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Shortages of Critical Goods in a Global Economy

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Abstract

This paper studies shortages of critical goods in an open economy with credit market frictions and the role of trade and industrial policy in mitigating them. We develop a dynamic model with essential and non-essential goods, heterogeneous households and concentrated firm ownership. When global demand for essential goods rises, leverage-dependent borrowing premia lead firms to underinvest, and trade amplifies domestic shortages as producers shift supply toward exports. Calibrated to the U.S. during COVID-19, we show that export taxes, import subsidies and production subsidies can mitigate shortages and raise welfare. The effectiveness of financial support depends on its design and funding.

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  • Fernando Leibovici & Ana Maria Santacreu, 2026. "Shortages of Critical Goods in a Global Economy," Working Papers 2637, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddwp:104008
    DOI: 10.24149/wp2637
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    JEL classification:

    • F10 - International Economics - - Trade - - - General

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