Anti‐dumping Policies and International Portfolio Allocation: The View from the Global Funds

• Published date: 01 March 2023
• Author: Haoyuan Ding,Xiao Li,Jiezhou Ying
• Date: 01 March 2023
• DOI: http://doi.org/10.1111/cwe.12474

©2023 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 58–83, Vol. 31, No. 2, 2023

58

*Haoyuan Ding, Professor, College of Business, Shanghai University of Finance and Economics, China. Email:

ding.haoyuan@mail.shufe.edu.cn; Xiao Li, PhD Candidate, College of Business, Shanghai University of

Finance and Economics, China. Email: lxcecilia0128@163.com; Jiezhou Ying (corresponding author), Lecturer,

School of Finance, Zhejiang Gongshang University, China. Email: jj1010zz@mail.zjgsu.edu.cn. Haoyuan Ding

acknowledges fi nancial support from the National Natural Science Foundation of China (No.72173082) and the

Ministry of Education Project of Key Research Institute of Humanities and Social Sciences at Universities in China

(No. 22JJD790011). Jiezhou Ying acknowledges financial support from the Zhejiang Provincial Philosophy and

Social Science Planning Project of China (No. 23NDJC023Z) and the Shanghai Sailing Program (No. 21YF1431900).

Anti-dumping Policies and International Portfolio

Allocation: The View from the Global Funds

Haoyuan Ding, Xiao Li, Jiezhou Ying*

Abstract

Anti-dumping policies, as one of the most important nontariff measures to protect a

country’s economic interests, can have an impact not only on a country’s trade and

social welfare, but also on capital fl ows. Anti-dumping measures can result in increased

trade costs and alterations to exchange rate risk. This study investigates the impact of

anti-dumping sanctions on the international portfolio allocations of global funds. Anti-

dumping policies can decrease the proportion of a fund’s investment portfolio allocated

to recently-sanctioned countries. Closer trade ties between the sanctioned country and the

country where a fund is domiciled exacerbate the divestiture, but stronger foreign direct

investment links weaken the negative association. Some country and fund heterogeneities

are also discussed. We fi nd that more developed countries are less aff ected by the impact

of anti-dumping measures on equity fund allocations; liberalization of the economy and

stable government could also mitigate the negative impact of anti-dumping sanctions.

High-risk funds, such as growth funds or funds that invest in leveraged buyouts, showed

the greatest response to changes in anti-dumping regulations.

Keywords: anti-dumping policy, foreign direct investment, international capital

allocation, trade

JEL codes: F3, F4, G1

I. Introduction

Since the World Trade Organization (WTO) was established in 1995, capping tariff

rates has generally been supported by WTO members. Despite this, trade agreements

©2023 Institute of World Economics and Politics, Chinese Academy of Social Sciences

Anti-dumping Policies Limits International Portfolio Allocation 59

still allow members to maintain some trade barriers through contingency provisions

such as nontariff measures (Crowley et al., 2018).1 Anti-dumping policy, a border

measure applied to imports of specifi c products from specifi c exporters, is one of the

most important nontariff measures protecting the economic interests of a country. The

direct economic consequence of an anti-dumping policy is to restrict imports from the

targeted countries, which has been proved by many studies (Bown and Crowley, 2006;

Zhou and Cuyvers, 2009; Park, 2009; Bown, 2010). Intuitively, this trade destruction

should protect domestic industries. Konings and Vandenbussche (2005, 2008) verifi ed

that it tends to boost the profi tability of the relevant domestic industry, protect its fi rms

from foreign competition, and boost the productivity of laggard fi rms. Some studies also

attempted to explore the impact of anti-dumping policies on social welfare (Crowley,

2006; Kelly, 2011), but the findings are controversial. In recent years, scholars have

focused more on the firm-level impacts of anti-dumping measures (Irwin, 2017;

Jabbour et al., 2019), but few studied the impact on capital fl ows.

Although there is no existing literature that specifi cally examines the impact of anti-

dumping measures on international equity investment, the infl uence of trade costs on

portfolio investments has been discussed widely. Theoretical explanations of this issue

are mainly focused on the channel of minimizing exchange rate risk. The literature on

the partial equilibrium model dated from the early 1980s posits that trade costs cause the

same goods to have diff erent prices in diff erent countries, and lead to changes in relative

prices (Adler and Dumas, 1983; De Macedo, 1983; Branson and Henderson, 1985).

To mitigate the risk of exchangerate fl uctuations, which are aff ected by relative prices,

investors prefer to hold more domestic assets. However, when the discussion moved to

general equilibrium models, debates have ensued. Some scholars argue that trade costs

are important in explaining why investors favor domestic equity (Stockman and Dellas,

1989; Obstfeld and Rogoff , 2000; Dellas et al., 2007; Coeurdacier, 2009; Hnatkovska,

2010), while others suggest that trade costs may cause optimal portfolios to be biased

toward foreign equity (Baxter et al., 1998; Pesenti and van Wincoop, 2002). The results

of empirical studies are still controversial. Aviat and Coeurdacier (2007) and Lane

and Milesi-Ferretti (2008) showed that country portfolios were strongly biased toward

trading partners. On the other hand, van Wincoop and Warnock (2010) found that

trade costs had little impact on portfolio investment. More recently, Coeurdacier and

Gourinchas (2016) argued that holding equities could diversify risk only when equity

returns and exchange rates were strongly positively correlated. However, they found that

1Nontariff measures are defi ned broadly as any measure that causes a trade distortion but is not a tariff . A

distortion exists when the domestic price diff ers from the border price (Carrere and de Melo, 2011).