Examining the Impact of the 2011 Japanese Earthquake on Japanese Production Networks in the Republic of Korea: A Firm-level Data Analysis

This paper examines the impact of the 2011 Japanese earthquake on the sales and purchases of firms that have an intra-firm network with Japan. Using unique firm-level data of the Republic of Korea (henceforth, Korea) and applying a difference-in-differences model, we find two results. First, following the 2011 Japanese earthquake, Japanese subsidiaries in Korea switched their intra-firm sales patterns with a reduction in intra-firm export and an increase in intra-firm domestic sales, compared to non-Japan foreign subsidiaries in Korea. Second, however, the sales or purchases of Korean mother firms with subsidiaries in Japan were negatively affected, compared to either non-foreign direct investment (FDI) firms or FDI firms without subsidiaries in Japan. The results imply that the Japanese subsidiaries in Korea had a relatively resilient and flexible intra-firm network, whilst the Korean firms with subsidiaries in Japan did not.