Import Tariff Reductions and Adjustment of Plant's Product Portfolio in the Domestic and Export Market in Korea

Abstract

Using a plant‐product‐matched dataset for Korean manufacturing, this paper examines the effect of import tariff reductions on plants' product portfolios in domestic and export markets. We find that the responses of innovators are quite different from those of non‐innovators, particularly in the domestic market. When import tariffs are reduced, innovators reduce their product scope but increase their average scale of production in the domestic market. By contrast, non‐innovators do not change their domestic product scope significantly, but they experience a decrease in the average scale of production, leading to a significant reduction in domestic shipments. We do not find significantly different responses between innovators and non‐innovators in the export market.