The effect of trade liberalization on firm-level profits:an event-study approach

Breinlich, Holger (2016) The effect of trade liberalization on firm-level profits:an event-study approach. CEP Discussion Paper (1401). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

I use an event study approach to present novel evidence on the impact of trade liberalization on firmlevel profits. Using the uncertainty surrounding the negotiation and ratification process of the Canada- United States Free Trade Agreement of 1989 (CUSFTA), I estimate the impact of different types of tariff reductions on the abnormal returns of Canadian manufacturing firms. I find that Canadian import tariff reductions lead to lower, and reductions in Canadian intermediate input tariffs to higher abnormal returns. The impact of U.S. tariff reductions is less clear and depends on the size of the affected firms. I also calculate the total profit increase implied by my estimates. Overall, CUSFTA increased per-period profits by around 1.2%. This was mainly driven by intermediate input tariff reductions which more than offset the negative effect of Canadian import tariff reductions.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://cep.lse.ac.uk/
Additional Information:	© 2016 The Author
Divisions:	Centre for Economic Performance
Subjects:	H Social Sciences > HB Economic Theory
Date Deposited:	09 May 2016 13:16
Last Modified:	11 Dec 2024 19:21
Projects:	SG142738
Funders:	British Academy/Leverhulme Trust, Economic and Social Research Council
URI:	http://eprints.lse.ac.uk/id/eprint/66412

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