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(Asymmetric) tariff‐driven foreign direct investment: Evidence from Korean firm‐level data

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  • Ju Hyun Pyun

Abstract

This study examines the effects of identified industry tariff shocks on firms' outward foreign direct investment (FDI) into their destinations. Using rich Korean firm‐level data for 2010–18, the study decomposes FDI outflows from multinational enterprises (MNEs) into the number of subsidiaries (extensive margin) and average FDI for individual subsidiaries (intensive margin) in the destination. New evidence of tariff‐driven FDI reveals that the tariff decrease shocks (TDS) (significant tariff decreases) lower the number of existing subsidiaries rather than the average FDI volume for the existing subsidiaries. In addition, more productive firms investing in developing countries lower the number of existing subsidiaries to a greater extent in response to TDS, implying that productive MNEs reallocate resources into selective core subsidiaries when a significant tariff decrease occurs.

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  • Ju Hyun Pyun, 2023. "(Asymmetric) tariff‐driven foreign direct investment: Evidence from Korean firm‐level data," The Developing Economies, Institute of Developing Economies, vol. 61(4), pages 297-323, December.
    • Handle: RePEc:bla:deveco:v:61:y:2023:i:4:p:297-323
    DOI: 10.1111/deve.12379
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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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