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

32 Pages Posted: 20 Dec 2017

See all articles by Justin R. Pierce

Justin R. Pierce

Board of Governors of the Federal Reserve System

Peter Schott

Yale School of Management; National Bureau of Economic Research (NBER)

Date Written: 2017-12-15

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.

Keywords: Investment, Normal trade relations, Manufacturing, Most favored nation, China, Trade policy

JEL Classification: F13, F14, F15, F16

Suggested Citation

Pierce, Justin R. and Schott, Peter, Investment Responses to Trade Liberalization: Evidence from U.S. Industries and Establishments (2017-12-15). FEDS Working Paper No. 2017-120, Available at SSRN: https://ssrn.com/abstract=3090950 or http://dx.doi.org/10.17016/FEDS.2017.120

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Peter Schott

Yale School of Management ( email )

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National Bureau of Economic Research (NBER) ( email )

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