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Investment Responses to Trade Liberalization : Evidence from U.S. Industries and Establishments

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Abstract

This paper examines the effect of a change in U.S. trade policy on the domestic investment of U.S. manufacturers. Using a difference-in-differences identification strategy, we find that industries more exposed to reductions in import tariff uncertainty exhibit relative declines in investment after the change in trade policy. Within industries, we find that this relationship is concentrated among establishments with low initial levels of labor productivity, capital intensity and skill intensity. For plants with high initial levels of skill intensity, we find that increased exposure is associated with a relative increase in investment. We also find evidence that establishments' investment activity is smoother following the policy change.

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  • Justin R. Pierce & Peter K. Schott, 2017. "Investment Responses to Trade Liberalization : Evidence from U.S. Industries and Establishments," Finance and Economics Discussion Series 2017-120, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2017-120
    DOI: 10.17016/FEDS.2017.120
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    Cited by:

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    2. Reto Foellmi & Stefan Legge & Alexa Tiemann, 2021. "Innovation and trade in the presence of credit constraints," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(3), pages 1168-1205, November.
    3. Bianconi, Marcelo & Esposito, Federico & Sammon, Marco, 2021. "Trade policy uncertainty and stock returns," Journal of International Money and Finance, Elsevier, vol. 119(C).
    4. Matias Covarrubias & Germán Gutiérrez & Thomas Philippon, 2019. "From Good to Bad Concentration? US Industries over the Past 30 Years," NBER Chapters, in: NBER Macroeconomics Annual 2019, volume 34, pages 1-46, National Bureau of Economic Research, Inc.
    5. Liu, Qing & Ma, Hong, 2020. "Trade policy uncertainty and innovation: Firm level evidence from China’s WTO accession," Journal of International Economics, Elsevier, vol. 127(C).
    6. Marcelo Bianconi & Federico Esposito & Marco Sammon, 2019. "Trade Policy Uncertainty and Stock Returns," Discussion Papers Series, Department of Economics, Tufts University 0830, Department of Economics, Tufts University.
    7. Artuc,Erhan & Bastos,Paulo S. R. & Rijkers,Bob, 2018. "Robots, Tasks and Trade," Policy Research Working Paper Series 8674, The World Bank.
    8. Jay Hyun & Ziho Park & Vladimir Smirnyagin, 2021. "Import Competition and Firms’ Internal Networks," Working Papers 21-28, Center for Economic Studies, U.S. Census Bureau.
    9. Yiping Sun & Xiangyi Li & Tengyuan Zhang & Jiawei Fu, 2022. "Does Trade Policy Uncertainty Exacerbate Environmental Pollution?—Evidence from Chinese Cities," IJERPH, MDPI, vol. 19(4), pages 1-21, February.
    10. Holger Breinlich & Elsa Leromain & Dennis Novy & Thomas Sampson, 2021. "Import liberalization as export destruction? Evidence from the United States," CEP Discussion Papers dp1779, Centre for Economic Performance, LSE.
    11. Sourafel Girma & Hibret Maemir, 2022. "Joint effects of exporting and outward FDI on firm‐level capital investment in India," Review of Development Economics, Wiley Blackwell, vol. 26(1), pages 606-624, February.
    12. Douglas L. Campbell & Karsten Mau, 2019. "Trade Induced Technological Change: Did Chinese Competition Increase Innovation in Europe?," Working Papers w0252, Center for Economic and Financial Research (CEFIR).
    13. Douglas L. Campbell & Karsten Mau, 2020. "Trade Induced Technological Change: Did Chinese Competition Really Increase European Innovation?," Working Papers w0262, New Economic School (NES).
    14. Andrew N. Greenland & Mihai Ion & John W. Lopresti & Peter K. Schott, 2020. "Using Equity Market Reactions to Infer Exposure to Trade Liberalization," NBER Working Papers 27510, National Bureau of Economic Research, Inc.
    15. Bao, Xiaohua & Deng, Jianpeng & Sun, Haoyu & Sun, Jin, 2022. "Trade policy uncertainty and foreign direct investment: Evidence from China’s WTO accession," Journal of International Money and Finance, Elsevier, vol. 125(C).
    16. César, Andrés & Falcone, Guillermo & Gasparini, Leonardo, 2021. "Costs and benefits of trade shocks: Evidence from Chilean local labor markets," Labour Economics, Elsevier, vol. 73(C).
    17. Macartney, Hugh & Nielsen, Eric & Rodriguez, Viviana, 2021. "Unequal worker exposure to establishment deaths," Labour Economics, Elsevier, vol. 73(C).
    18. Andrés César & Guillermo Falcone & Leonardo Gasparini, 2022. "Costs and Benefits of Trade Shocks: Evidence from Chilean Local Labor Markets," CEDLAS, Working Papers 0300, CEDLAS, Universidad Nacional de La Plata.
    19. Breinlich, Holger & Leromain, Elsa & Novy, Dennis & Sampson, Thomas, 2022. "Import Liberalization as Export Destruction? Evidence from the United States," CAGE Online Working Paper Series 622, Competitive Advantage in the Global Economy (CAGE).
    20. Federico Esposito & Marcelo Bianconi & Marco Sammon, 2020. "Trade Policy Uncertainty and Stock Returns," Discussion Papers Series, Department of Economics, Tufts University 0834, Department of Economics, Tufts University.
    21. Atika Benaddi & Peri Silva, 2021. "Trade policy uncertainty: Evidence from the Arab League countries," Review of International Economics, Wiley Blackwell, vol. 29(5), pages 1327-1357, November.

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    More about this item

    Keywords

    Investment; Normal trade relations; Manufacturing; Most favored nation; China; Trade policy;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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