Sectoral FTA gains, conflicts, and the role of interindustry factor mobility: Evidence from Korea's free trade agreement

Free trade agreements (FTAs) can ignite domestic conflicts between export- and import-competing industries over trade gains. However, if the factors of production, such as capital and labour, move freely across industries, the returns to factor owners will quickly converge. Then, sectoral conflicts over FTAs will be less likely to arise. We analyse the case of South Korea's FTAs to measure (a) sectoral FTA gains and (b) interindustry factor mobility and to examine (c) the role of interindustry factor mobility in mitigating sectoral conflicts over trade policies. South Korea is an ideal case study due to the low barriers to domestic geographic mobility and high trade dependence. Based on data on its trade with 252 countries and factor returns between 2002 and 2017, we find that export industries did not gain much from the FTAs, while the import-competing agricultural sector was the winner. Sectoral conflicts greatly decreased over 2008-2010. Interindustry capital mobility plays a significant role in weakening the sectoral conflicts, while the impact of interindustry labour mobility is limited.