Research Repository

Heterogeneous Firm-Level Responses to Trade Liberalization: A Test Using Stock Price Reactions

Breinlich, Holger (2011) Heterogeneous Firm-Level Responses to Trade Liberalization: A Test Using Stock Price Reactions. Working Paper. C.E.P.R. Discussion Papers 8600.

Full text not available from this repository.

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). Using the uncertainty surrounding the agreement's ratification, I show that the pattern of abnormal returns of Canadian manufacturing firms was broadly consistent with the predictions of a class of models based on Melitz (2003). Increases in the likelihood of ratification led to stock market gains of exporting firms relative to non-exporters. Moreover, gains were higher in sectors with larger cuts in U.S. import tariffs. Decreases in the likelihood of ratification led to opposite stock market reactions. Results for the impact of Canadian tariff reductions are less conclusive but most specifications suggest that exporters also gained relative to non-exporters in response to such reductions. Translating stock market gains into implied profit changes, I find that CUSFTA increased expected per-period profits of exporters by around 6-7% relative to non-exporters.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Canada-U.S. Free Trade Agreement; Heterogeneous Firm Models; Stock Market Event Studies
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 03 Jul 2012 11:57
Last Modified: 03 Jul 2012 11:57
URI: http://repository.essex.ac.uk/id/eprint/2727

Actions (login required)

View Item View Item