NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Dumping and Double Crossing: The (In)Effectiveness of Cost-Based Trade Policy Under Incomplete Information

Dobrin R. Kolev, Thomas J. Prusa

NBER Working Paper No. 6986
Issued in February 1999
NBER Program(s):   ITI

We argue that the rise of antidumping protection and the proliferation of voluntary export restraints are fundamentally inter-related. We show that both can be explained by a cost-based definition of dumping when the domestic government has incomplete information about the foreign firm's costs. Given that its costs are only imperfectly observed and knowing the government's desire to offer greater protection against competitively priced imports, efficient foreign firms will voluntarily restrain their exports prior to the antidumping investigation. In turn, the VER distorts the government's perception of the foreign firm's efficiency and often leads to undesirably high duties regardless of the foreign firm's efficiency. The clumsy way that duties are levied benefits domestic firms, which explains the popularity of cost-based complaints.

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Document Object Identifier (DOI): 10.3386/w6986

Published: Kolev, Dobrin R. and Thomas J. Prusa. "Dumping And Double Crossing: The (In)Effectiveness Of Cost-Based Trade Policy," International Economic Review, 2002, v43(3,Aug), 895-918.

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