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Firm Responses to Export Controls: Evidence from the Japan–Korea Trade Dispute

Author

Listed:
  • BAEK,Youngmin
  • HAYAKAWA,Kazunobu
  • PARK,Danbee

Abstract

This study examines the responses of firms in a target country to export control regulations and related localization subsidies under the Japan–Korea trade dispute. Using firm-level panel data on Korean listed firms, we analyze firm-level adjustments in research and development (R&D) investment, asset composition, and profitability following Japan’s 2019 export control regulations and Korea’s subsequent subsidy policies. The results show that export controls did not increase R&D investment among firms capable of producing export-controlled materials. Instead, these firms increased their tangible assets, indicating an expansion in their production capacity, which in turn led to higher sales. We also find no evidence that localization subsidies stimulated R&D investment or intensity, although they are associated with improved profitability. Overall, firms responded to export controls mainly through supply chain adjustments rather than short-term increases in R&D. Such response highlights the role of firm-level cooperation in mitigating the impact of export controls.

Suggested Citation

  • BAEK,Youngmin & HAYAKAWA,Kazunobu & PARK,Danbee, 2026. "Firm Responses to Export Controls: Evidence from the Japan–Korea Trade Dispute," IDE Discussion Papers 991, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    • Handle: RePEc:jet:dpaper:dpaper991
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    References listed on IDEAS

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    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

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