Dumping in a product differentiated reciprocal trade industry emitting global pollution

ABSTRACT

By modeling an international industry where developed and developing countries’ firms reciprocally trade differentiated goods under global pollution and the incomplete internalization of the pollution externality, we examine the firms’ dumping and anti-dumping duty (ADD). We assume that the product quality, pollution emissions, and consumer's pollution internalization are worse in the developing country. We find, among others, that the developing country's firm always conducts dumping, but the developed country's firm only does so under a certain condition and that if the two countries’ internalization degrees of the pollution externality are the same, the firms’ dumping disappears, regardless of product qualities and units of pollution emissions. We also show that a rise in the developed (developing) country's ADD decreases (increases) global pollution and that a rise in a country's ADD always decreases its rival country's welfare, but there is the possibility that it also reduces its own welfare in a certain case.

KEYWORDS:

• Dumping
• anti-dumping duty
• global pollution
• internalization of pollution externality
• product and emission differentiation

JEL CLASSIFICATION CODE:

• F18
• F00
• L13
• O24

Acknowledgments

We would like to thank Hayne Leland, Bakar Normizan, Yumiko Taba, and two anonymous reviewers for their valuable comments and suggestions.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. For studies analyzing reciprocal trade international industries, see Brander (1981), Brander and Krugman (1983), Helpman and Krugman (1985), Pinto (1986), and Dei (1990).

2. Moreover, for studies on ecological dumping, see Motta and Thisse (1994), Pflüger (2001), Ulph and Valentini (2001), Greaker (2003), and Antoniou, Hatzipanayotou, and Koundouri (2014), for example.

3. For example, the environmental Kuznets curve indicates that the unit of pollution emission of the developed country is smaller than that of the developing country (see Stern 1998; Galeotti and Lanza 2000). Moreover, while Winthrop (2015) shows that there is a big difference between the developed and developing countries’ education levels, Godoy and Contreras (2001) suggest that education raises the degree of internalization of pollution externality. Thus, taken together, these studies support our contention that the internalization degree of pollution externality is larger in the developed country than in the developing country.

4. A consumer's utility function is more generally defined as U* = U*(X, T*, θ(X + T), θ*(X* + T*), Z*). Thus, that in the present paper is regarded as a simple version of the general definition. If the environmental pollution is local, the consumers in each country are not affected directly by the pollution emitted by the other country's firm. Ishii (2014) and Taba and Ishii (2016) extended the original utility function proposed by Vives (2001), and Ottaviano, Tabuch, and Tisse (2002), to appreciate product differentiation of goods explicitly, instead of their pollution emissions.

5. For studies on the internalization of pollution externalities, see Buchanan and Faith (1981), Lin (1991), Crés, Ghiglino, and Tvede (1997), Pashigian and Gould (1998), and Godoy and Contreras (2001), although their objectives are different from ours.

6. The partial differentiations of π and π* are abbreviated as and so on. Then, since we have π_XX < 0, π_XT = π_TX = 0, π_X*T = π_TX* < 0, π_TT < 0, π*_X*X* < 0, π*_X*T* = π*_T*X* = 0, π*_XT* = π*_T*X < 0, and U = e(X + T*) − {m(X² + T*²)/2} − nXT* − q{θ(X + T) + θ*(X* + T*)} + Z, n < m, in our model, it is shown that the firms’ second-order conditions are satisfied, and that the Cournot–Nash industry equilibrium is stable.

7. Many existing studies, Dixit (1988), Staiger and Wolak (1992), Tivig and Walz (2000), Ishikawa (2004), and Dinlersoz and Dogan (2010) being some of the most important, also examine the effects of the ADDs on economic welfare, among others. However, none of them analyzes issues concerning ADDs in the context of global pollution emissions. Therefore, it is meaningless to compare their results with ours.