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Tariff-Jumping FDI and Domestic Firms’ Profits

In: Foreign Direct Investment

Author

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  • Bruce A. Blonigen
  • KaSaundra Tomlin
  • Wesley W. Wilson

Abstract

Studies of trade policy welfare effects often ignore the potential for tariff-jumping foreign direct investment (FDI) to mitigate positive gains to domestic producers. Using event study methodology we find that affirmative U.S. antidumping decisions are associated with average abnormal gains of over 3% to a firm in the petitioning industry in the absence of tariff-jumping FDI, but much smaller and statistically insignificant abnormal gains if there is tariff-jumping FDI. We also find evidence that tariff jumping in the form of new plants or plant expansion has significantly larger negative effects on U.S. domestic firms’ profits than other types of tariff-jumping FDI.Investissements directs de l’étranger pour éviter les barrières tarifaires et profits des entreprises nationales. Les études des effets de bien-être des politiques commerciales ignorent souvent la possibilité; que l’investissement direct de l’étranger (IDE), en permettant d’éviter les barrières tarifaires en vigueur, en arrive à atténuer les gains de la politique commerciale protectionniste pour les producteurs nationaux. En utilisant une méthodologie axée sur l’étude d’événements, on découvre que les décisions d’imposer des mesures anti-dumping aux Etats-Unis sont associées à des gains moyens anormaux de plus de 3% pour l’industrie qui en fait la demande, en l’absence d’investissement direct de l’étranger fait pour éviter les barrieres tarifaires. Ces gains sont beaucoup plus petits et statistiquement insignifiants quand cette manoeuvre d’évitement est adoptée. Il appert que cette stratégie pour éviter les barriéres tarifaires a des effets négatifs plus importants, et ce de manière significative, sur les profits des entreprises américaines quand elle prend la forme de nouvelles installations ou d’agrandissements d’installations existantes que quand elle prend d’autres formes.

Suggested Citation

  • Bruce A. Blonigen & KaSaundra Tomlin & Wesley W. Wilson, 2019. "Tariff-Jumping FDI and Domestic Firms’ Profits," World Scientific Book Chapters,in: Foreign Direct Investment, chapter 14, pages 473-500 World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9789813277014_0014
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    Cited by:

    1. Farshid Pourshahabi & Ehsan Salimi Soderjani & Davood Mahmoudinia, 2013. "Panel Causality Relationship among FDI and Trade (Evidence from 16 Advanced Europe Countries)," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 18(1), pages 115-133, winter.
    2. Matthew T. Cole & Ronald B. Davies, 2009. "Optimal tariffs, tariff jumping, and heterogeneous firms," Working Papers 200919, School of Economics, University College Dublin.
    3. Davies, Ronald B. & Studnicka, Zuzanna, 2018. "The heterogeneous impact of Brexit: Early indications from the FTSE," European Economic Review, Elsevier, vol. 110(C), pages 1-17.
    4. Chiara Franco & Francesco Rentocchini & Giuseppe Vittucci Marzetti, 2008. "Why do firms invest abroad? An analysis of the motives underlying Foreign Direct Investments," Department of Economics Working Papers 0817, Department of Economics, University of Trento, Italia.
    5. Breinlich, Holger, 2014. "Heterogeneous firm-level responses to trade liberalization: A test using stock price reactions," Journal of International Economics, Elsevier, vol. 93(2), pages 270-285.
    6. Jozef Konings & Hylke Vandenbussche, 2004. "Antidumping Protection and Markups of Domestic Firms: Evidence from Firm Level Data," LICOS Discussion Papers 14104, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    7. Gurun, Ayfer, 2013. "Business strategy and financial consequences: The case of antidumping filings," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 24(C), pages 127-138.
    8. Curran, Louise & Lv, Ping & Spigarelli, Francesca, 2017. "Chinese investment in the EU renewable energy sector: Motives, synergies and policy implications," Energy Policy, Elsevier, vol. 101(C), pages 670-682.
    9. Fung, K.C. & Korhonen, Iikka & Li, Ke & Ng, Francis, 2008. "China and Central and Eastern European countries : regional networks, global supply chain or international competitors?," BOFIT Discussion Papers 9/2008, Bank of Finland, Institute for Economies in Transition.
    10. Rajesh Chakrabarti & Krishnamurthy Subramanian & Sesha Meka & Kuntluru Sudershan, 2013. "Infrastructure and FDI: Evidence from district-level data in India," Working papers 130, Indian Institute of Management Kozhikode.
    11. Ma, Alyson C. & Van Assche, Ari, 2014. "Vertical Specialization, Tariff Shirking, and Trade," ADB Economics Working Paper Series 390, Asian Development Bank.
    12. Anwar, Sajid & Nguyen, Lan Phi, 2011. "Foreign direct investment and trade: The case of Vietnam," Research in International Business and Finance, Elsevier, vol. 25(1), pages 39-52, January.
    13. Jota Ishikawa & Kaz Miyagiwa, 2006. "Price Undertakings, VERs, and Foreign Direct Investment," Emory Economics 0616, Department of Economics, Emory University (Atlanta).
    14. Henk Kox & Arjan Lejour & Raymond Montizaan, 2004. "The free movement of services within the EU," CPB Document 69, CPB Netherlands Bureau for Economic Policy Analysis.

    More about this item

    Keywords

    Foreign Direct Investment; Multinational Enterprises; Mergers and Acquisitions; Greenfield; Trade Policy; Taxation; Spillovers; Offshoring; Wage Inequality; Firm-Specific Assets; Antidumping; Tariff-jumping; Industrial Organization; Ownership-Location-Internalization Theory;

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F6 - International Economics - - Economic Impacts of Globalization

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