Determinants of Different Types of Imports : Evidence from Korea

This paper analyzes the determinants of different types of imported goods. We develop a model in which final good and intermediate good sectors require imported intermediate inputs for production. Our model shows that all types of imported goods are commonly affected by transportation costs across borders and elasticity of substitution among imported goods. Between different types of imports, final consumption goods are more associated with factor income while intermediate inputs are largely affected by exports of importing sectors. Using Korean import data, we decompose imports into final goods, intermediate goods, and raw materials, and use a first-difference model to find that results are consistent with the theoretical implications. Our results show that while imports of final goods increase more as an importing sector's income increase, imports of intermediate goods and raw materials are more likely to increase as an importing sector's exports increase. In particular, taking into account that a sector's exports and imports can be inter-determined, we further use a dynamic simultaneous-equations model with a GMM estimation technique to find that the importing sector's exports unidirectionally increase the imports of intermediate goods and raw materials