Examining industrial interdependence between Japan and South Korea: A FAVAR approach

David Selover and Takeshi Yagihashi ()

Japan and the World Economy, 2015, vol. 36, issue C, 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.

Keywords: Business cycle synchronization; Transmission; International interdependence; Comovements; Factor-augmented vector autoregressions (search for similar items in EconPapers)
JEL-codes: C3 E32 F17 F41 F47 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:36:y:2015:i:c:p:67-87

DOI: 10.1016/j.japwor.2015.08.001

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