Trade liberalization, profitability, and financial leverage

We investigate the effects of trade liberalization on profitability and financial leverage using Canadian data arising from implementation of the Canada-US Free Trade Agreement. We find that falling domestic tariffs are associated with declining profits, especially for import-competing firms, while falling foreign tariffs are associated with increasing profits, especially for export-oriented firms. Also, import tariff reductions tend to increase leverage while export tariff reductions tend to decrease leverage.