Are some firms better off without anti-dumping “protection”?

Hylke Vandenbussche, Jozef Konings, Wed, 03/05/2008

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The European Commission’s proposed anti-dumping reform (AD) has been dumped. This research suggests that is not always in the best interests of the industry that anti-dumping supposedly protects. The authors of CEPR DP6724 find that the firms which file for protection on average have a much lower initial productivity than unprotected firms outside AD and, although they realize gains under the reform, these are not sufficient to close the productivity gap.

The paper empirically measures the effect of temporary anti-dumping protection on firm-level productivity of domestic import-competing firms. The authors identify around 4,800 European producers affected by AD cases. The findings show productivity of the average firm to be moderately improving during the AD protection – for the short-run by around 3% and long-term effects ranging between 6% and 8%. However, it still remains below that of firms never involved in AD cases, thus questioning the desirability of protection.

The effect of protection on firm level productivity is found to be subject to firm heterogeneity. Firms with relatively low initial productivity – laggard firms – have productivity gains during the reform, but firms with high initial productivity – frontier firms – experience productivity losses. The falling productivity of the latter firms is an additional cost of protection emerging from this paper that adds to the loss in domestic consumer surplus and the sub-optimal levels of exit. The results are consistent with other recent theoretical work supporting the view that trade policy can have different effects on firms depending on their initial productivity, market size, product competition, temporary tariff protection and the adoption speed of new technology.

DP6724 Heterogeneous Responses of Firms to Trade Protection

Summarised by CEPR staff

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URL:  http://www.cepr.org/pubs/new-dps/dplist.asp?dpno=6724.asp

Topics:  International trade

Tags:  total factor productivity, firm heterogeneity, antidumping protection

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