Anti-Dumping, Competitiveness and Welfare: A Study with Special Reference to India

While the traditional trade barriers have been declining substantially all over the world, the usage of unconventional trade practices are thriving. Anti-dumping (AD) initiative has appeared as a major one. The paper shows that while the foreign firm has a greater incentive of importing than Foreign Direct Investment (FDI) with tariff reductions, the domestic welfare improves in the opposite case. Though such incentive tends to decline a bit when the domestic economy faces unions, especially a centralized one, greater welfare under FDI encourages the domestic economy in taking anti-dumping initiatives by raising strategic trade cost deliberately. However, if the cost of establishing FDI tends to rise along with such strategic trade cost, FDI possibility would drop. So, if ADjumping FDI does not take place in response to trade cost reduction, the welfare could decline due to a fall of foreign competition in the domestic economy. Empirically, it is observed that India has been the highest initiator of anti-dumping in the world during 1995-2010. We find that the mark-up of AD intensive industries has been significantly high. This suggests that AD jumping FDI has not been sufficient enough to compensate the required gain from foreign competition that would have occurred with imports in the absence of AD initiatives.