Dumping in a Global World

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 depending on differences in incomes and on the height of tariff protection and of the exchange rate depreciations.