is in our sample of countries facing a U.S. trade remedy. Thus failing to allow for the indirect effect of this variable could lead to biased estimates of the direct effect.<sup>25</sup> To address the concern of selection bias resulting from the idea that the set of U.S. trade remedies over which a foreign country has faced a tariff is not random, we use a Heckman (1979) style correction procedure and introduce a selection equation accounting for the U.S. government’s decision of whether or not to impose a trade remedy on a GATT/WTO member country after an industry-initiated investigation. For our purposes, the standard Heckman procedure needs to be modified to address the fact that both the selection equation (U.S. protects or doesn’t protect an industry petitioning under the trade remedy laws) and the regression equation of interest (foreign country challenges or doesn’t challenge the U.S. remedy with a formal WTO dispute) have dichotomous (as opposed to continuous) dependent variables. Therefore, we use the Van de Ven and Van Praag (1981) probit application of the Heckman (1979) selection bias correction procedure.

# **4.2 Additional Variables and Data for the Selection Equation**

Finally, in order to estimate the selection equation, we require additional explanatory variables that are not necessarily of interest to our question of the determinants of the foreign country’s decision of whether it will challenge any imposed measures with formal dispute settlement proceedings. Nevertheless, we have collected industry and country-level data on the standard political and economic variables that others (e.g., Hansen and Prusa, 1996; 1997) in the literature have shown to be determinants of the U.S. authority’s decision-making process. These include variables on the change in industry employment, level of industry employment, the import penetration ratio, the growth rate of investigated imports in the period prior to the investigation, the concentration ratio of the domestic industry, the change in the industry’s capacity utilization rate, as well as retaliation capacity (Blonigen and Bown, 2003).<sup>26</sup> We expect there to be a negative relationship between the change in industry employment and the

> 25 This may also be the case if evidence of injury to the domestic industry makes it more likely that a petitioning industry will receive trade remedy protection and thus increasing the probability of being in the sample, and yet the evidence of injury makes it less likely that the measure will be challenged with a formal trade dispute. We will investigate this potential outcome and discuss this further in section 5.2.3 below.

> 26 Capacity utilization rate for the associated 6-digit NAICS (4-digit SIC) industries are found in the U.S. Bureau of the Census’ _Current Industrial Reports, Survey of Plant Capacity_ . Four-firm concentration ratios are available form U.S. Bureau of the Census publication, _U.S. Census of Manufactures, Concentration Ratios in Manufacturing._ Data on the industry level value of shipments and industry-level employment are taken from the _NBER Manufacturing Industry Productivity Database_ for the 1991-1996 period, while for 1997-2002, the data was taken from individual,

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