Trade Diversion as Firm Adjustment to Trade Policy: Evidence from EU Antidumping Duties on Vietnamese Footwear

Abstract

This paper evaluates the impact of the 2006 European Union antidumping action on Vietnamese footwear in three markets: imports to the EU, footwear producers in Vietnam, and the trade diversionary adjustment of Vietnamese firms in the U.S. market. We find that the AD action reduced Vietnamese footwear imports to the EU by as much as 65%. Given that the EU makes up almost two-thirds of Vietnam's footwear exports and footwear is among the top four export industries for Vietnam, this reduction is economically significant. Consistent with predictions of our model, we also find evidence of trade diversion by Vietnamese producers from the EU to the U.S. market. Our difference-in-difference estimates of the AD actions on the value of Vietnamese footwear imports to the U.S. ranged from 69-71% over the period 2004-2007 and 69-72% in terms of quantity. These results highlight the (perhaps unintended) indirect effects of trade policy in third markets that can result from firms adjusting to trade barriers. Our results are robust to triple difference specifications where we adjust for trend-differences and a series of placebo specifications.