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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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Bibliographic Info

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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  1. Sofronis Clerides & Saul Lach & James Tybout, 1996. "Is "learning-by-exporting" important? Micro-dynamic evidence from Colombia, Mexico and Morocco," Finance and Economics Discussion Series 96-30, Board of Governors of the Federal Reserve System (U.S.).
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  17. Gary Clyde Hufbauer & Jeffrey J. Schott, 2009. "Buy American: Bad for Jobs, Worse for Reputation," Policy Briefs PB09-2, Peterson Institute for International Economics.
  18. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September.
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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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