Heterogeneous Impacts of the Korea-Japan Trade Dispute on Bilateral Agri-Food Trade

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Purpose - The purpose of this paper is to provide a rigorous quantitative assessment of the heterogeneous impacts of the Korea-Japan trade dispute on bilateral agri-food trade across different product categories. Design/Methodology/Approach - Based on a structural gravity model and a difference-in-differences approach, the paper estimates the effects of the dispute on trade flows in both aggregated and disaggregated HS 2-digit product levels. The analysis utilizes annual bilateral trade data from 2017-2022 and monthly data for 2019. Findings - The findings reveal significant declines in Japanese exports of vegetable products and prepared foodstuffs to Korea, consistent with the theoretical prediction that sectors with higher average consumer animosity would be more negatively affected. However, the results also point to potential trade diversion and substitution effects, as evidenced by the increase in Korean exports of animal/vegetable oils to Japan post-dispute. Research Implications - The findings have important implications in understanding the complex effects of trade disputes on sensitive sectors like agriculture. These emphasize the need to consider sector-specific dynamics and both short-term and long-term effects when assessing the consequences of trade tensions. The study contributes to the literature on the heterogeneous impacts of trade conflicts, and provides insights for evidence-based policymaking in navigating the global trade landscape.