Anti-Dumping Duty and Firm Heterogeneity: Evidence from Korea

Abstract

In general, AD policy is known to protect domestic producers from dumped products. In terms of “protection,” government implements AD policy by expecting domestic firms to gain competitiveness through increased productivity. Using Korean firm data, this paper analyzed the effects of AD protection on changed firm-level productivity before and after the imposition of AD duties.In contrast to results from recent AD research, we show a negative effect of AD protection on estimated productivity of protected firms during the AD protection period. Estimating the productivity of protected firms by comparison of various types of firms confirms the robustness of our results that AD protected firms experience productivity losses during the imposition of AD duties.Investigating the channels behind our results, we consider two factors; internal firm structure and external market conditions. We first examine the changes of company account variables that influence firm productivity during AD protection period. Using DID specifications, we find that AD protection do not have significant effects on average protected firms’ wages and investments in capital and R&D, implying that firms have no significant movements towards production shift during the protection period. On the other hand, examining the effects of domestic competition in protected industries on firm productivity, we find that firms have different productivity changes depending on the level of concentration intensity among import-competing industries. In particular, concentration reduces firm productivity in highly-concentrated industry clusters, while concentration has an ambiguous effect on firm productivity in moderately-concentrated industry clusters. These results provide evidence that the imposition of AD duties has heterogeneous effects on firm productivity depending on the market structures. All of our analysis implies that the effects of AD policy may lead to different consequences depending on the country characteristics. In particular, we show that if a country is not yet industrialized, such that its economy is affected by small number of large firms, AD policy will not likely be effective in gaining competitiveness among protected domestic firms.