Reports
Discussion Papers
No.991 Firm Responses to Export Controls: Evidence from the Japan–Korea Trade Dispute
by Youngmin BAEK, Kazunobu Hayakawa, Danbee PARK
January 2026
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.
Keywords: Japan–Korea trade dispute, Export control, Subsidies
JEL classification: F15, F53
PDF available at https://hdl.handle.net/2344/0002001727
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