How do exporters respond to exogenous shocks: Evidence from Japanese firm-level data

Abstract

This study examines how exporters respond to an exogenous shock, using an export shock that occurred after the 2012 political conflict over the East China Sea's islands. Because of the political conflict, Japanese firms faced considerable decrease in exports to China. By using Japanese firm-level data for the period 2011–2013 and by employing the difference-in-differences method, we analyze the impact of the conflict on employment in Japan. The estimation results provide evidence that Japanese firms exporting to China tended to respond to the exogenous trade shock by reducing their number of temporary workers. This finding suggests that trade shocks due to the international conflict hit the most insecure workers.