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The purpose of this paper is to assess a country’s export returns and return volatility and to demonstrate that such an approach is a relevant method to predict a country’s export earnings and risks. Also to suggest important policy implications for Korea’s trade in terms of diversifying its export structure of products and destinations.

The modern portfolio theory by Markowitz (1959) is applied to predict a country’s export earnings and risks. The import amount of a product, which includes aspects of both price and volume, is used as a measure of returns and return volatility and, as a result, the correlation matrix between 19 product groups covering almost all the export goods is calculated. The empirical analysis to show a strong causal relationship between expected returns and the return volatility of a country’s export portfolio and its real export earnings and risks is also made.

This study demonstrates that the portfolio approach can be a useful method to predict export returns. Also suggests that Korea needs to change its portfolio of both export products and destinations in order to maintain more stable growth of its trade and reduce its vulnerability to an external shock.

The empirical tests have many limitations because they are based on simple cross-sectional models.

The study shows that the modern portfolio approach to export by using prices and volume as a measure of variation in returns can predict how vulnerable a country’s export earnings is to economic shocks, and thus, provide a useful policy implication in the design of export structure and resource allocation.

This study provides a new idea to predict a country’s export earnings and risks by applying the export portfolio.

One of the important goals of trade facilitation is to lower the costs of trade that serve as a barrier to the developing countries from enjoying the benefits of increased trade and becoming integrated into global supply chains that account for nearly 60 percent of global trade today. The high trade costs that are plaguing most developing countries is mainly incurred from the lack of adequate trade-related infrastructure and low quality of institutions that hinder the efficient flow of goods across and within borders. Therefore, the trade facilitation rules that are contained in FTAs among bilateral trading partners are inevitably aimed at deepening their participation in the global value chain network. However, an observation of the FTAs concluded by Korea and the trade facilitation rules contained therein shows that the current trade facilitation rules in bilateral FTAs may be of little practical use for countries that lack the capacity to be involved in the international production activities in the first place. From the development perspective, the current WTO negotiations on trade facilitation which take full account of the special and differential treatment needs of the less developed country members appear more likely to contribute to providing the trading environment that is free from the barriers to trade that have inhibited the less developed countries from integration into the global supply chains and the benefits thereof.