Who Wins and Who Loses from Trade Agreements? Firm-Level Evidence from TPP and TTIP

Trade agreements produce winners and losers. Much recent academic research expects large, multinational companies to benefit most from trade liberalization. This argument is based on the consideration that large companies are at the same time the most productive companies. Only highly productive companies, in turn, can engage in foreign trade. Large companies hence are expected to be the main winners of trade agreements, meaning that these agreements further increase the market power of already large companies. By contrast, many policymakers argue that trade agreements are most beneficial for small and mid-sized companies. The reasoning behind this argument is that trade barriers cause disproportionate costs for smaller companies. Large companies can use foreign direct investments to sidestep at-the-border barriers to trade. They also have the resources to comply with different regulatory requirements in foreign markets. These ways of dealing with trade barriers are not available to smaller companies, meaning that they benefit most from the removal of trade barriers triggered by trade agreements. We test these two expectations against each other using daily, firm-level stock price data for 2000 US companies over the period 2013-2017. Concretely, we assess how the shares of different types of firms react to news on the (lack of) progress of two prominent trade negotiations, namely the ones aimed at concluding the Transpacific Partnership Agreement (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). The choice of these two trade agreements allows us to examine to which extent the effects of trade agreements are conditional on characteristics of the partner countries.