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Heterogeneous firm-level responses to trade liberalization: a test using stock price reactions

Breinlich, Holger

Authors

Holger Breinlich holger.breinlich@nottingham.ac.uk



Abstract

This paper presents novel empirical evidence on key predictions of heterogeneous firm models by examining stock market reactions to the Canada–United States Free Trade Agreement of 1989 (CUSFTA). I derive testable predictions for a class of models based on Melitz (2003). Using the uncertainty surrounding CUSFTA's ratification, I show that the pattern of abnormal returns of Canadian manufacturing firms was strongly consistent with predictions related to export (U.S.) tariff reductions, but less so with predictions related to import (Canadian) tariff reductions. Lower Canadian tariffs did have an effect through the implied reduction in intermediate input tariffs, however.

Journal Article Type Article
Publication Date Jul 1, 2014
Journal Journal of International Economics
Print ISSN 0022-1996
Electronic ISSN 0022-1996
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 93
Issue 2
APA6 Citation Breinlich, H. (2014). Heterogeneous firm-level responses to trade liberalization: a test using stock price reactions. Journal of International Economics, 93(2), doi:10.1016/j.jinteco.2014.04.002
DOI https://doi.org/10.1016/j.jinteco.2014.04.002
Keywords Heterogeneous firm models; Stock market event studies; Canada–U.S. Free Trade Agreement
Publisher URL http://www.sciencedirect.com/science/article/pii/S002219961400052X
Copyright Statement Copyright information regarding this work can be found at the following address: http://creativecommons.org/licenses/by-nc-nd/4.0

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Copyright Statement
Copyright information regarding this work can be found at the following address: http://creativecommons.org/licenses/by-nc-nd/4.0





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