DP17387 Using Equity Market Reactions to Infer Exposure to Trade Liberalization

Author(s): Andrew Greenland, Mihai Ion, John Lopresti, Peter K. Schott
Publication Date: June 2022
Keyword(s): Abnormal Returns, China shock, CUSFTA, event study, PNTR
JEL(s):
Programme Areas: Financial Economics, International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=17387

We propose a method for identifying exposure to changes in trade policy based on asset prices that has several advantages over standard measures: it encompasses all avenues of exposure, it is natively firm-level, it yields estimates for both goods and service producers, and it can be used to study reductions in difficult-to-quantify non-tariff-barriers in a way that controls naturally for broader macroeconomic shocks. Applying our method to two well-studied US trade liberalizations provides new insight into service sector responses to trade liberalizations as well as dramatically different responses among small versus large firms, even within narrow industries.