The Effect of Trade Liberalization on Firm-Level Profits: An Event-Study Approach

Holger Breinlich

No 11011, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: I use an event study approach to present novel evidence on the impact of trade liberalization on firm-level 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.

Keywords: Canada-u.s. free trade agreement; Profitability; Stock market event studies; Trade liberalization (search for similar items in EconPapers)
JEL-codes: F12 F14 G14 (search for similar items in EconPapers)
Date: 2015-12
New Economics Papers: this item is included in nep-bec and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: The effect of trade liberalization on firm-level profits: an event-study approach (2016)
Working Paper: The effect of trade liberalization on firm-level profits:an event-study approach (2016)
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