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Self-Harming Trade Policy? Protectionism and Production Networks

Author

Listed:
  • Alessandro Barattieri
  • Matteo Cacciatore

Abstract

Using monthly data on temporary trade barriers (TTBs), we estimate the dynamic employment effects of protectionism through vertical production linkages. First, exploiting high-frequency data and TTB procedural details, we identify trade policy shocks exogenous to economic fundamentals. We then use input-output tables to construct measures of protectionism affecting downstream producers. Finally, we estimate panel local projections using the identified trade policy shocks. Protectionism has small and insignificant beneficial effects in protected industries. The effects in downstream industries are negative, sizable, and significant. The employment decline follows an increase in intermediate input and final goods prices and a decline in stock market returns.

Suggested Citation

  • Alessandro Barattieri & Matteo Cacciatore, 2023. "Self-Harming Trade Policy? Protectionism and Production Networks," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(2), pages 97-128, April.
    • Handle: RePEc:aea:aejmac:v:15:y:2023:i:2:p:97-128
    DOI: 10.1257/mac.20190445
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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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