Working Paper

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

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;

https://doi.org/10.17016/FEDS.2017.120

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2017-12-15

Number: 2017-120

Pages: 30 pages