Publication Type
Journal Article
Version
publishedVersion
Publication Date
9-2024
Abstract
We study how US manufacturing firms' investment responds to tariff reductions in supplier industries. Our estimates, based on tariff reductions following multinational trade agreements, suggest that a hypothetical 10% reduction of all upstream tariffs would increase downstream investment by 4% to 6%. This estimate is not explained by decreasing uncertainty and stems from tariff reductions for homogeneous and low-R\&D inputs, consistent with the investment response resulting from cost reductions rather than superior foreign technology embodied in imported inputs. Evidence from an instrumental variable estimation using the sudden increase in Chinese import penetration suggests that import competition also increases downstream investment.
Keywords
Import Tariffs, Investment, International Supply Chains, Trade in Intermediate Inputs
Discipline
Finance and Financial Management | Operations and Supply Chain Management
Research Areas
Finance
Publication
Journal of Financial and Quantitative Analysis
Volume
59
Issue
6
First Page
2695
Last Page
2732
ISSN
0022-1090
Identifier
10.1017/S0022109023000777
Publisher
Cambridge University Press
Citation
MARTIN, Thorsten and OTTO, Clemens A..
The downstream impact of upstream tariffs: Evidence from investment decisions in supply chains. (2024). Journal of Financial and Quantitative Analysis. 59, (6), 2695-2732.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7265
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.
Additional URL
https://doi.org/10.1017/S0022109023000777
Included in
Finance and Financial Management Commons, Operations and Supply Chain Management Commons