Job Market Paper: The Dynamic Response to Trade Policy
I study the behavior of textile and clothing makers in the U.S. as they were exposed to a large, anticipated increase in foreign competition through the removal of import quotas. I find a strong decline in capital investment in the industries that are likely to be the most vulnerable to such competition. The decline appears as many as nine years before the scheduled liberalization date. I present two models of optimal industry investment in the presence of capital adjustment costs, and I establish their predictions regarding these industries. Using industry panel data, I examine developments in the output and capital markets for these industries, and I find that they are broadly consistent with the models' predictions. This suggests that capital adjustment costs can play a central role in driving the dynamics that are precipitated by an episode of trade liberalization.
The Marginal Products of Residential and Non-Residential Capital Through 2009, with Casey B. Mulligan, 2010. Under review, Review of Economics and Statistics.
Market Responses to the Panic of 2008 , with Casey B. Mulligan, 2008.
