Tariff‐jumping FDI and domestic firms’ profits

Blonigen, Bruce A.; Tomlin, Kasaundra; Wilson, Wesley W.

doi:10.1111/j.0008-4085.2004.00242.x

Cited by 55 publications

(27 citation statements)

References 25 publications

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“…Following the announcement of the referendum's results in the evening of 23 June, the FTSE 350 lost 7% of its value over 24 and 27 June (the first two trading days following the results' announcement). 5 However, by a week later (June 30) it and reached its former level. However, our analysis shows that, as with the decline, this recovery was not equal across firms.…”

Section: Introductionmentioning

confidence: 94%

“…Because investors base their current trading decisions on their expectations of the future performance of an asset, analyzing stock movements gives insight into how investors feel about the overall prospects of Brexit as well as how one firm is anticipated to fare relative to others. With this in mind, we use a two-part estimation process similar to Blonigen, Tomlin, and Wilson (2004) which combines an event study methodology for firms listed on the FTSE350 (the 350 largest firms on the London Stock Exchange) with a regression analysis. In the first stage, we compare a firm's actual return to its predicted return contingent on the performance of the overall market.…”

Section: Introductionmentioning

confidence: 99%

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The heterogeneous impact of Brexit: Early indications from the FTSE

Davies

Studnicka

2018

European Economic Review

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The UK's decision to leave the EU is surrounded by several studies simulating its potential effects. Alternatively, we examine expectations embodied in stock returns using a two-part estimation process. While most firms' prices fell, there was considerable heterogeneity in their relative changes. We show that this heterogeneity can be explained by the firm's global value chain, with heavily European firms doing relatively worse. For firms with few imported intermediates, this was partially offset by a greater Sterling depreciation. These changes were primarily in the first two days and highly persistent. Understanding these movements gives a better understanding Brexit's potential effects.1 Norway has a free trade agreement with the EU but is not a member of the EU's customs union, so it faces the non-tariff barriers that apply to non-EU countries.2 Other studies in this vein, which cover various simulation exercises, include Head and Mayer (2015), PWC (2016), Fraser of Allander (2016) (who focus on Scotland), HM Treasury (2016),and OECD (2016). All of these find negative effects of various magnitudes whereas Minford, et al. (2016) finds the potential for positive impacts on the UK. It should be noted that Sampson, et al. (2016) argue that Minford, et al.'s optimism is based on implausible assumptions on trade barrier changes and import elasticities.3 Head and Mayer (2015) describe three possible disadvantages of Brexit for FDI. First, an increase in trade barriers makes production in the UK less attractive because it becomes more costly to ship to the rest of Europe. Second, supplying inputs and staff from brands headquarters becomes more difficult (higher co-ordination costs). Third, UK products become less attractive to EU consumer after Brexit.4 Strictly speaking, this is a return that is 14.4% worse than expectations; since in the long run a firm's return should equal the market, results in our comparison. See below for a detailed discussion of how to 11 Timmer, et al. (2014b) provide a recent overview of this literature. 12 Davies, et al. (forthcoming) find that tariff pass-through within a multinational is roughly half that of an arm's length transaction.13 See London Stock Exchange (2010) for details.

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Section: Introductionmentioning

confidence: 94%

Section: Introductionmentioning

confidence: 99%

The heterogeneous impact of Brexit: Early indications from the FTSE

Davies

Studnicka

2018

European Economic Review

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“…the arrival of new information (regarding the likelihood of CUSFTA's implementation in the present case). 7 Since models of heterogeneous …rms make predictions about these pro…t changes, and how they vary across …rms with di¤erent sizes, productivity levels, or export status, stock market returns in response to unanticipated events can be used to implement empirical tests of this class of models.…”

Section: Linking Stock Prices To Expected Pro…tsmentioning

confidence: 99%

“…As usual, pro…t maximization implies that wages in country n are equal to labor productivity ( An ), w n = An . 7 Note that I assume that discount rates (ei) stay constant in the derivation of (2). As an approximation, (2) also holds if the ei change by the same factor for both …rms.…”

Section: Firm-level Pro…ts and Trade Liberalizationmentioning

confidence: 99%

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

Breinlich

2014

Journal of International Economics

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This paper presents novel empirical evidence on key predictions of heterogeneous …rm 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 rati…cation, I show that the pattern of abnormal returns of Canadian manufacturing …rms was strongly consistent with predictions related to export (U.S.) tari¤ reductions, but less so with predictions related to import (Canadian) tari¤ reductions. Lower Canadian tari¤s did have an e¤ect through the implied reduction in intermediate input tari¤s, however.

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“…12 In particular, the authors pool the estimated abnormal returns from the three-day event window across the five firms and use them as the dependent variable in a panel model to evaluate whether firm-specific 12. A second-stage analysis is a common approach to identifying factors that explain variation in wealth effects; see, for example, Harris and Ravenscraft (1991), Blonigen et al (2004), and Desai and Hines (2004). To the best of these authors' knowledge, however, this approach has not been used in previous studies of antismoking policies.…”

Section: B Second-stage Estimationmentioning

confidence: 99%

Settling the Smoke: Public Policy and Shareholder Wealth in the Cigarette Industry

Wooster

Gallet

2005

Contemporary Economic Policy

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This article uses daily data on stock returns of five U.S. publicly traded cigarette producers to document the wealth effects of antismoking policies initiated in the period 1964 to 1971. The authors find significant abnormal returns across 23 dates corresponding to important regulatory events. The second‐stage estimation shows that wealth effects are also influenced by firm characteristics, such as market share, advertising intensity, percentage of sales of filter‐tip cigarettes, percentage of advertising expenditures devoted to TV and radio, and tobacco leaf inventories. Overall, the article estimates that industry losses from antismoking policies amounted to approximately $1.5 billion. (JEL L66, G14, I18)

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Tariff‐jumping FDI and domestic firms’ profits

Cited by 55 publications

References 25 publications

The heterogeneous impact of Brexit: Early indications from the FTSE

The heterogeneous impact of Brexit: Early indications from the FTSE

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

Settling the Smoke: Public Policy and Shareholder Wealth in the Cigarette Industry

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