The Impacts of Bilateral Value Chains between Japan and Korea on Value-added Creation of Manufacturing Firms

This study investigates the bilateral value chain participation between Japan and Korea and the impacts on their firms’ value-added creation. We found a firm-level evidence that there exist mutual gains of Japanese and Korean firms when both firms belong to an industry that highly participates in a backward bilateral value chain of Korean with Japan, or equivalently say, a forward bilateral value chain of Japan with Korea. This evidence qualitatively remains the same in main manufacturing industries except for automobile and trailer industry. Our result may imply that a trade dispute between Japan and Korea hurts firms in both countries and a mutually beneficial trade relationship should be restored.