Modelling 28 (No.4 2011): 1455–1464. [https://doi.org/10.1016/j.econmod.2011.01.011]
  • Chen, S.W. “Smooth transition, non-linearity and current account sustainability: Evidence from the European countries,” Economic Modelling 38 (2014): 541–554. [https://doi.org/10.1016/j.econmod.2014.02.003]
  • Doornik, J. A., Hansen, H. A practical test for univariate and multivariate normality. Discussion Paper, Nuffield College, 1994.
  • Elliott G., Fatas A. “International business cycles and the dynamics of the current account,” European Economic Review 40 (No.2 1996): 361–87. [https://doi.org/10.1016/0014-2921(95)00123-9]
  • Glick, R., Rogoff, K. “Global versus country-specific productivity shocks and the current account,” Journal of Monetary Economics 35 (No.1 1995): 159–92. [https://doi.org/10.1016/0304-3932(94)01181-9]
  • Hakkio, C. S., Rush, M. “Is the budget deficit “too large?”” Economic Inquiry 29 (No.3 1991): 429–445. [https://doi.org/10.1111/j.1465-7295.1991.tb00837.x]
  • Herzer D., Nowak-Lehman D. F. “Is there a long-run relationship between exports and imports in Chile?” Applied Economics Letters 13 (No.15 2006): 981–986. [https://doi.org/10.1080/13504850500425832]
  • Holmes, M. J. “How sustainable are OECD current account balances in the long Run?” The Manchester School 74 (No.5 2006): 626–643. [https://doi.org/10.1111/j.1467-9957.2006.00514.x]
  • Husted, S. “The emerging U.S. current account deficit in the 1980s: A cointegration analysis,” The Review of Economics and Statistics 74 (1992): 159–166. [https://doi.org/10.2307/2109554]
  • Im, K. S., Pesaran, M. H., Shin, Y. “Testing for unit roots in heterogeneous panels,” Journal of Econometrics 115 (No.1 2003), 53–74. [https://doi.org/10.1016/S0304-4076(03)00092-7]
  • International Monetary Fund, https://www.imf.org/en/Home, .
  • Irandoust M., Sjöö, B. “The behavior of the current account in response to unobservable and observable shocks,” International Economic Journal 14 (No.4 2000): 41–57.
  • Irandoust, M., Ericsson, J. “Are imports and exports cointegrated? An international comparison,” Metroeconomica 55 (No.1 2004): 49–64. [https://doi.org/10.1111/j.0026-1386.2004.00182.x]
  • Irandoust, M., Ericsson, J. “Foreign aid, domestic savings, and growth in LDCs: An application of likelihood-based panel cointegration,” Economic Modelling 22 (No.4 2005): 616–627. [https://doi.org/10.1016/j.econmod.2004.03.004]
  • Jin, X., Li, D. D., Wu, S. “How will China shape the world economy?” China Economic Review 40 (2016): 272–280. [https://doi.org/10.1016/j.chieco.2016.07.006]
  • Johansen, S. Likelihood-based inference in cointegrated vector autoregressive models. Oxford University Press, Oxford, 1995. [https://doi.org/10.1093/0198774508.001.0001]
  • Kao, C. “Spurious regression and residual-based tests for cointegration in panel data,” Journal of Econometrics 90 (No.1 1999): 1–44. [https://doi.org/10.1016/S0304-4076(98)00023-2]
  • Kim, S. “International macroeconomics fluctuations in Korea,” Seoul Journal of Economics 24 (No.1 2011): 1–20.
  • Kim, Y. Y. “Dynamic analysis of trade balance and real exchange rate: A stationary VAR form of error correction model Approach,” Seoul Journal of Economics 25 (No.3 2012): 317–337.
  • Larsson, R., Lyhagen, J. Likelihood-based inference in multivariate panel cointegration models, Stockholm School of Economics Working Paper Series in Economics and Finance 331, 1999.
  • Larsson, R., Lyhagen, J., Lothgren, M. “Likelihood-based cointegration tests in heterogeneous panels,” Econometrics Journal 4 (No.1 2001): 109–42. [https://doi.org/10.1111/1368-423X.00059]
  • Ministry of Finance, Japan, https://www.mof.go.jp/english/index.htm
  • National Atlas of Korea, http://nationalatlas.ngii.go.kr/pages/page_1819.php
  • Obstfeld, M., Rogoff, K. “The intertemporal approach to the current account,” In Handbook of International Economics 3 (1995): 1731–1799. [https://doi.org/10.1016/S1573-4404(05)80014-0]
  • Orsal, D. D. K. Comparison of panel cointegration tests. SFB 649 Discussion Paper 029. Humboldt-Universität zu Berlin, Germany, 2007.
  • Pedroni, P. “Critical values for cointegrating tests in heterogeneous panels with multiple regressors,” Oxford Bulletin of Economics and Statistics 61 (S1, 1999): 653–670.
  • Pesaran, M. H., Shin, Y., Smith, R. J. “Bounds testing approaches to the analysis of level relationships,” Journal of Applied Econometrics 16 (No.3 2001): 289–326. [https://doi.org/10.1002/jae.616]
  • Pesaran, M. H. General diagnostic tests for cross section dependence in panels. IZA Discussion Paper No. 1240, Institute for the Study of Labor, 2004. [https://doi.org/10.2139/ssrn.572504]
  • Pesaran, M. H. “A simple panel unit root test in the presence of cross section dependence,” Journal of Applied Econometrics 22 (No.2 2007): 265–312. [https://doi.org/10.1002/jae.951]
  • Pesaran, M. H., Yamagata, T. “Testing slope homogeneity in large panels,” Journal of Econometrics 142 (No.1 2008): 50–93. [https://doi.org/10.1016/j.jeconom.2007.05.010]
  • Pesaran, M. H., Ullah, A., Yamagata, T. “A bias-adjusted LM test of error cross-section independence,” The Econometrics Journal 11 (No.1 2008): 105–127. [https://doi.org/10.1111/j.1368-423X.2007.00227.x]
  • Razin A. The dynamic optimizing approach to the current account: theory and evidence, in Kenen P. B. (ed.): Understanding Interdependence: The Macroeconomics of the Open Economy, Princeton University Press, Princeton, NJ, 1995. [https://doi.org/10.1515/9780691231136-008]
  • Raybaudi, M., Sola, M., Spagnolo, F. “Red signals: Current account deficits and sustainability,” Economics Letters 84 (No.2 2004): 217–223. [https://doi.org/10.1016/j.econlet.2004.02.005]
  • Sachs J. D. “The current account and macroeconomic adjustment in the 1970s,” Brookings Papers on Economic Activity (No.1 1981): 201–282. [https://doi.org/10.2307/2534399]
  • Summers L. H. “Tax policy and international competitiveness,” International aspects of fiscal policies, University of Chicago Press, 1988: 349–386.
  • Swamy, P. A. V. B. “Efficient inferences in a random coefficient regression model,” Econometrica: Journal of the Econometric Society (1970): 311–323. [https://doi.org/10.2307/1913012]
  • Trehan, B., Walsh, C. E. “Testing intertemporal budget constraints: Theory and applications to U. S. federal budget and current account deficits,” Journal of Money, Credit and Banking 23 (No.2 1991): 206–223. [https://doi.org/10.2307/1992777]
  • Tu, X., Zhang, K.H. “International monetary systems and US trade deficits with China,” The Chinese Economy 52 (No.5 2019): 377–386. [https://doi.org/10.1080/10971475.2019.1617924]
  • Wickens, M.R., Uctum, M. “The sustainability of current account deficits,” Journal of Economic Dynamics and Control 17 (No.3 1993): 423–441. [https://doi.org/10.1016/0165-1889(93)90005-D]
  • Wu, J., Fountas, S., Chen, S. “Testing for the sustainability of the current account deficit in two industrial countries,” Economics Letters 52 (No.2 1996): 193–198. [https://doi.org/10.1016/S0165-1765(96)06860-7]
  • WTO. (2003). World Trade report. World Trade Organization, Geneva.
  • WTO, https://www.wto.org/english/res_e/statis_e/wts2019_e/wts19_toc_e.htm
  • World Bank, https://www.worldbank.org/en/home
  • Yüksel, S., Dinçer, H., Yurdagül M. “Financial analysis of international energy trade: A strategic outlook for EU-15,” Energies 12 (2019): 431, 1–22. [https://doi.org/10.3390/en12030431]