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Why "Buy American" is a Bad Idea but Politicians still Like it

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  • Mario Larch
  • Wolfgang Lechthaler

Abstract

When the world economy was recently hit by a severe recession, governments all over the world reacted by initiating stimulus packages. Some countries (among them, most notably, China and the US) tried to put special emphasis on their home industries by including “Buy local” clauses into the stimulus package. By analyzing the dynamics of transitory changes of trade barriers as a short-run response to an economic downturn, we show that beggar-thy-neighbor policies do not work. We then come up with two rationales that help to understand why countries nevertheless consider protectionism to be a good response to a recession: (i) the lobbying of domestic, non-exporting firms, and (ii) the relationship between vulnerability, the degree of openness and loss aversion of consumers.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3207.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3207

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Keywords: protectionism; trade liberalization; short term shocks;

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References

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  18. Eric J. Bartelsman & Mark Doms, 2000. "Understanding productivity: lessons from longitudinal microdata," Finance and Economics Discussion Series 2000-19, Board of Governors of the Federal Reserve System (U.S.).
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Do not buy American
    by Economic Logician in Economic Logic on 2010-01-13 21:23:00

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