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The Economic Consequences of the U.S. Border Closure in Response to a Security Threat: A Dynamic CGE Assessment

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Abstract

We investigate the economic consequences of a twelve-month closure of U.S. borders in the form of cessation of trade, tourism and immigration flows. The federal government might contemplate such action in the face of an extreme terrorism or public health threat. Using a computable general equilibrium model, we find that border closure would cause substantial economic loss. However this damage is significantly reduced when critical imports (such as energy) are either exempted from the policy, or made available through use of domestic stockpiles (such as the Strategic Petroleum Reserve). Economic damage is reduced further if workers accept lower real wages for the duration of the security crisis. We argue that if border closure were ever to be contemplated as a response to a security or public health threat, it would be prudent to keep its scope to a minimum, to make its duration as short as possible, to allow market responses to run their course, and to enact countervailing policies that can help minimize the economic losses.

Suggested Citation

  • P.B. Dixon & J.A. Giesecke & M.T. Rimmer & A. Rose, 2009. "The Economic Consequences of the U.S. Border Closure in Response to a Security Threat: A Dynamic CGE Assessment," Centre of Policy Studies/IMPACT Centre Working Papers g-184, Victoria University, Centre of Policy Studies/IMPACT Centre.
  • Handle: RePEc:cop:wpaper:g-184
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    References listed on IDEAS

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    1. Dixon, Peter B. & Pearson, K.R. & Picton, Mark R. & Rimmer, Maureen T., 2005. "Rational expectations for large CGE models: A practical algorithm and a policy application," Economic Modelling, Elsevier, vol. 22(6), pages 1001-1019, December.
    2. Greene, David L & Jones, Donald W & Leiby, Paul N, 1998. "The outlook for US oil dependence," Energy Policy, Elsevier, vol. 26(1), pages 55-69, January.
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    More about this item

    Keywords

    border closure; strategic reserves; bottleneck imports; dynamic CGE;

    JEL classification:

    • F52 - International Economics - - International Relations, National Security, and International Political Economy - - - National Security; Economic Nationalism
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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