Do Korean Exports Have Different Patterns over Different Regimes?: New Evidence from STAR-VECM

In this work we examine whether the relationships of Korean exports to global GDP and to the exchange rate change depending on whether exports are in their expansionary or their contractionary regimes. To this empirical end we incorporate the two distinct dynamic features of regime change and co-integration into a multi-variable smooth transition autoregressive vector error correction model (STAR-VECM). Our estimation results reveal asymmetries in the short-run relationships of Korea¡¯s exports to global GDP and to the exchange rate, between the contractionary and the expansionary export regimes, although their long-run relationships remain stable. Specifically, the positive effect of real global GDP on Korea¡¯s real exports is inelastic during contractionary regimes but changes to become elastic in expansionary regimes. The effect of the real effective exchange rate on Korea¡¯s real exports is positive and inelastic under contractionary regimes, but becomes negative and elastic under expansionary regimes. Our results suggest that the asymmetric properties of the relationship of Korea¡¯s exports to global GDP and the exchange rates across the different regimes should be taken into account in order to better understand the behavior of Korea¡¯s exports.