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Import Competition and the Stock Market Return to Capital

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  • Gene M. Grossman
  • James A. Levinsohn

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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Bibliographic Info

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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Handle: RePEc:nbr:nberwo:2420

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Cited by:
  1. Fortin, Bernard & Marceau, Nicolas & Savard, Luc, 1997. "Taxation, wage controls and the informal sector," Journal of Public Economics, Elsevier, vol. 66(2), pages 293-312, November.
  2. Porto, Guido G., 2004. "Informal export barriers and poverty," Policy Research Working Paper Series 3354, The World Bank.
  3. Hanson, Robert C. & Song, Moon H., 1998. "Shareholder wealth effects of free trade: U.S. and Mexican stock market response to nafta," International Review of Economics & Finance, Elsevier, vol. 7(2), pages 209-224.
  4. Levinsohn, J. & Mackie-Mason, J., 1989. "A Simple, Consistent Estimator For Disturbance Components In Financial Models," Papers 89-16, Michigan - Center for Research on Economic & Social Theory.
  5. Mihir A. Desai & James R. Hines Jr., 2004. "Market Reactions to Export Subsidies," NBER Working Papers 10233, National Bureau of Economic Research, Inc.
  6. 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.
  7. Fraser, Iain & Waschik, Robert, 2006. "A Computable General Equilibrium Analysis of Export Taxes in the Australian Wool Industry," 2006 Conference (50th), February 8-10, 2006, Sydney, Australia 139733, Australian Agricultural and Resource Economics Society.
  8. Leachman, Lori L. & Francis, Bill, 1995. "Long-run relations among the G-5 and G-7 equity markets: Evidence on the Plaza and Louvre Accords," Journal of Macroeconomics, Elsevier, vol. 17(4), pages 551-577.
  9. Seth Freedman & Melissa Kearney & Mara Lederman, 2012. "Product Recalls, Imperfect Information, and Spillover Effects: Lessons from the Consumer Response to the 2007 Toy Recalls," The Review of Economics and Statistics, MIT Press, vol. 94(2), pages 499-516, May.
  10. Leamer, E. & Levingsohn, J., 1994. "International Trade Theory: The Evidence," Working Papers 368, Research Seminar in International Economics, University of Michigan.
  11. Guido G. Porto, 2003. "Using survey data to assess the distributional effects of trade policy," Policy Research Working Paper Series 3137, The World Bank.
  12. Gao, Ting, 2000. "Exchange rate movements and the profitability of U.S. multinationals," Journal of International Money and Finance, Elsevier, vol. 19(1), pages 117-134, February.
  13. 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.
  14. 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. 137(4), pages 666-689, December.

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