Does Home (Output) Import Tariff Reduction Increase Home Exports? Evidence from Korean Manufacturing Plant–Product Data

This study examines the effects of domestic output import tariff reduction on domestic plant export dynamics and clarifies the underlying mechanism, using rich plant–product data from the Republic of Korea for 1991–2002. We find that home import liberalisation increases domestic plants’ export market participation (extensive margins), particularly for industry where markup growth is more negative during tariff reductions. However, we do not find evidence that cutting import tariffs significantly affects incumbent home exporters’ export volume (intensive margins). This study unveils a new mechanism – ‘escape competition’ to foreign markets – by showing that reducing import tariffs leads domestic firms under heightened industry competition to look for an opportunity in foreign markets via export inauguration.

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Does Home (Output) Import Tariff Reduction Increase Home Exports? Evidence from Korean Manufacturing Plant–Product Data