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Protectionist Responses to the Crisis

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  • Bradley J. McDonald
  • Christian Henn
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    Abstract

    This paper investigates how trade flows are being affected by new discriminatory measures implemented during the global financial crisis. We match data on behind-the-border measures (e.g., bailouts and subsidies) and border measures implemented through April 2010 to monthly HS 4-digit bilateral trade data. Our estimation strategy relies on a first-differenced gravity equation and time-varying fixed effects to disentangle the impact of new discriminatory measures. Trade in exporter-importer pairs subject to new measures decreased by 5 to 8 percent relative to trade in the same product among pairs not subject to new measures. These product-level results imply global trade declines at the aggregate level of about 0.2 percent, or $30-35 billion a year. These aggregate figures would be higher, if one third of measures had not been excluded due to incomplete data. The paper then goes on to dissect protectionism’s trade impact by disaggregating measures by type, advanced/developing countries, regions, sectors, and time. Behind-the-border measures are found to have been more harmful than border measures at the product level. Among border measures, impacts tend to be higher for less transparent measures. Advanced countries are found to be responsible for 2/3 of the trade decline due to crisis protectionism, but their exports also absorbed 2/3 of this decline. When breaking down measures in a time dimension, we find that those taken in the first nine months after the Lehman collapse were most harmful and likely continue to constitute a drag on trade.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/139.

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    Length: 41
    Date of creation: 01 Jun 2011
    Date of revision:
    Handle: RePEc:imf:imfwpa:11/139

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    Related research

    Keywords: Protectionism; Trade restrictions; Global Financial Crisis 2008-2009; Trade policy; trade flows; trade impact; import restrictions; global trade; protectionist measures; export restrictions; world trade; aggregate trade; trade data; tariff barriers; export support; developing country exports; domestic subsidies; exporter; discriminatory measures; non-tariff barriers; import bans; trade partners; elasticity of substitution; trade flow; bilateral trade; trade facilitation; merchandise trade; trading partners; domestic firms; antidumping duties; world trade organization; trade barriers; value of trade; exporters; changes in trade; export subsidies; import demand; trade determinants; domestic production; transport equipment; protectionist measure; export market; aggregate imports; trade volume; domestic market; international trade; nontariff barriers; tariff lines; trade volumes; world economy; world exports; trade liberalization; export structure; trade effects; tariff reductions; partner countries; importing countries; protectionist pressures; domestic industries; tariff increases; supply chain; global economic recovery; antidumping measures; trade changes; countries ? exports; trading costs; import quotas; import barriers; transport sector; anti-dumping duties; economic integration; increasing exports; merchandise trade flows; domestic price; trade losses; external imports; trade imbalances; bilateral trade data; trade policy review; average trade; regional trade; import value; tariff schedules; trade flow data; bilateral trade flows; investment incentives; safeguard measures; economic cooperation; export subsidy; exporting sector; preferential trade agreements; trade policies; external trade; trade values; global merchandise; income elasticities; trade agreements; domestic industry; international trading; global shocks; export policies; preferential trade; importing country; anti-dumping measures;

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    References

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    1. Paulo Guimarães & Pedro Portugal, 2009. "A Simple Feasible Alternative Procedure to Estimate Models with High-Dimensional Fixed Effects," Working Papers w200909, Banco de Portugal, Economics and Research Department.
    2. James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
    3. Susumu Imai & Hajime Katayama & Kala Krishna, 2006. "Protection for Sale or Surge Protection?," Working Papers 1114, Queen's University, Department of Economics.
    4. Matthieu Bussière & Emilia Pérez‐Barreiro & Roland Straub & Daria Taglioni, 2011. "Protectionist Responses to the Crisis: Global Trends and Implications," The World Economy, Wiley Blackwell, vol. 34, pages 826-852, 05.
    5. Yvan Decreux & Lionel Fontagné, 2011. "Economic Impact of Potential Outcome of the DDA," Working Papers 2011-23, CEPII research center.
    6. Rob Gregory & Christian Henn & Brad Mcdonald & Mika Saito, 2010. "Trade And The Crisis: Protect Or Recover," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 1(02), pages 165-181.
    7. Barry Eichengreen & Douglas A. Irwin, 2009. "The Slide to Protectionism in the Great Depression: Who Succumbed and Why?," NBER Working Papers 15142, National Bureau of Economic Research, Inc.
    8. Kee, Hiau Looi & Neagu, Cristina & Nicita, Alessandro, 2010. "Is protectionism on the rise ? assessing national trade policies during the crisis of 2008," Policy Research Working Paper Series 5274, The World Bank.
    9. Andrei A. Levchenko & Logan Lewis & Linda L. Tesar, 2009. "The Collapse of International Trade During the 2008-2009 Crisis: In Search of the Smoking Gun," Working Papers 592, Research Seminar in International Economics, University of Michigan.
    10. Theo S. Eicher & Christian Henn, 2008. "In Search of WTO Trade Effects: Preferential Trade Agreements Promote Trade Strongly, But Unevenly," Working Papers UWEC-2008-22-FC, University of Washington, Department of Economics.
    11. I-Hui Cheng & Howard J. Wall, 2005. "Controlling for heterogeneity in gravity models of trade and integration," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 49-63.
    12. Christian Broda & Joshua Greenfield & David Weinstein, 2006. "From Groundnuts to Globalization: A Structural Estimate of Trade and Growth," NBER Working Papers 12512, National Bureau of Economic Research, Inc.
    13. Andrei A Levchenko & Logan T Lewis & Linda L Tesar, 2010. "The Collapse of International Trade during the 2008–09 Crisis: In Search of the Smoking Gun," IMF Economic Review, Palgrave Macmillan, vol. 58(2), pages 214-253, December.
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    Citations

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    Cited by:
    1. Datt, Mohini & Hoekman, Bernard & Malouche, Mariem, 2011. "Taking Stock of Trade Protectionism Since 2008," World Bank - Economic Premise, The World Bank, issue 72, pages 1-9, December.
    2. Chauvin, Nicolas Depetris & Ramos, Maria Priscila, 2013. "The welfare effect of the new wave of protectionism: The case of Argentina," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 151626, Agricultural and Applied Economics Association.
    3. Georgiadis, Georgios & Gräb, Johannes, 2013. "Growth, real exchange rates and trade protectionism since the financial crisis," Working Paper Series 1618, European Central Bank.

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