Abstract
Motivated by a monopolistic competition model with market segmentation and international price discrimination, this paper analyzes whether there is an inverse relation between the elasticity of substitution and final ad valorem anti-dumping duties across products. We test this for 19 countries using data on anti-dumping from the Global Antidumping Database and US data at the 6-digit HS product level for the elasticity of substitution from Broda and Weinstein (Q J Econ 121(2):541–585, 2006). The results in our empirical investigation support a negative relation between the elasticity of substitution and the final ad valorem anti-dumping duties.
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Notes
The inverse relation between the intrinsic elasticity of substitution and the dumping margin also applies for an additive specification of the relation between the elasticity of substitution and the parameter for intensity of competition. If, instead of (1), we alternatively assume that σ = (\( \bar{\sigma } + \theta ) \) and σ* = (\( \bar{\sigma } + \theta^{*} \)), we have: \( DM \) = \( \frac{{(\theta - \theta^{*} )}}{{ ( \bar{\sigma } + \theta )(\bar{\sigma } + \theta^{*} - 1)}} \), where DM for given values of \( \theta \; {\text{and }}\theta^{*} \)varies negatively with \( \bar{\sigma } \).
The analysis in this paper is based on version Q3 2010 of the database.
Our results show that the elasticity of substitution does not influence the probability of success of petitioning, which may indicate that its impact on the decision to file a petition is also limited. However, we are not able to test this conjecture.
We checked whether the choice of the anti-dumping measure is a function of the elasticity of substitution with the help of a dummy variable which is equal to unity if a case ended in the imposition of an ad valorem duty and equal to zero if a case resulted in the imposition of another measure. In particular, we regressed this dummy on the elasticity of substitution controlling for year and product dummies. The results show that for some countries there indeed is a relationship between the choice of the duty and the elasticity. This is mainly the case for countries which hardly impose ad valorem duties (Argentina and Colombia). We verified the robustness of the results presented in Sect. 5 by dropping these countries from the estimation sample.
Please note that this variable has some extreme outliers, which is why we trim the variable at the 99th percentile; this amounts to dropping cases that resulted in the imposition of duties above 287 %. Estimation results are robust to including these cases in the analysis. The average is calculated as maximum duty plus minimum duty divided by two. Note that as robustness checks we also used the maximum or minimum of duties instead of the mean, but the results are qualitatively similar.
To be precise, we consider total product-level exports of each country, i.e. exports by product aggregated over all destination countries.
Note that until 2000, the EFW database reports all indicators in five-year intervals. We therefore linearly interpolate the variable of interest in the years before 2000.
We also tested whether the elasticity of substitution is a determinant for the success of anti-dumping investigations in the sense that the investigation is followed by sanctions. However, no significant effects were found. Results are presented in “Appendix B".
The injury margin is a complex concept with price undercutting as an important dimension, i.e. the difference between the price the domestic firm charges and the lower price charged by the foreign producer.
We also tested a specification with an interaction term between sigma and the LDR dummy. This term was, however, insignificant.
We also run the models dropping Pakistan from the sample. The results are qualitatively similar.
Note that when dropping Pakistan from the sample, both coefficients are actually weakly significant at the 10 % level with the expected signs.
As mentioned above, a caveat of the elasticity from Broda and Weinstein is that it is specific to the United States which is a large and highly developed economy, which does not hold for all of the importing countries in our sample. We therefore run a series of robustness checks. Specifically, we based the analysis on developed economies only (EU, USA, CAN, ISR, KOR), on large economies only (EU, USA, CHN, BRA, CAN), and we ran models including only the United States as importing country and excluding the United States as importing country. The results regarding the variable of interest (sigma) are robust to these checks.
Note that the Rauch measure is available based on a ‘conservative’ and a’liberal’ definition. The alternative definitions exist due to ambiguities related to classifying products into the three categories. The conservative definition minimizes the number of products that are classified as either organized exchange or reference priced, and the liberal definition maximizes those numbers (Rauch 1999). In this paper, we present results based on the ‘conservative’ definition; results based on the ‘liberal’ definition are qualitatively similar and available from the authors.
In Table 9 of “Appendix B” we, furthermore, present results based on Tobit and Poisson models, where we do not log-transform the dependent variables and therefore consider zero (‘unsuccessful’) anti-dumping cases. The results also support our main conclusion from the text.
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Acknowledgments
We are grateful for valuable comments from two anonymous referees and from discussions with Daniel Bernhofen, University of Nottingham; Christian Søgaard, University of Warwick; Edwin Vermulst, Vermulst Verhaeghe Graafsma and Bronkers; and Hylke Vandenbussche, Université Catholique de Louvain. We also thank participants at the Kiel-Aarhus Economics Workshop, December 2011; the CIE 2012 Conference on International Economics in Granada, June 2012; the 61st French Economic Association Annual Meeting, Paris, July 2012; the 14th Annual Conference of the European Trade Study Group, Leuven, September 2012; and the Nordic-Chinese Academic Conference on European Integration, Shanghai, November 2012. All remaining errors are our own.
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Appendix
Appendix
In this appendix we present information on the construction of some dummy variables and present additional estimation results.
1.1 Appendix A: Dummies
There is neither an official list of the ‘LDR’ countries nor any information on why the LDR (non-LDR) countries did choose the LDR (non-LDR) system. While the EU uses the LDR consistently and the United States the opposite, for some of the other users of anti-dumping policy the picture is less clear, so the LDR (non-LDR) is only used in some cases. The information in Table 5 on the users (non-users) of the ‘LDR’ is therefore based on the practice in 14 of the countries as given in various sources.
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According to article VI(1) of (GATT 1994a), WTO members are given the possibility to treat non-market economy countries differently to market economies in anti-dumping cases. Typically, anti-dumping authorities have taken advantage of this GATT provision to reject information on prices and costs in countries they consider as being non-market economies. Instead they used costs and price information from third countries with market economies. To take this different treatment of non-market economies into consideration in our empirical investigation, the countries in Table 6 are treated as non-market economy countries for the whole estimation period. The main problem in constructing NME dummies is that WTO members do not use the same selection of NMEs at a given point in time (see e.g. McCarty and Kalapesi 2003). Since the United States and the EU have the largest numbers of observations in our sample, we have selected our NME dummies as defined by the EU and the United States in their anti-dumping legislation for the majority of the years in our estimation period. Finally, please see Table 7 for the list of product dummies that we include in our regressions.
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1.2 Appendix B: Additional estimation results
In Table 8 we present results based on the mean elasticity of substitution instead of the median elasticity. The mean and median elasticities refer to the aggregation of 10-digit elasticities to the 6-digit level as well as the aggregation of elasticities belonging to the different HS product codes involved in one anti-dumping case. We decided to use the median of the elasticities instead of the mean in the main analysis because the former is less affected by outliers. As Table 8 shows, this choice is not responsible for the findings in the paper; instead the results are virtually similar to those presented in the main text, while the coefficients of sigma are a bit larger compared to Table 2 and always highly significant.
In Table 9 we present results using Tobit and Poisson models (for KOF openness measure) in order to account for unsuccessful anti-dumping cases; i.e. cases that were denied by the authorities and thus results with the imposition of a duty equal to zero.
As mentioned in the paper, we use the variable F_AD_DUTY to get information about the level of duties imposed. This variable reports missing values (‘.’) if a case was denied by the authorities. Missing values reported by this variable may, however, also imply other results of the anti-dumping investigation than denial; e.g. the petitioning firms may have withdrawn a case. We therefore use the variables F_DUMP_DEC and F_INJ_DEC from the Global Anti-Dumping Database in order to identify whether a case was successful (i.e. resulted in the imposition of a duty) or denied. Specifically, we consider a case to be denied if at least one of the two variables reports an N (implying negative) or a T (meaning terminated prior to ruling by government agency). In such cases, we replace our dependent variable with a zero. We then estimate the model without log-transforming the dependent variable which thus has a cluster of observations at zero, which is why we apply the Tobit model. Moreover, we estimate similar specifications using a Poisson model which is based on somewhat milder distributional assumptions and may be less vulnerable to the inclusion of many dummy variables.
The results for the Tobit and Poisson models are qualitatively very similar to the OLS results presented in the paper. Sigma always has the expected negative sign and is highly significant. The same is true for the LDR dummy. The openness measure of the home country has the expected positive sign, while the measure for the foreign country is mostly insignificant with the expected negative sign [except for column (4)]. Distance is always positive and significant, as is the NME dummy. Moreover, the legal variable usually has the expected negative sign.
Finally, in Table 10, we present estimation results from logit regressions for the success of anti-dumping investigations. As pointed out in the paper, our dependent variable gives the level of ad valorem duties. Hence, we are disregarding other types of duties such as price undertaking. We therefore estimate the logit models for two kinds of definitions of success. First, we consider as success only cases that ended with the imposition of an AVD. Second, we consider as success all cases that ended with the imposition of any kind of duty. We again rely on the variables F_DUMP_DEC and F_INJ_DEC to identify all successful cases; specifically, we consider them as a success if at least one of the two variables reports an A (affirmative) or a P (partial—some products were found affirmative/others negative). The definition of unsuccessful cases is similar to that of the Tobit/Poisson models. Moreover, we again focus on results with the KOF openness measure to control for the competitive environment in the countries.
As indicated in footnote 8 in the paper, the results from the logit models do not suggest that the elasticity of substitution is a determinant for the success of anti-dumping petitioning (sigma is always insignificant). The results rather suggest that the elasticity is relevant for the determination of levels only. Please note that the number of observations varies in this table because of observations being dropped due to dummies perfectly explaining the outcome.
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Hansen, J.D., Meinen, P. & Nielsen, J.UM. Elasticity of substitution and anti-dumping decisions. Rev World Econ 150, 787–816 (2014). https://doi.org/10.1007/s10290-014-0198-1
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DOI: https://doi.org/10.1007/s10290-014-0198-1