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Import protection, business cycles, and exchange rates: Evidence from the Great Recession

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  • Bown, Chad P.
  • Crowley, Meredith A.

Abstract

This paper estimates the impact of macroeconomic fluctuations on import protection policies over 1988:Q1–2010:Q4 for five industrialized economies — the United States, European Union, Australia, Canada and South Korea. We find evidence of a strong countercyclical trade policy response in the pre-Great Recession period of 1988:Q1–2008:Q3 during which increases in domestic unemployment rates, real appreciations in bilateral exchange rates, and declines in the GDP growth rates of bilateral trading partners led to substantial increases in new temporary trade barriers. We then apply this pre-Great Recession empirical model to realized macroeconomic data from 2008:Q4 to 2010:Q4 and find that it predicts a surge of new import protection during the Great Recession — e.g., for the US and EU, the model predicts that new trade barriers would cover an additional 15 percentage points of nonoil imports, well above the baseline level of 2–3% of import coverage immediately preceding the crisis. Finally, we examine why the realized trade policy response differed from model predictions. While exchange rate movements played an important role in limiting new import protection during the Great Recession, we provide evidence of one particularly important change in trade policy responsiveness; i.e., in this period, governments refrained from imposing new temporary trade barriers against foreign trading partners experiencing their own weak or negative economic growth.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 90 (2013)
Issue (Month): 1 ()
Pages: 50-64

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Handle: RePEc:eee:inecon:v:90:y:2013:i:1:p:50-64

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Web page: http://www.elsevier.com/locate/inca/505552

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Keywords: Antidumping; Safeguards; Temporary trade barriers; US; EU; Macroeconomic fluctuations;

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References

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The Great Recession and Trade Protectionism: What Went Right?
    by Edward Alden in Renewing America on 2012-05-01 18:47:40
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Rudolfs Bems & Robert C. Johnson & Kei-Mu Yi, 2013. "The Great Trade Collapse," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 375-400, 05.
  2. Bernard M. Hoekman, 2013. "The World Bank Group Trade Strategy: Fit for Purpose?," RSCAS Working Papers PP2013/04, European University Institute.
  3. Chad Bown, 2013. "How Different Are Safeguards from Antidumping? Evidence from US Trade Policies Toward Steel," Review of Industrial Organization, Springer, vol. 42(4), pages 449-481, June.
  4. Bown, Chad P., 2014. "Trade policy instruments over time," Policy Research Working Paper Series 6757, The World Bank.
  5. Chad P. Bown & Baybars Karacaovali & Patricia Tovar, 2014. "What Do We Know About Preferential Trade Agreements and Temporary Trade Barriers?," Working Papers 201418, University of Hawaii at Manoa, Department of Economics.
  6. Marc Auboin & Michele Ruta, 2012. "The Relationship between Exchange Rates and International Trade: A Literature Review," CESifo Working Paper Series 3868, CESifo Group Munich.
  7. Coughlin, Cletus C., 2014. "The great trade collapse and rebound: a state-by-state view," Review, Federal Reserve Bank of St. Louis, vol. 96(1), pages 13-33.
  8. Chad Bown & Meredith Crowley, 2013. "Emerging economies, trade policy, and macroeconomic shock," Working Paper Series WP-2012-18, Federal Reserve Bank of Chicago.
  9. J. Bradford Jensen & Dennis P. Quinn & Stephen Weymouth, 2013. "Global Supply Chains, Currency Undervaluation, and Firm Protectionist Demands," NBER Working Papers 19239, National Bureau of Economic Research, Inc.
  10. J. Bradford Jensen & Dennis P. Quinn & Stephen Weymouth, 2014. "The Influences Of Foreign Direct Investments, Intrafirm Trading, And Currency Undervaluation On U.S. Firm Trade Disputes," Working Papers 14-04, Center for Economic Studies, U.S. Census Bureau.
  11. Tamim Bayoumi, 2014. "After the Fall: Lessons for Policy Cooperation from the Global Crisis," IMF Working Papers 14/97, International Monetary Fund.
  12. Georgiadis, Georgios & Gräb, Johannes, 2013. "Growth, real exchange rates and trade protectionism since the financial crisis," Working Paper Series 1618, European Central Bank.
  13. Bown, Chad P., 2013. "Trade policy flexibilities and Turkey : tariffs, antidumping, safeguards, and WTO dispute settlement," Policy Research Working Paper Series 6322, The World Bank.

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