The effect of trade liberalization on firm-level profits:an event-study approach

摘要

I use an event study approach to present novel evidence on the impact of trade liberalization on firmleveludprofits. Using the uncertainty surrounding the negotiation and ratification process of the Canada-udUnited States Free Trade Agreement of 1989 (CUSFTA), I estimate the impact of different types ofudtariff reductions on the abnormal returns of Canadian manufacturing firms. I find that Canadian importudtariff reductions lead to lower, and reductions in Canadian intermediate input tariffs to higher abnormaludreturns. The impact of U.S. tariff reductions is less clear and depends on the size of the affected firms. Iudalso calculate the total profit increase implied by my estimates. Overall, CUSFTA increased per-periodudprofits by around 1.2%. This was mainly driven by intermediate input tariff reductions which more thanudoffset the negative effect of Canadian import tariff reductions.