Document Type

Article

Publication Date

2015

DOI

10.1016/j.japwor.2015.08.001

Publication Title

Japan and the World Economy

Volume

36

Pages

67-87

Abstract

This paper investigates the economic relationship between Japan and South Korea by incorporating disaggregated output measures. Using a factor-augmented vector autoregression (FAVAR) model, we conduct several experiments to test the nature of the interdependence, both in the aggregate and by sector. We find that South Korean output shocks affect the Japanese economy in a significant manner, whereas Japanese output shocks have a limited effect on South Korea. By further examining the transmission mechanism of sectoral output shocks and comparing them with the direction of sectoral trade, we find evidence of cross-border production sharing, which explains the asymmetric results seen in the aggregate output.

Comments

NOTE: This is the author's pre-print version of a work that was published in Japan and the World Economy. The final version was published as:

Selover, D. D., & Yagihashi, T. (2015). Examining industrial interdependence between Japan and South Korea: A FAVAR approach. Japan and the World Economy, 36, 67-87. doi: 10.1016/j.japwor.2015.08.001

Available at: https://doi.org/10.1016/j.japwor.2015.08.001

ORCID

0000-0002-2241-3282 (David Selover), 0000-0001-9916-6008 (Takeshi Yagihashi)

Original Publication Citation

Selover, D. D., & Yagihashi, T. (2015). Examining industrial interdependence between Japan and South Korea: A FAVAR approach. Japan and the World Economy, 36, 67-87. doi: 10.1016/j.japwor.2015.08.001

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