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Macroeconomic Consequences of Tariffs

Author

Listed:
  • Davide Furceri
  • Mrs. Swarnali A Hannan
  • Mr. Jonathan David Ostry
  • Mr. Andrew K. Rose

Abstract

We study the macroeconomic consequences of tariffs. We estimate impulse response functions from local projections using a panel of annual data that spans 151 countries over 1963-2014. We find that tariff increases lead, in the medium term, to economically and statistically significant declines in domestic output and productivity. Tariff increases also result in more unemployment, higher inequality, and real exchange rate appreciation, but only small effects on the trade balance. The effects on output and productivity tend to be magnified when tariffs rise during expansions, for advanced economies, and when tariffs go up, not down. Our results are robust to a large number of perturbations to our methodology, and we complement our analysis with industry-level data.

Suggested Citation

  • Davide Furceri & Mrs. Swarnali A Hannan & Mr. Jonathan David Ostry & Mr. Andrew K. Rose, 2019. "Macroeconomic Consequences of Tariffs," IMF Working Papers 2019/009, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2019/009
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    More about this item

    Keywords

    WP; sensitivity analysis; protection; output; productivity; unemployment; inequality; exchange rate; trade balance.; tariff change; output tariff effect; tariff increase; input tariff; tariff consequence; tariff rate; Tariffs; Trade balance; Real exchange rates; Protectionism; Global; Africa;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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