Transcript Anti-Dumping with Heterogeneous Firms: New Protectionism

Anti-Dumping with Heterogeneous Firms:
New Protectionism for the New-New Trade Theory
Christian Gormsen Schmidt,
Aarhus School of Business,
GlobID Research Group
Anti-Dumping with Heterogeneous Firms: New Protectionism for the New-New Trade Theory
Christian Gormsen Schmidt, Aarhus School of Business
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Research Question
• Accelerating use of anti-dumping legislation,
worldwide.
• Theoretical advancement with the introduction of
heterogeneous firms.
• How does anti-dumping affect
– Firm selection (exiters, domestic-only, exporters)
– Entry patterns
Presentation plan:
1. Research question
2. Background:
Anti-dumping
literature
3. The model
4. The anti-dumping
equilibrium
5. Results
6. Conclusion
• New motivations for anti-dumping legislation?
• Method:
Two-country model, (Home, Foreign) one
country (Foreign) has anti-dumping legislation
‘Tough’ use of legislation
Anti-Dumping with Heterogeneous Firms: New Protectionism for the New-New Trade Theory
Christian Gormsen Schmidt, Aarhus School of Business
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My findings (all theoretical)
Firms and industry:
– Domestic Distortion in ‘the other country’, Home
– Firm selection affected
• Dramatically fewer exporters in Home
– Firm Entry in H decreases
Firm Entry in “anti-dumping regime” (F) increases
• Policy
– Anti-dumping similar (but not identical) to unilateral
trade restriction.
– Enforcing anti-dumping attracts variety-producing
firms
– and gives large increase in net exports of varieties
– Long run Welfare gains
– Beggar thy neighbor, but less than unilateral trade
restriction
Anti-Dumping with Heterogeneous Firms: New Protectionism for the New-New Trade Theory
Christian Gormsen Schmidt, Aarhus School of Business
Presentation plan:
1. Research question
2. Background:
Anti-dumping
literature
3. The model
4. The anti-dumping
equilibrium
5. Results
6. Conclusion
3
The anti-dumping literature:
1.
Policy-related empirical studies
Adoption and interpretation of anti-dumping legislation.
Prusa (2005), Vandenbussche and Zanardi (2008),
Blonigen (2006a)
2.
Partial equilibrium models, firm level
1. Firm’s strategic use/response (pricing, collusion)
Prusa (1994), Reitzes (1993), Prusa (1992),
Vandenbussche and Veugelers (1999)
2. Empirical studies of firm’s filing and price responses
Presentation plan:
1. Research question
2. Background:
Anti-dumping
literature
3. The model
4. The anti-dumping
equilibrium
5. Results
6. Conclusion
Blonigen and Haynes (2002), Staiger and Wollak (1994)
3.
Economy-wide effects, estimations
1. CGE modeling, the US
Blonigen Gallaway and Flynn (1999)
2. Gravity equations with anti-dumping var.s as regressors
Vandenbussche and Zanardi (2006)
Anti-Dumping with Heterogeneous Firms: New Protectionism for the New-New Trade Theory
Christian Gormsen Schmidt, Aarhus School of Business
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Firm heterogeneity
• Heterogeneous firms in monopolistic
competition models, Melitz (2003)
Presentation plan:
• My baseline: Melitz and Ottaviano (2008)
– Two-country version, Home (H) and Foreign (F)
(superscript l and h)
– Quadratic preferences, linear demands
2
1
1
U  q0c    qic di     qic  di    qic di
i
i
2 i
2


2
1. Research question
2. Background:
anti-dumping
literature
3. The model
4. The anti-dumping
equilibrium, results
5. Conclusion
– Ll consumers (l = H, F)
– Fixed costs of entry, fE, no fixed cost of producing
nor of exporting
– Marginal cost lottery, draw from G(c) (pareto)
– Trade cost: country-specific iceberg cost t l > 1
– Non-strategic firms
Anti-Dumping with Heterogeneous Firms: New Protectionism for the New-New Trade Theory
Christian Gormsen Schmidt, Aarhus School of Business
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Firm selection, cost cutoffs
p
p
Domestic market l
Firm draws marginal cost c
Export market h
Marginal export cost: t hc, t h > 1
c > cDl, exit
cDl
cD h
c < cDl, produce
c > cXl
domestic only
cXl = cDh/t h
c < cXl
export
D-1
D-1
q
Survival selection
in Melitz and Ottaviano (2008)
Anti-Dumping with Heterogeneous Firms: New Protectionism for the New-New Trade Theory
Christian Gormsen Schmidt, Aarhus School of Business
q
Export selection
in Melitz and Ottaviano (2008)
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The open economy equilibrium
• Domestic and export prices:
1 l
th l
l
l
p D ( c )   c D  c  , p X (c )   c X  c  .
2
2
• Domestic cutoff summarizes ‘competitiveness’ of
industry
• Zero expected profits of entry, determines domestic
cutoffs
Presentation plan:
1. Research question
2. Background:
anti-dumping
literature
3. The model
4. The anti-dumping
equilibrium, results
5. Conclusion
• Domestic cutoff then determines
– Average prices (proportional)
– Number of varieties for consumers, Nl
– Number of entrants, from:
G(cDl ) N El  G(clX ) N Eh  N l
– Welfare: Higher with lower cutoff
Anti-Dumping with Heterogeneous Firms: New Protectionism for the New-New Trade Theory
Christian Gormsen Schmidt, Aarhus School of Business
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The role of trade barriers
• Bilateral trade liberalization:
Bilaterally decreasing t’s increases welfare
• Unilateral trade restriction:
Unilaterally increasing t l increases welfare in l,
reduces welfare in h
– Induces more entry in l
Anti-Dumping with Heterogeneous Firms: New Protectionism for the New-New Trade Theory
Christian Gormsen Schmidt, Aarhus School of Business
Presentation plan:
1. Research question
2. Background:
anti-dumping
literature
3. The model
4. The anti-dumping
equilibrium, results
5. Conclusion
8
The anti-dumping equilibrium
• The model has reciprocal dumping:
th l
1 l
l
p X (c )   c X  c  .
p (c)   cD  c  ,
2
2
– Anti-dumping authorities deduct trade costs:
l
D
pDl (c)  plX (c) / t h
– Sufficient to conclude that dumping occurs
• The analyzed anti-dumping equilibrium:
– Asymmetric, only Foreign has anti-dumping legislation
– All Home exporters decide not to dump
– In equilibrium, no anti-dumping petition filed
Presentation plan:
1. Research question
2. Background:
anti-dumping
literature
3. The model
4. The anti-dumping
equilibrium, results
5. Conclusion
• Interpretations:
– Policy evalution:
This is the goal of anti-dumping legislation
– Outcome in industry with ‘history of intense anti-dumping’
– Asymmetric in order to highlight effects on trading partner
Anti-Dumping with Heterogeneous Firms: New Protectionism for the New-New Trade Theory
Christian Gormsen Schmidt, Aarhus School of Business
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Constrained prices, Domestic distortion
H
H
pXA
 t F pDA
• Home exporter constrained:
Presentation plan:
• Prices:
H
pDA
(c) 


1 H H
b cX  1  b H  cDH  c ,
2
H
p XA
(c ) 
t
b
2
F
H

c XH  1  b H  cDH  c , b H 
LF t F 
2
LF t F   LH
2
1. Research question
2. Background:
anti-dumping
literature
3. The model
4. The anti-dumping
equilibrium, results
5. Conclusion
• “Optimal domestic distortion”, weight b H  [0,1]
• My results are consequences of new pricing rule
– GE effects (when cutoffs determined by free entry condition)
– ‘pre-GE’ effects
• Prices lowered on domestic market,
domestic quantity increased
Anti-Dumping with Heterogeneous Firms: New Protectionism for the New-New Trade Theory
Christian Gormsen Schmidt, Aarhus School of Business
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Export or stop exporting?
• Reduced profits for Home exporter
 (c)   (c),  (c)   (c)
H
DA
H
D
H
XA
H
X
• Deadweight loss decreased in Home,
increased in Foreign
H
H
H
• Costly to export:  DA (c)   XA (c)   D (c)
• Export only profitable if:
H
c  cXA
 cXH  1  b H  cDH  cXH 
• New, lower, export cutoff
Presentation plan:
1. Research question
2. Background:
anti-dumping
literature
3. The model
4. The anti-dumping
equilibrium, results
5. Conclusion
H
cXA
 cXH
• Altered zero expected profit condition,
– Entry in Home less attractive,
– leads to GE consequences
Anti-Dumping with Heterogeneous Firms: New Protectionism for the New-New Trade Theory
Christian Gormsen Schmidt, Aarhus School of Business
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GE Effects in Home (simulation) (p1)
• Firm selection:
– Domestic competition reduced, cDH increases.
– Export propensity in Home dramatically lower
• Due to reduced Entry
– Harder to export  Entry less attractive
• Less varieties
– … and shift towards imported varieties
Presentation plan:
1. Research question
2. Background:
anti-dumping
literature
3. The model
4. The anti-dumping
equilibrium, results
5. Conclusion
• Prices:
– Average price: Net decrease
– Exported goods cheaper, but less competition
– Price variance increases (cheaper exportes)
Anti-Dumping with Heterogeneous Firms: New Protectionism for the New-New Trade Theory
Christian Gormsen Schmidt, Aarhus School of Business
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GE Effects in Home (simulation) (p2)
• Welfare loss
– Less varieties, higher average price
– Softened: Substitution towards varieties from Home
exporters
– Under strong asymmetries: if t H >>t F and LH >> LF
Softening may dominate.
Welfare, Home
Presentation plan:
1. Research question
2. Background:
anti-dumping
literature
3. The model
4. The anti-dumping
equilibrium, results
5. Conclusion
1.5
1.3
1.1
0.5
1
1.5
2
Anti-Dumping with Heterogeneous Firms: New Protectionism for the New-New Trade Theory
Christian Gormsen Schmidt, Aarhus School of Business
LH
F
2.5 L
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GE Effects in Foreign (simulation) (p1)
• Firm selection:
– Domestic competition increases, cDF decreases
– Easier to become exporter, cXF falls with cDH
• Due to increased entry:
– Entry in Foreign relatively more attractive
• More varieties for consumers
– Shift towards domestic varieties
Presentation plan:
1. Research question
2. Background:
anti-dumping
literature
3. The model
4. The anti-dumping
equilibrium, results
5. Conclusion
• Prices
– More expensive imports, but more competition
– Net effect: Decrease in average price
– Net effect: Decrease in price variance
Anti-Dumping with Heterogeneous Firms: New Protectionism for the New-New Trade Theory
Christian Gormsen Schmidt, Aarhus School of Business
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GE Effects in Foreign (simulation) (p2)
• Welfare gain
– More varieties, lower average prices
– Drawback: Consumers cannot buy cheap imported
goods (fall in price variance)
– Again, if t H >>t F and LH >> LF , the negative effect
may dominate.
Welfare, Foreign
1.4
1.3
0.5
1.5
Anti-Dumping with Heterogeneous Firms: New Protectionism for the New-New Trade Theory
Christian Gormsen Schmidt, Aarhus School of Business
2.5
Presentation plan:
1. Research question
2. Background:
anti-dumping
literature
3. The model
4. The anti-dumping
equilibrium, results
5. Conclusion
LH
LF
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Anti-Dumping vs. Unilateral Trade Restriction
• Anti-dumping equilibrium:
Effects similar to unilateral trade restriction
(increase in t F)
• A comparison can be made in simulations
– Anti-dumping corresponds to a large trade restriction
• Anti-dumping has stronger effect on:
–
–
–
–
Presentation plan:
1. Research question
2. Background:
anti-dumping
literature
3. The model
4. The anti-dumping
equilibrium, results
5. Conclusion
Export propensity in Home
Entry in Home, entry in Foreign
Total entry falls more
Variety trade flows distorted more
• Welfare reduced by less in Home
Anti-Dumping with Heterogeneous Firms: New Protectionism for the New-New Trade Theory
Christian Gormsen Schmidt, Aarhus School of Business
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Conclusion
• Firms in Home
–
–
–
–
Severely reduced export oppurturnity, less entry
Non-exporting incumbents gain (profits up with cDH)
“New non-exporters” lose export profits
AD exporters lose profits on both markets
• Firms in Foreign
– More attractive market, more entry
– Gains on export market; new exporters
– Domestic profit per firm reduced
Presentation plan:
1. Research question
2. Background:
anti-dumping
literature
3. The model
4. The anti-dumping
equilibrium, results
5. Conclusion
• Policy insights
–
–
–
–
Attracts variety-producing firms, jobs
Large increase in net exports of varieties
Harsh anti-dumping conduct can lead to welfare gains
Beggar thy neighbor, but less than unilateral trade
restriction
Anti-Dumping with Heterogeneous Firms: New Protectionism for the New-New Trade Theory
Christian Gormsen Schmidt, Aarhus School of Business
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