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Import protection, business cycles, and exchange rates : evidence from the great recession

  • Bown, Chad P.
  • Crowley, Meredith A.

This research estimates the impact of macroeconomic fluctuations on import protection policies over 1988:Q1-2010:Q4 for five industrialized economies -- the United States, European Union, Australia, Canada and South Korea. There is evidence of a strong countercyclical trade policy response in the pre-Great Recession period of 1988:Q1-2008:Q3 during which increases in domestic unemployment rates, real appreciations in bilateral exchange rates, and declines in the GDP growth rates of bilateral trading partners led to substantial increases in new temporary trade barriers. It then applies this pre-Great Recession empirical model to realized macroeconomic data from 2008:Q4-2010:Q4 and find it predicts a surge of new import protection during the Great Recession -- e.g., for the US and EU, the model predicts new trade barriers would cover an additional 15 percentage points of nonoil imports, well above the baseline level of 2-3 percent of import coverage immediately preceding the crisis. Finally, the research examines why the realized trade policy response differed from model predictions. While exchange rate movements played an important role in limiting new import protection during the Great Recession, there is also evidence of one particularly important change in trade policy responsiveness; i.e., in this period, governments refrained from imposing new temporary trade barriers against foreign trading partners experiencing their own weak or negative economic growth.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6038.

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Date of creation: 01 Apr 2012
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Handle: RePEc:wbk:wbrwps:6038
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  1. Meredith Crowley, 2006. "Why are safeguards needed in a trade agreement?," Working Paper Series WP-06-06, Federal Reserve Bank of Chicago.
  2. Staiger, R.W. & Wolak, F.A., 1994. "Measuring Industry Specific Protection: Antidumpting in the United States," Working papers 9413, Wisconsin Madison - Social Systems.
  3. Kyle Bagwell & Robert W. Staiger, 2006. "What Do Trade Negotiators Negotiate About? Empirical Evidence from the World Trade Organization," NBER Working Papers 12727, National Bureau of Economic Research, Inc.
  4. Chad P. Bown, 2011. "Taking Stock of Antidumping, Safeguards and Countervailing Duties, 1990–2009," The World Economy, Wiley Blackwell, vol. 34(12), pages 1955-1998, December.
  5. Crowley Meredith A., 2010. "Split Decisions in Antidumping Cases," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-26, July.
  6. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 21-92, Tel Aviv.
  7. James Brander & Paul Krugman, 1980. "A "Reciprocal Dumping" Model of International Trade," Working Papers 405, Queen's University, Department of Economics.
  8. Trefler, Daniel, 1993. "Trade Liberalization and the Theory of Endogenous Protection: An Econometric Study of U.S. Import Policy," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 138-60, February.
  9. Rose, Andrew K, 2012. "Protectionism Isn’t Counter-Cyclic (anymore)," CEPR Discussion Papers 8937, C.E.P.R. Discussion Papers.
  10. Kishore Gawande & Usree Bandyopadhyay, 2000. "Is Protection for Sale? Evidence on the Grossman-Helpman Theory of Endogenous Protection," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 139-152, February.
  11. Thomas Prusa & Michael Knetter, 2000. "Macroeconomic Factors and Antidumping Filings: Evidence from Four Countries," Departmental Working Papers 200023, Rutgers University, Department of Economics.
  12. Kyle Bagwell & Robert W. Staiger, 1989. "A Theory of Managed Trade," Discussion Papers 801, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Kyle Bagwell & Robert W. Staiger, 1995. "Protection and the Business Cycle," NBER Working Papers 5168, National Bureau of Economic Research, Inc.
  14. Douglas A. Irwin, 2005. "The Rise of U.S. Antidumping Activity in Historical Perspective," IMF Working Papers 05/31, International Monetary Fund.
  15. Bown, Chad P., 2013. "How different are safeguards from antidumping ? evidence from us trade policies toward steel," Policy Research Working Paper Series 6378, The World Bank.
  16. Kee, Hiau Looi & Neagu, Cristina & Nicita, Alessandro, 2010. "Is protectionism on the rise ? assessing national trade policies during the crisis of 2008," Policy Research Working Paper Series 5274, The World Bank.
  17. Wendy L. Hansen & Thomas J. Prusa, 1996. "Cumulation and ITC Decision-Making: The Sum of the Parts is Greater Than the Whole," Departmental Working Papers 199422, Rutgers University, Department of Economics.
  18. Christian Broda & Nuno Limao & David E. Weinstein, 2008. "Optimal Tariffs and Market Power: The Evidence," American Economic Review, American Economic Association, vol. 98(5), pages 2032-65, December.
  19. Meredith Crowley, 2007. "Cyclical dumping and U.S. antidumping protection: 1980-2001," Working Paper Series WP-07-21, Federal Reserve Bank of Chicago.
  20. BOWN, CHAD P. & McCULLOCH, RACHEL, 2003. "Nondiscrimination and the WTO Agreement on Safeguards," World Trade Review, Cambridge University Press, vol. 2(03), pages 327-348, November.
  21. Hausman, Jerry & Hall, Bronwyn H & Griliches, Zvi, 1984. "Econometric Models for Count Data with an Application to the Patents-R&D Relationship," Econometrica, Econometric Society, vol. 52(4), pages 909-38, July.
  22. Ludema, Rodney D & Mayda, Anna Maria, 2011. "Canada: No Place Like Home for Antidumping," CEPR Discussion Papers 8389, C.E.P.R. Discussion Papers.
  23. Chad P. Bown, 2010. "China's WTO Entry: Antidumping, Safeguards, and Dispute Settlement," NBER Chapters, in: China's Growing Role in World Trade, pages 281-337 National Bureau of Economic Research, Inc.
  24. Pinelopi Koujianou Goldbe & Giovanni Maggi, 1997. "Protection for Sale: An Empirical Investigation," NBER Working Papers 5942, National Bureau of Economic Research, Inc.
  25. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
  26. 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.
  27. Robert M. Feinberg, 2005. "U.S. Antidumping Enforcement and Macroeconomic Indicators Revisited: Do Petitioners Learn?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 141(4), pages 612-622, December.
  28. Feinberg, Robert M, 1989. "Exchange Rates and "Unfair Trade."," The Review of Economics and Statistics, MIT Press, vol. 71(4), pages 704-07, November.
  29. Hillman, Arye L, 1982. "Declining Industries and Political-Support Protectionist Motives," American Economic Review, American Economic Association, vol. 72(5), pages 1180-87, December.
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