K.U.Leuven, Faculty of Economics and Applied Economics : Department of Economics
CES - Discussion paper series DPS 02.12 pages:1-36
This paper empirically tests the effects of Anti-Dumping (AD) protection on the price-cost margin of firms. To this end, we use a rich panel data set of 1,666 EU producers that were involved in AD cases initiated in 1996. Our findings indicate that price-cost margins in most cases significantly increase in the period of protection compared to a period before protection. In industries where competition is very tough before protection, we fail to find an increase in price-cost margins, while in industries with positive markups before protection, trade policy raises market power between 3% points and 15 % points, depending on the sector. Our results are robust to alternative specifications and estimation techniques, controlling for unobservable fixed effects and potential endogeneity of the regressors. Our findings are also consistent with recent theoretical models that deal with the economic effects on price behaviour in response to AD protection.