Anti-dumping actions are now the trade policy of choice of developing and transition economies. To understand why these economies have increasingly applied anti-dumping laws, we build a simple theoretical model of vertical intra-industry trade and investigate the strategic incentives of exporting firms to undertake dumping. We show that the definition of dumping matters. Based on a comparison of low-quality and high-quality prices, only unilateral dumping by the low-quality firm obtains. By contrast, the standard WTO definition leads to either reciprocal or unilateral dumping by the high-quality firm, depending on cross-country differences in incomes, the height of tariff protection and on exchange rate changes.

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The World Economy
Erasmus School of Economics

Moraga-Gonzalez, J. L., & Viaene, J.-M. (2005). Dumping in a Global World: Why Product Quality Matters. The World Economy, 28(5), 669–682. doi:10.1111/j.1467-9701.2005.00699.x