The effects of the Uruguay round: empirical evidence from U.S. industry

This article uses an event study to evaluate the anticipated results of the Uruguay Round on U.S. industry. Economists commonly use computable general equilibrium (CGE) models to predict the net economic efficiency effects of trade agreements. The event study method represents a complementary approach that relies on stock price movements to assess how investors predict that an event, in this case the conclusion of the Uruguay Round, will affect industry profitability. The empirical estimates indicate that U.S. industries with comparative advantage (disadvantage) experience positive (negative) stock price reactions, reflecting an increase (a decrease) in the industry trade and investment opportunities as well as an increased (decreased) return to existing tangible and intangible assets. For the market as a whole, the variation in stock prices does not differ significantly from zero, and the economic magnitude of industry gains and losses is small. These results are consistent with most CGE assessments and with the skeptical attitude that the real impact of the Uruguay Round Agreement remains uncertain.