DP6724 Heterogeneous Responses of Firms to Trade Protection

Author(s): Jozef Konings , Hylke Vandenbussche

Publication Date: February 2008

Keyword(s): firm heterogeneity , total factor productivity , antidumping protection

JEL(s): 030 , C2 , F13 , L41

Programme Areas: International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP6724.asp.asp

This paper uses EU firm-level panel data to estimate the effect of Antidumping (AD) protection on the productivity of EU domestic firms in import-competing industries. We find that firms with relatively low initial productivity - laggard firms - have productivity gains during AD protection, while firms with high initial productivity - frontier firms - experience productivity losses. While the productivity of the average firm is moderately improved during AD protection, productivity remains below that of firms never involved in AD cases, thus questioning the desirability of protection. Our empirical results are consistent with recent theoretical work supporting the view that trade policy can have a differential effect on firms depending on their initial productivity.