The Impact of Exchange Rate Movements on Dumping Activity: Theory and Evidence

This paper develops a real options model to investigate the relationship between exchange rate movements and the occurrence of price dumping. Our results reveal that the effect of exchange rate volatility on the probability of dumping occurrence is ambiguous, depending on the level of exchange rate. The appreciation of the importing country’s currency tends to have a positive impact on the probability of dumping occurrence if the exchange rate level is not too high. However, if the exchange rate level is unusually high, this relationship might lessen or even reverse. By contrast, exchange rate volatility tends to be positively related to the probability of dumping occurrence if the exchange rate level is high or low enough. Otherwise, its positive relationship might weaken. The number of antidumping cases filed from 1980 to 2005 by U.S. firms is used to test the validity of our theoretical results. Our empirical evidence is consistent with the theory. These results suggest that it is essential to take into account the possible asymmetry in investigating the relationship between exchange rate movements and dumping activities. JEL Classification: F13, F31, G13