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The Influence of Foreign Direct Investment, Intrafirm Trading, and Currency Undervaluation on US Firm Trade Disputes

Listed author(s):
  • J. Bradford Jensen

    ()

    (Peterson Institute for International Economics)

  • Dennis P. Quinn

    (McDonough School of Business, Georgetown University)

  • Stephen Weymouth

    (McDonough School of Business, Georgetown University)

The authors investigate a puzzling decline in US firm antidumping (AD) filings in an era of persistent foreign currency undervaluations and increasing import competition. Firms exhibit heterogeneity both within and across industries regarding foreign direct investment (FDI). Firms making vertical, or resource-seeking, investments abroad are less likely to file AD petitions and firms are likely to undertake vertical FDI in the context of currency undervaluation. Hence, the increasing vertical FDI of US firms makes trade disputes far less likely. Data on US manufacturing firms reveals that AD filers generally conduct no intrafirm trade with filed-against countries. Persistent currency undervaluation is associated over time with increased vertical FDI and intrafirm trade by US multinational corporations (MNCs) in the undervaluing country. Among larger US MNCs, the likelihood of an AD filing is negatively associated with increases in intrafirm trade. The authors confirm that undervaluation is associated with more AD filings. However, high levels of intrafirm imports from countries with undervalued currencies significantly decrease the likelihood of AD filings. The study also highlights the centrality of firm heterogeneity in international trade and investment in understanding political mobilization over international economic policy.

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Paper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP15-15.

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Date of creation: Sep 2015
Handle: RePEc:iie:wpaper:wp15-15
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