History and Country-of-Origin Effects

Abstract

We study how the history of foreign invasion affects consumers' country-of-origin (COO) choices in the context of the Chinese automotive market. Our research design exploits two natural experiments: (i) the Imperial Japanese Army's Continental Cross-Through Operation in 1944 in China, which created local variations in war losses and casualties, and (ii) the China-Japan conflict over the sovereignty disputes in 2012 that renewed the salience of the history of the Japanese invasion. Using a discrete-choice model, we find that, after the 2012 conflict, the history of invasion has a negative effect on the brand preference of Japanese cars and a positive effect on Chinese cars. The effects translate to a 6.8% decline and a 5.3% increase in the sales of Japanese and Chinese cars in invaded counties compared to neighboring non-invaded counties, despite similar pre-trends. Both effects persisted for more than 24 months. The heterogeneous effects show rich managerial implications: the history effects are stronger for higher-priced and larger cars, as well as more recognizably Japanese or Chinese cars. Creating local independent brands helps foreign brands to take advantage of the history effect. We also explore the mechanism and find supporting evidence for memory transmission as well as the role of local protests as a mediator of the history effect.

Keywords: Country of Origin, Brand, History, Political Economy, China

JEL Classification: D73, P16, H70, L62