Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/305527 
Year of Publication: 
2024
Series/Report no.: 
CESifo Working Paper No. 11285
Publisher: 
CESifo GmbH, Munich
Abstract: 
In this paper, we show that a reduction in capital goods prices induced by trade policies can stimulate both investment and labor. We exploit a quasi-natural experiment in the form of a trade reform in Colombia to study how firms with differential exposure to reductions in capital goods tariffs react in terms of their investment and labor decision. Firms that see a larger decline in the input tariff for capital goods increase investment and labor for production, as well as their labor share. Reductions in input tariffs are passed through to input prices for all goods. However, only lower prices for capital, not for other goods, translate into more investment and employment of production workers.
Subjects: 
investment
tariffs
capital goods
price of capital
employment
trade reform
Colombia
JEL: 
D22
D25
E22
E24
F13
F14
Document Type: 
Working Paper
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