Trade liberalization and the adoption of antidumping laws in developing countries

Abstract

I propose a theoretical model to explain the heterogeneity observed in the adoption of antidumping laws by small developing countries in an environment of multilateral tariff reduction. The analysis is based on a three-stage game of trade policy determination with imperfect competition in differentiated products where the potential lobby for protection is reflected in the government’s objective function and where tariffs may be bound due to multilateral trade agreements. This framework implies that the implementation of this administrative protection device is the government’s best response when multilateral bound tariffs reach a sufficiently low threshold. The heterogeneity in the adoption decision is explained by the relative size of the domestic market, the degree of product differentiation and political economy motives. Relatively large economies, highly competitive domestic markets, and countries with high domestic lobbying pressure for protection enact antidumping legislation sooner.