Three Essays on Trade and Economic Development

Abstract

This thesis includes three essays on trade and economic development. In the second chapter, I analyzed the impact of public uprising and democratic transformation on economic favoritism in the context of Tunisia, referencing the Arab Spring, through stock market analysis. The study is set to a historical perspective. The data comes from financial statements of companies listed in the Tunisian Stock Market, and from Morgan Stanley Capital Indices (MSCI) for the world and Tunisian stock markets over the period of 2005 – 2011. The study used daily cumulative return of stock as a measurement of expected economic performance of each firm. In this vein, the study covers five main periods – for comparing the cumulative return during and after the Jasmine Revolution. The study implements the event-study method. The main finding of the study is that the street demonstrations against the former president of Tunisia, and democratic transformation favored the Islamic firms. This finding supports the evidence that the investors in the Tunisian Stock Market update their information and adjust their behavior toward investments in the stock market according to the current regime. The finding also suggests that the investors (or the firms) connected to the party in power were getting benefits from the current regime relative to non-connected firms. The third chapter studies the impact of tariff rationalization on import prices and volumes. We studied how the improved institutional set-up under National Tariff Policy (NTP) 2019 – 24 has increased the pace at which tariff rationalization is taking place in Pakistan, particularly in the case of raw materials and intermediate products. Since the approval of NTP 2019-24, the government has reduced tariffs on 6248 tariff lines including the introduction of a 0 percent slab for 2062 tariff lines. Our estimates based on the event study model show that the decline in tariffs of raw materials and the intermediate product has a near complete pass-through to import prices in the short term, which only decreased slightly in the long-term, and there was a delayed, but considerably large, increase in the quantity of imports. Moreover, following the tariffs rationalization, there was a substantial increase in the quantum index of large scale manufacturing and export ratio of publicly listed firms indicating that the industrial output and exports were also increased after tariff rationalization. The final chapter analyzes the impact of terrorist attacks on stock prices. I utilize data on terrorist incidents in Pakistan, and stock prices of Pakistani and Bangladeshi firms. Using propensity score matching and the event- study model, I estimate the causal impact of terrorist activities on stock prices. The analysis also includes propensity score matching method to match Bangladeshi firms in order to address the possible impact of confounding variables. The findings suggest that there is a negative impact of terrorist attacks on stock prices, and a positive impact on daily stock price volatility. The impact on both prices and volatility is short-lived, with a reversal of prices the day after an event indicating overreaction. Moreover, the results show that there are possible speculations after the reversal of stock prices, as there are positive impacts on stock prices following the reversal.