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This paper investigated the impact of exchange rate volatility on the automotive industry exports of Korea using a traditional long-run export demand model. In measuring the exchange rate volatility this study employed the General Autoregressive Conditional Heteroscedasticity [GARCH(1,1)] model and the standard deviation approach. To this end, the panel cointegration analysis was applied to the monthly exports of Korea’s automotive products to 28 major trading partners for the period March 2001 to December 2014. The panel dynamic ordinary least squares (DOLS) and the panel fully modified ordinary squares (FMOLS) estimations were employed to verify the long-run relationships among the regression variables. The empirical results provided evidence that exchange rate volatility has negative effects on the automotive industry exports of Korea. However, such effects were found to have relatively smaller magnitude on the automotive parts exports compared to the motor vehicle product exports. This would seem to suggest that the differential effects of volatility on the magnitude can be due to the influences of production sharing across globe, which tends to weaken the sensitivity of exchange rate uncertainty on intermediate goods trade.
