Determinants of the Korean agricultural trade with the LDCs and the OECD countries

Abstract

The study aims to analyze Korea's import trade in agricultural products with (i) the least developed countries (LDCs) and (ii) the Organization for Economic Co-operation and Development (OECD) countries. Extended versions of a gravity model are adopted and the balanced panel data for the unilateral trade over the period of 2003 to 2008 are constructed using the Harmonized System Codes. The Heckman two-stage analysis is incorporated to detect the potential selection bias arising from many zero trades. We find that only preferential tariffs on the LDCs have significantly contributed to the trade flows. However, in contrast, gross domestic products (GDPs), free trade agreements (FTAs), the applied tariff rates, and the exchange rates turn out to be statistically significant in the trade with the OECD countries, thus highlighting the possibility of the potential trade benefits associated with the trade policy reforms. The study is unique in that it empirically estimates the determinants of agricultural trade between the LDCs and developed countries and reveals the potential effectiveness of the preferential treatment and the implementation of the trade policy reforms.