This research empirically studies the effects of the 2019 Korea-Japan trade dispute and the subsequent deterioration of bilateral relations on the business and trade performance of Japanese multinational corporations in Korea. I employed the Survey of Business Activities, a representative Korean firm-level panel data, and implemented the Difference-in-Differences approach with having Japanese multinationals in Korea as the treatment group and non-Japanese multinationals as the control group. The study discovered indications of a detrimental effect on key business performance variables due to the strained Korea-Japan relations; nevertheless, the statistical significance was not strong. A reduction in business operations, however, was noted in the wholesale, retail, and service sectors due to the boycott of Japanese products and services. I found negative effects on imports, with a more significant influence detected in the long-term compared to the short-term, particularly in intra-firm trade via affiliates. The findings indicate that strained bilateral relations triggered by trade disputes may impede the business operations and trade activities of multinational enterprises abroad.
Jeonghwan Choi (Wed,) studied this question.