Effects of Trade Barriers on Foreign Direct Investment: Evidence from Chinese Solar Panels

70 Pages Posted: 16 Apr 2024

See all articles by A. Oriana Montti

A. Oriana Montti

Brandeis University, International Business School, Students

Date Written: March 31, 2024

Abstract

The recent comeback of protectionism and industrial policy will affect the international allocation of resources beyond the short run. Analyzing similar events from the past can help us envision their long-lasting effects. What are some unintended consequences of trade barriers in strategic economic sectors? I study the anti-dumping and countervailing Duties (AD-CVD) implemented by the Obama Administration in 2012 against the imports of solar panels from China. Leveraging the variation given by the policy's discriminatory nature, which assigns differential rates to Chinese firms in the same industry, I develop a difference-in-differences design. I estimate the effect on Foreign Direct Investment (FDI) decisions by Chinese firms using a Poisson Pseudo-Maximum Likelihood method and data on FDI announcements from 2009 to 2015. My findings show that in 2012, targeted firms increase FDI by 145 million dollars per year, from a previous average of 9 million dollars. These results for greenfield investment do not carry over to cross-border mergers and acquisitions. I find a reduction in the number of projects by 50% in 2013 and 2014. I use location choice models to test different hypotheses for FDI location. I find evidence of production fragmentation in Asia after the imposition of the duties, mostly to countries that end up becoming exporters of solar panels to the US, showing support for the export-platform hypothesis. These results document FDI diversion that modifies investment patterns in the short run and eludes the trade barriers in the medium run, weakening the intended effects of the protectionist policy.

Keywords: Foreign Direct Investment, Anti-Dumping, Solar Panels, United States, China.

JEL Classification: F13, F14, F21, F23

Suggested Citation

Montti, A. Oriana, Effects of Trade Barriers on Foreign Direct Investment: Evidence from Chinese Solar Panels (March 31, 2024). Available at SSRN: https://ssrn.com/abstract=4788049 or http://dx.doi.org/10.2139/ssrn.4788049

A. Oriana Montti (Contact Author)

Brandeis University, International Business School, Students ( email )

Mailstop 32
Waltham, MA 02454
United States

HOME PAGE: http://https://www.orianamontti.com/

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