Cross-border Vertical Integration and Intra-firm Trade: New Evidence from Korean and Japanese Firm-level Data

Abstract

This paper establishes two facts about cross-border vertical integration and intra-firm trade of firms in Korean and Japanese manufacturing industries. First, the intra-firm trade between a parent firm and its affiliates is highly concentrated in a small number of large multinational corporations. Second, the input–output coefficient between the parent firm's industry and the affiliate's industry is weakly related to the presence and magnitude of intra-firm trade between the parent firm and its affiliates. Furthermore, these two characteristics are also found in domestic vertically integrated firms. In particular, the second point identifies a need for further research on the motivation of cross-border vertical integration between two manufacturers, the final good producers at home and the input suppliers abroad.