Antidumping duties, undertakings, and foreign direct investment in the EU

We study the effects of EU antidumping policy when foreign firms can 'jump' antidumping duties through foreign direct investment (FDI) in the EU. We show that duty jumping or duty pre-empting FDI occurs if the EU administration has broader objectives than protecting EU industry's profitability and if cost advantages of foreign firms are transferable abroad. The (expectation of) price undertakings reduces the incentives to engage in FDI and may even discourage FDI as long as products are not too differentiated. The results are consistent with recent empirical findings on antidumping jumping FDI. (C) 2003 Elsevier B.V. All rights reserved.