This study examines the effects of identified industry tariff shocks on firms’ outward foreign direct investment (FDI) into their destinations. Using rich Korean firm-level data for 2010–2018, the study decom poses multinational enterprises’ (MNEs’) FDI flows to examine the number of subsidiaries (extens ive margin) and average FDI for individual subsidiaries (intensive margin) in the destination. New evidenc e of tariff-driven FDI indicates that the tariff reduction shock (significant tariff decreases) lowers the nu mber of existing subsidiaries, but does not significantly influence the average FDI volume for existing subsidiaries. In addition, more productive firms investing in developing countries lower the number of existing subsidiaries more in response to tariff decrease shocks, implying that productive MNEs reallocate resources into selective core subsidiaries when a significant tariff decrease occurs.
