Trade Diversion as Firm Adjustment to Trade Policy: Evidence from EU Anti‐dumping Duties on Vietnamese Footwear

Abstract

TRADE DIVERSION IN VIETNAMESE FOOTWARE 1129in discussions about the distortionary effects of AD as a tool of protection. Other authors such as Brenton (2001) and Prusa (2005) have studied the trade diversion effects of AD policy, but these studies typically focus on the diversion of trade towards other non-named suppliers who now gain an advantage in the subject market. Our study, instead, focuses on the diversion of trade by suppliers named in the AD action towards non-named markets.Our results on the diversion of trade towards non-named markets can be compared with those in two papers that apply similar analysis to different data. Bown and Crowley (2007) evaluate the effects of US import restrictions on Japanese exports of almost 5,000 products to 37 countries over the years 1992-2001. They find that the average US anti-dumping duty on Japanese exports leads to a 5 to 7 per cent increase in Japanese exports of the same product to the average non-US market. The significantly smaller effect as compared to our findings for Vietnamese footwear is not surprising for two reasons. First, their result is an average treatment effect over 37 countries. Should affected suppliers divert exports to other countries, they are only likely to do so to a small subset of destination countries and negligibly to most countries in the sample. Our study looks for evidence of trade diversion where diversion is most likely to take place: from the EU to the United States, the two largest markets for Vietnamese footwear exports. Second, the Bown and Crowley (2007) result is an average treatment effect over thousands of products. Japan is a developed, industrialised economy producing a diverse range of products with different demand elasticities. Thus, we would expect the trade distortionary effects to vary widely over the range of products. Our results for Vietnamese footwear, a highly commoditised product, are likely to be an example of a product whose trade is most distorted by protectionist policies.It is also useful to compare our results to those in a second paper by Lu et al. (2013) which exploits monthly export transaction data for Chinese firms. The richness of firm-level characteristics in the data set allowed the authors to find significant heterogeneity in the effects of US anti-dumping action against Chinese exporters over the period 2000-06. US anti-dumping action lowered export volumes to the US market by 32 to 67 per cent, but the effects varied by product and by whether the firm is a direct or indirect exporter, and single or multi-product firm. Lu et al. (2013) do not find that US anti-dumping action cause Chinese exporters to divert their exports to non-US markets. This last result is the average treatment effect over 346 product categories.Our study complements these two other studies in an important way. By studying the effects of one policy action on one specific product category, we can uncover the potentially large distortionary effects of trade protection even where the average effects over many industries and cou...

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