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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:

    1. 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.
    2. Artuc,Erhan & Bastos,Paulo S. R. & Rijkers,Bob, 2018. "Robots, Tasks and Trade," Policy Research Working Paper Series 8674, The World Bank.
    3. 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.
    4. 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).
    5. 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.
    6. 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.
    7. Douglas L. Campbell & Karsten Mau, 2020. "Trade Induced Technological Change: Did Chinese Competition Really Increase European Innovation?," Working Papers w0262, New Economic School (NES).

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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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