Author : Ho Kyung Bang(Korea Development Institute)

<Abstract>

Japan's export restrictions on Korea in July 2019 were a leading example of a supply chain shock, showing that a trading partner's policy decisions can constrain access to critical inputs. This paper builds a general equilibrium model in which the risk of supply disruption enters the optimization problems of households and firms. The model implies that a rise in supply chain risk raises the effective trade cost of the affected supplier, lowers that supplier's import share, and reallocates imports toward other suppliers; under a stated condition, this reallocation lowers import concentration. For the empirical analysis we construct an item-supplier-year panel from the SoBuJangNet database and estimate difference-in-differences and triple-difference specifications, using each item's 2018 import dependence on Japan as a proxy for exposure to the shock. Items with higher pre-shock dependence on Japan show a significantly larger decline in import concentration after 2019, together with a significant increase in the share sourced from non-Japanese suppliers. The relative change between Japanese and non-Japanese suppliers moves in the predicted direction as well: in items more dependent on Japan, the change in the Japanese import share is lower than that of non-Japanese suppliers. These results suggest that policies supporting import diversification and lowering supplier switching costs for items with high pre-shock exposure can strengthen supply chain resilience.