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Determinants of trade policy responses to the 2008 financial crisis

Author

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  • Gawande, Kishore
  • Hoekman, Bernard
  • Cui, Yue

Abstract

The collapse in trade and contraction of output that occurred during 2008-09 was comparable to, and in many countries more severe than, the Great Depression of 1930, but did not give rise to the rampant protectionism that followed the Great Crash. Theory suggests several hypotheses for why it was not in the interest of many firms to lobby for protection, including much greater macroeconomic"policy space"today, the rise of intra-industry trade (specialization in specific varieties), and the fragmentation of production across global value chains ("vertical"specialization and the associated growth of trade in intermediates). Institutions may also have played a role in limiting the extent of protectionist responses. World Trade Organization disciplines raise the cost of using trade policies for member countries and have proved to be a stable foundation for the open multilateral trading system that has been built over the last fifty years. This paper empirically examines the power of these and other theories to explain the observed pattern of trade policy responses to the 2008 crisis, using trade and protection data for seven large emerging market countries that have a history of active use of trade policy. Vertical specialization (global fragmentation) is found to be the most powerful economic factor determining trade policy responses.

Suggested Citation

  • Gawande, Kishore & Hoekman, Bernard & Cui, Yue, 2011. "Determinants of trade policy responses to the 2008 financial crisis," Policy Research Working Paper Series 5862, The World Bank.
  • Handle: RePEc:wbk:wbrwps:5862
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    References listed on IDEAS

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    Cited by:

    1. Bown, Chad P. & Crowley, Meredith A., 2013. "Import protection, business cycles, and exchange rates: Evidence from the Great Recession," Journal of International Economics, Elsevier, vol. 90(1), pages 50-64.
    2. Rudolfs Bems & Robert C. Johnson & Kei-Mu Yi, 2013. "The Great Trade Collapse," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 375-400, May.
    3. Henn, Christian & Gnutzmann-Mkrtchyan, Arevik, 2015. "The layers of the IT Agreement's trade impact," WTO Staff Working Papers ERSD-2015-01, World Trade Organization (WTO), Economic Research and Statistics Division.
    4. Emiliano Magrini & Pierluigi Montalbano & Silvia Nenci, 2013. "Are the EU trade preferences really effective? A Generalized Propensity Score evaluation of the Southern Mediterranean Countries' case in agriculture and fishery," Working Papers 2/13, Sapienza University of Rome, DISS.
    5. Chauvin, Nicolas Depetris & Ramos, Maria Priscila, 2013. "The welfare effect of the new wave of protectionism: The case of Argentina," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 151626, Agricultural and Applied Economics Association.

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    Keywords

    Free Trade; Trade Policy; Economic Theory&Research; International Trade and Trade Rules; Debt Markets;

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