The paper analyzes the trade relations among the three countries in Northeast Asia, Korea, China, and Japan, and shows that they are very trade dependent on each other, with important inter-industry and intra-industry trade. Some major features of trade among the countries, such as trade balances and trade in agricultural products, are carefully investigated.
Nowadays the three countries in Northeast Asia have been very much trade-dependent on each other. Together they form a huge economic unit. In terms of their stages of economic development, Japan has the most advanced economy, and China has the least developed one. Korea, both in terms of geographical location and economic development, is the middle one. It is therefore important to study the features of the trade among them and investigate the prospect and implication of economic integration.
We first note that their export structures are getting similar to each other. Second, as the export structures of three countries are getting similar, their competition in the world market is also getting more intense. Looking at the trade specialization indices (TSI), the export similarity indices ( ESI), and changes in the US market share of these countries from 2000 to 2005, competition in particular between Korea and China and between China and Japan are getting more intensified. Our result points out the pressure Korea and Japan may be getting from China as the latter is growing rapidly and fast catching up.
However, our results suggest that Korea and Japan got more than rivalry and competition from China. There is much complementarity between the exports of these countries. That is because the three economies are in different stages of development, and many of their industries, especially manufacturing industries, show much vertical differentiation. Thus our results indicate that they have high degrees of intra-industry trade, and that their intra-regional trade shares have been steadily rising in the past several years. They also have high intra-industry trade (IIT) indices. The IIT among three countries showed high degree with each other.