Japan and the World Economy
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.
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
Selover, David D. and Yagihashi, Takeshi, "Examining Industrial Interdependence Between Japan and South Korea: A FAVAR Approach" (2015). Economics Faculty Publications. 26.