The Impact of Strained Korea-Japan Relations Resulting from the Korea-Japan Trade Dispute : Firm-Level Analysis

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.