Working Paper: CEPR ID: DP14691
Authors: Mary Amiti; Sang Hoon Kong; David Weinstein
Abstract: We develop a new method of quantifying the impact of policy announcements on investment rates that makes use of stock market data. By estimating the effect of U.S.-China tariff announcements on aggregate returns and the differential returns of firms exposed to China, we identify their effect on treated and untreated firms. We show theoretically and empirically that estimates of policy-induced stock-market declines imply lower returns to capital, which lowers investment rates. We estimate that the tariff actions through 2018 and 2019 will lower the investment growth rate of listed U.S. companies by 1.9 percentage points by the end of 2020.
Keywords: Protection; Event Studies; Adjustment Costs
JEL Codes: F13; F14; E22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| declines in stock market returns (G17) | lower returns to capital (D33) |
| lower returns to capital (D33) | reduced investment rates (G31) |
| declines in share prices (G10) | lower firm-level investment rates (G31) |
| US-China tariff announcements (F19) | declines in stock market returns (G17) |
| declines in stock market returns (G17) | reduced investment rates (G31) |
| US-China tariff announcements (F19) | lower investment growth rate of listed US companies (G31) |
| tariff actions from 2018 and 2019 (F13) | lower investment growth rate of listed US companies (G31) |
| US-China tariff announcements (F19) | declines in share prices (G10) |
| tariffs on US firms engaged with China (F23) | reductions in share prices (G12) |
| broader negative impact on firms (F69) | reductions in share prices (G12) |