What drives South Korea's trade volume? Gravity, migration and beyond

Purpose This study aims to analyze South Korea's trade patterns to derive any meaningful policy implications. Design/methodology/approach Using an augmented gravity model with panel data from 186 countries over 2 decades (2000–2023), this paper applies various approaches, including pooled ordinary least squares, panel random effects, instrumental variables and so on. Findings This study finds that traditional variables, including gross domestic product (GDP) and distance, follow expected patterns, while migration emerges as a significant trade-promoting factor, especially among lower-income countries. Interaction terms confirm that migration and trade are more closely linked when partner countries have lower per capita incomes. Originality/value These findings contribute to the literature by suggesting that migration can complement Korea's trade strategy, particularly during periods of demographic decline. Additionally, while Asia-Pacific Economic Cooperation's role has strengthened, free trade agreements (FTAs) are showing a declining influence. A comparison of predicted and actual trade flows reveals under-traded partners, indicating unrealized trade potential. This study calls for better alignment between immigration and trade policy and a reassessment of Korea's FTA strategy.