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Import Competition and the Stock Market Return to Capital

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Author Info
Gene M. Grossman
James A. Levinsohn

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Abstract

We measure the responsiveness of returns to capital invested in six U.S. industries to shocks to the prices of competing import goods. Recognizing that most capital services are not traded on spot rental markets, we treat the intersectoral mobility of capital as the outgrowth of investment behavior. Then the return to capital is realized as an asset return to equity holders. . We model expected returns by CAPM, and relate "excess" returns in a period to unanticipated shocks to the variables that affect current and future profits. We find that positive shocks to import prices cause higher than normal stock market returns in all six industries. The magnitudes of the responses are consistent with the hypothesis that capital is highly sector specific in five of these industries.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2420.

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Date of creation: Mar 1990
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Publication status: published as American Economic Review, Vol. 79, No. 5, pp. 1065-1087, (December 1989).
Handle: RePEc:nbr:nberwo:2420

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  1. Hartigan, James C & Perry, Philip R & Kamma, Sreenivas, 1986. "The Value of Administered Protection: A Capital Market Approach," The Review of Economics and Statistics, MIT Press, vol. 68(4), pages 610-17, November. [Downloadable!] (restricted)
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  3. Mayer, Wolfgang, 1974. "Short-Run and Long-Run Equilibrium for a Small Open Economy," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 955-67, Sept./Oct. [Downloadable!] (restricted)
  4. Gene M. Grossman, 1986. "Imports as a Cause of Injury: The Case of the U.S. Steel Industry," NBER Working Papers 1494, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March. [Downloadable!] (restricted)
  6. Mussa, Michael, 1974. "Tariffs and the Distribution of Income: The Importance of Factor Specificity, Substitutability, and Intensity in the Short and Long Run," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1191-1203, Nov.-Dec.. [Downloadable!] (restricted)
  7. Nelson, Charles R & Kang, Heejoon, 1981. "Spurious Periodicity in Inappropriately Detrended Time Series," Econometrica, Econometric Society, vol. 49(3), pages 741-51, May. [Downloadable!] (restricted)
  8. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557. [Downloadable!] (restricted)
  9. Fama, Eugene F, 1973. "A Note on the Market Model and the Two-Parameter Model," Journal of Finance, American Finance Association, vol. 28(5), pages 1181-85, December. [Downloadable!] (restricted)
  10. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February. [Downloadable!] (restricted)
  11. Schwert, G William, 1981. "Using Financial Data to Measure Effects of Regulation," Journal of Law & Economics, University of Chicago Press, vol. 24(1), pages 121-58, April.
  12. Pakes, Ariel, 1985. "On Patents, R&D, and the Stock Market Rate of Return," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 390-409, April. [Downloadable!] (restricted)
  13. Gibbons, Michael R, 1987. "The Interrelations of Finance and Economics: Empirical Perspectives," American Economic Review, American Economic Association, vol. 77(2), pages 35-41, May. [Downloadable!] (restricted)
  14. Michael C. Jensen, 1972. "Capital Markets: Theory and Evidence," Bell Journal of Economics, The RAND Corporation, vol. 3(2), pages 357-398, Autumn. [Downloadable!] (restricted)
  15. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January. [Downloadable!] (restricted)
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  1. Porto, Guido G., 2004. "Informal export barriers and poverty," Policy Research Working Paper Series 3354, The World Bank. [Downloadable!]
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  2. Guido G. Porto, 2003. "Using survey data to assess the distributional effects of trade policy," Policy Research Working Paper Series 3137, The World Bank. [Downloadable!]
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  3. James A. Levinsohn & Jeffrey K. MacKie-Mason, 1989. "A Simple, Consistent Estimator for Disturbance Components in Financial Models," NBER Technical Working Papers 0080, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. James Melvin, Robert Waschik, 2001. "The neoclassical ambiguity in the specific factor model," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 10(3), pages 321-337, September. [Downloadable!] (restricted)
  5. Avik Chakrabarti, 2003. "Import competition, employment and wage in US manufacturing: new evidence from multivariate panel cointegration analysis," Applied Economics, Taylor and Francis Journals, vol. 35(13), pages 1445-1449, September. [Downloadable!] (restricted)
  6. Erik Dohlman, 2001. "A new look at the impact of U.S. import barriers on corporate profit expectations," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 127(4), pages 666-689, December. [Downloadable!] (restricted)
  7. Edward E. Leamer & James Levinsohn, 1994. "International Trade Theory: The Evidence," NBER Working Papers 4940, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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