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Why `Buy American' is a bad idea but politicians still like it


  • Mario Larch
  • Wolfgang Lechthaler


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 National' 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-neighbour policies do not work. We then come up with two rationales that help us 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.

Suggested Citation

  • Mario Larch & Wolfgang Lechthaler, 2011. "Why `Buy American' is a bad idea but politicians still like it," Canadian Journal of Economics, Canadian Economics Association, vol. 44(3), pages 838-858, August.
  • Handle: RePEc:cje:issued:v:44:y:2011:i:3:p:838-858

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    References listed on IDEAS

    1. Julian di Giovanni & Andrei A. Levchenko, 2009. "Trade Openness and Volatility," The Review of Economics and Statistics, MIT Press, vol. 91(3), pages 558-585, August.
    2. Sofronis K. Clerides & Saul Lach & James R. Tybout, 1998. "Is Learning by Exporting Important? Micro-Dynamic Evidence from Colombia, Mexico, and Morocco," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 903-947.
    3. Furusawa, Taiji & Lai, Edwin L. -C., 1999. "Adjustment costs and gradual trade liberalization," Journal of International Economics, Elsevier, vol. 49(2), pages 333-361, December.
    4. Ben S. Bernanke & Kenneth S. Rogoff (ed.), 2001. "NBER Macroeconomics Annual 2000," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262523140, July.
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    7. Ben S. Bernanke & Kenneth Rogoff, 2001. "Editorial in "NBER Macroeconomics Annual 2000, Volume 15"," NBER Chapters,in: NBER Macroeconomics Annual 2000, Volume 15, pages 1-4 National Bureau of Economic Research, Inc.
    8. Leamer, Edward E., 1980. "Welfare computations and the optimal staging of tariff reductions in models with adjustment costs," Journal of International Economics, Elsevier, vol. 10(1), pages 21-36, February.
    9. World Bank & International Monetary Fund, 2009. "Global Monitoring Report 2009 : A Development Emergency," World Bank Publications, The World Bank, number 2625.
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    Cited by:

    1. Larch, Mario & Lechthaler, Wolfgang, 2011. "Is there a short-run case for protectionism? Trade policy and the business cycle," Kiel Working Papers 1717, Kiel Institute for the World Economy (IfW).
    2. Замулин О.А. & Платонов К.Е., 2015. "Протекционизм Как Противоциклическая Политика," Журнал Экономика и математические методы (ЭММ), Центральный Экономико-Математический Институт (ЦЭМИ), vol. 51(3), pages 3-18, июль.
    3. Larch, Mario & Lechthaler, Wolfgang, 2013. "Buy National or Buy International? The optimal design of government spending in an open economy," International Review of Economics & Finance, Elsevier, vol. 26(C), pages 87-108.
    4. Lechthaler, Wolfgang, 2016. "Protectionism in a liquidity trap," Economics Letters, Elsevier, vol. 145(C), pages 165-167.
    5. David R. DeRemer, 2015. "Opportunities for Cooperation in Removing Prohibitive Trade Barriers," IEHAS Discussion Papers 1533, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    6. Larch, Mario & Lechthaler, Wolfgang, 2016. "Buy National And The Business Cycle," Macroeconomic Dynamics, Cambridge University Press, vol. 20(05), pages 1196-1218, July.

    More about this item

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions


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