INDUSTRIAL COMPETITIVENESS BETWEEN EXCHANGE RATEFLUCTUATIONS AND RESEARCH AND DEVELOPMENTINVESTMENT: A NONLINEAR ANALYSIS OF SOUTH KOREA

Abstract

This study investigates the effects of exchange rate fluctuations, research and development (R&D) expenditure, and industrial output on South Korea's industrial competitiveness over the period 1997–2024. Particular emphasis is placed on examining the asymmetric responses of industrial competitiveness to positive and negative shocks using the Nonlinear Autoregressive Distributed Lag (NARDL) model. Annual data were obtained from the World Bank, the Organisation for Economic Co-operation and Development (OECD), and the United Nations Industrial Development Organization (UNIDO). The empirical analysis employed unit root tests, the Bounds Test for cointegration, as well as diagnostic and causality tests to ensure the robustness of the estimated model. The findings reveal the existence of a stable long-run equilibrium relationship among the variables. Industrial output exerts a positive and statistically significant effect on industrial competitiveness, while positive exchange rate shocks also have a significant positive impact. In contrast, negative exchange rate shocks do not exhibit a statistically significant effect. Furthermore, increases in R&D expenditure are found to have a significant negative long-run effect, whereas decreases in R&D expenditure are statistically insignificant, indicating the presence of asymmetric responses of industrial competitiveness to economic shocks. These findings provide valuable empirical evidence for the formulation of industrial policies aimed at strengthening the competitiveness of technology-driven and export-oriented economies