Heterogeneous firm-level responses to trade liberalization: a test using stock price reactions

Breinlich, Holger (2014) Heterogeneous firm-level responses to trade liberalization: a test using stock price reactions. Journal of International Economics, 93 (2). pp. 270-285. ISSN 0022-1996

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Abstract

This paper presents novel empirical evidence on key predictions of heterogeneous firm models by examining stock market reactions to the Canada–United States Free Trade Agreement of 1989 (CUSFTA). I derive testable predictions for a class of models based on Melitz (2003). Using the uncertainty surrounding CUSFTA's ratification, I show that the pattern of abnormal returns of Canadian manufacturing firms was strongly consistent with predictions related to export (U.S.) tariff reductions, but less so with predictions related to import (Canadian) tariff reductions. Lower Canadian tariffs did have an effect through the implied reduction in intermediate input tariffs, however.

Item Type: Article
Keywords: Heterogeneous firm models; Stock market event studies; Canada–U.S. Free Trade Agreement
Schools/Departments: University of Nottingham UK Campus > Faculty of Social Sciences > School of Economics
Identification Number: https://doi.org/10.1016/j.jinteco.2014.04.002
Depositing User: Breinlich, Holger
Date Deposited: 24 Sep 2015 13:14
Last Modified: 16 Sep 2016 10:00
URI: http://eprints.nottingham.ac.uk/id/eprint/30236

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