Three Essays on Antidumping Duties and Risk Factors Affecting International Seafood Trade

Abstract

This dissertation includes three essays to address influences of the antidumping policy, price risk, and exchange risk in the US seafood import market. In the first chapter, I attempt to evaluate the effect of trade diversion on the effectiveness of antidumping duties. Antidumping duties can have the unintended consequence of increasing imports from countries not named in the dispute. Previous research suggests “trade diversion” significantly undermines the effectiveness of antidumping duties. However, domestic consumers could reduce their losses, as they can substitute out of the dutied good and into both the domestic good and the non-dutied good, which is, as might be expected, less expensive than the domestic good. Testing these propositions using the 2003 antidumping duty imposed by the United States on catfish imports from Vietnam, I find that the trade-diversion effect was significant in the sense that the quasi-rents of US producers enjoyed from the antidumping duty were reduced. The impact on consumer welfare was modest due to the great loss generated from the higher price of the dutied-good. An implication for public policy of the empirical results is that, in terms of the national welfare gain, it is optimal to lower the tariff rate when the amount of trade diversion is large. The second chapter examines the impact of the export price risk and exchange-risk on the import demand. An extended Rotterdam model reveals that risk factors take effect on marginal utility via “adjusting” prices. This coincides with viewpoints in trade literature that risk-averse importers attach a risk premium as an extra mark-up to cover the cost of exchange risk (Balg and Metcalf, Bergin) and/or price risk (Wolak and Kolstad). The derived model further demonstrates that the trade effects of risk factors depend on own-price elasticities and substitutability between products within the same group. The modified specification makes testing restrictions on the effects of the risk variables plausible, resulting in a reduction in the parameter space. By further decomposing import price risk into export price risk and exchange-rate risk, the empirical model is applied to the US salmon import market. The results support the hypothesis that importers are sensitive to price and exchange-rate risks but reject the proposition that those two risk factors exert an identical effect on import demand. The third chapter focuses on the difference between the dynamic and static specification for an import demand system inclusive of the price risk factor. I build risk factors into an Almost Ideal Demand System (AIDS) where the price risk may play a role by influencing baseline imports or import responsiveness to price. The risk-augmented AIDS model tests causality between price risk and trade. A multivariate GARCH approach estimates the conditional variances of prices. Nonstationarities in the data and endogeneity of price and price volatility are taken into account with Johansen’s approach and a Vector Error Correction Model (VECM). The empirical results uncover a substantial role of risk factors in the US codfish import market. China’s import share (CIF) increased 18% from 2004 to 2005, while Canada lost 9%. Holding other factors constant, high fluctuation of Canada’s price would reduce its share by 69%, and raise China’s share almost two times. China’s relatively stable price further diminishes Canada’s share by 4% and increases China’s share by 9%.