This letter provides firm-level evidence that policy makers tailor trade policy to suit selected firms. It argues that firms with higher levels of specific assets find it more costly to reorganize production, and are hurt more by international competition. In response, policy makers grant more trade protection to firms with fixed assets. Since protectionism is costly, firms compete for it, which creates diffusion dynamics in which the protection granted to one firm affects the protection granted to others. This claim is tested utilizing the special role antidumping duties (ADDs) play in international trade, and combining petitions for ADDs with financial data on the firms filing them in a unique dataset. Using spatial autoregressive models, the authors find that firms with specific assets are granted more protection. However, diffusion dynamics differ within and between groups of firms producing the same good. This suggests that firms can partly shape their own level of trade protection.
Bibliographical noteEpub ahead of print. Published online: 05 April 2021
- Trade policy
- Inequalities in the cost of free trade
- Firm level
- Political influence
- Diffusion of trade protection