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

Youngmin Baek, Kazunobu Hayakawa and Danbee Park

No 991, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

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 (search for similar items in EconPapers)
JEL-codes: F15 F53 (search for similar items in EconPapers)
Date: 2026-01
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Published in IDE Discussion Paper = IDE Discussion Paper, No.991. 2026-01

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