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Trade liberalization, profitability, and financial leverage

Author

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  • Jen Baggs

    (Faculty of Business, University of Victoria, BC, Canada)

  • James A Brander

    (Sauder School of Business, University of British Columbia, Vancouver, BC, Canada)

Abstract

We investigate the effects of trade liberalization on profitability and financial leverage using Canadian data arising from implementation of the Canada–US Free Trade Agreement. We find that falling domestic tariffs are associated with declining profits, especially for import-competing firms, while falling foreign tariffs are associated with increasing profits, especially for export-oriented firms. Also, import tariff reductions tend to increase leverage while export tariff reductions tend to decrease leverage. Journal of International Business Studies (2006) 37, 196–211. doi:10.1057/palgrave.jibs.8400183

Suggested Citation

  • Jen Baggs & James A Brander, 2006. "Trade liberalization, profitability, and financial leverage," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 37(2), pages 196-211, March.
  • Handle: RePEc:pal:jintbs:v:37:y:2006:i:2:p:196-211
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