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Investor Expectations and the North American Free Trade Agreement

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  • Peter Rodriguez

Abstract

The paper uses a stock market event study to examine investors’ expectations of NAFTA's effect on the profitability of manufacturing industries in the USA, Canada, and Mexico. The main finding is that factor intensity, specifically a measure of the industry–wide labor–capital ratio, is the most significant determinant of excess returns. The results suggest that investors believed the NAFTA would favor industries that used abundant factors intensively and reduce profitability in industries that relied heavily on scarce factors; and, more generally, that factor intensity is a primary source of comparative advantage. No significant relationship was found between the relative scale of industries among the three countries and the NAFTA's expected influence on profitability.

Suggested Citation

  • Peter Rodriguez, 2003. "Investor Expectations and the North American Free Trade Agreement," Review of International Economics, Wiley Blackwell, vol. 11(1), pages 206-218, February.
    • Handle: RePEc:bla:reviec:v:11:y:2003:i:1:p:206-218
    DOI: 10.1111/1467-9396.00378
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    Cited by:

    1. Moser, Christoph & Rose, Andrew K., 2014. "Who benefits from regional trade agreements? The view from the stock market," European Economic Review, Elsevier, vol. 68(C), pages 31-47.
    2. Rasyad A. Parinduri & Shandre M. Thangavelu, 2013. "Trade liberalization, free trade agreements, and the value of firms: Stock market evidence from Singapore," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 22(6), pages 924-941, September.
    3. Peter H Egger & Jiaqing Zhu, 2020. "The US–Chinese trade war: an event study of stock-market responses," Economic Policy, CEPR;CES;MSH, vol. 35(103), pages 519-559.
    4. Andreas Dür & Lisa Lechner, 2023. "Winners and Losers From Trade Agreements: Stock Market Reactions to TPP and TTIP," Politics and Governance, Cogitatio Press, vol. 11(4), pages 200-211.
    5. Dieter Smeets & Marco Zimmermann, 2013. "Did the EU Summits Succeed in Convincing the Markets during the Recent Crisis?," Journal of Common Market Studies, Wiley Blackwell, vol. 51(6), pages 1158-1177, November.

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