The impact of protectionism on firm wealth: the experience of the steel industry

Neo-classical trade theory argues that trade restrictions result in a redistribution of income from consumers to the protected firms. In this paper we test for the existence of wealth gains (or losses) upon changes in trade protection for the steel industry. The gains or losses are related to individual firm characteristics. This second issue is important because economists typically analyze the effects of trade protection on an industry basis; rarely do they discuss the question of the distribution of rents to individual firms. Our research differs from prior studies in three ways. First, we focus specifically on the question of whether or not domestic steel producers capture the economic rents created by trade restrictions. Second, unlike the above studies, we use the event study methodology from finance and accounting to measure the economic impact of trade restrictions on domestic steel producers. Third, we examine the intra-industry effects of trade restrictions, using cross sectional analysis to specify the types of steel firms most likely to capture the economic rents. -from Authors