The effect of an unexpected trade barrier on the business performance: A difference-in-differences approach applied to Italian manufacturing firms.

Abstract

This thesis investigates the effects of an unexpected increase in trade barriers on the performance of the companies over the period 2019-2020. For this purpose, the COVID-19 pandemic generates conditions to recreate the environment in which international trade is abruptly restricted, which was not foreseen by companies nor the public sector. In a difference-in-difference framework, we provide an identification strategy based on the exogenous external shock generated by the COVID-19 in other countries and by controlling for the internal supply and demand shocks during 2020 through the heterogeneity of the severity and duration of the COVID-19 waves in the provinces of Italy including potential spill-over effects between them. A unified database is created by data stem from Orbis, Italy’s Bureau of Statistics, and the Italian Ministry of health, because the treatment variable was not observed at a firm level, and it was approximated using two measures of propensity to export built on regional, subsector and sector variables. The results show that firms with a medium propensity to export were more affected compared to firms with a low propensity to export in terms of sales to active ratio. Similar results hold for firms with a high level of exportability, but its significance is less robust. Moreover, it is observed differences in performance between essential and non-essential economic activities, particularly in the pharmaceutical and chemical sector.