Wednesday, May 16, 2012

New Paper on Protectionism

Andrew Rose has posted a short paper on NBER: "Protectionism Isn't Counter‐Cyclic (anymore)".  Here is the abstract:
Conventional wisdom holds that protectionism is counter-cyclic; tariffs, quotas and the like grow during recessions. While that may have been a valid description of the data before the Second World War, it is now inaccurate. In the post-war era, protectionism has not actually moved counter-cyclically. Tariffs and non-tariff barriers simply do not rise systematically during cyclic downturns. I document this new stylized fact with a panel of data covering over 60 countries and 30 years, using eighteen measures of protectionism and seven of business cycles. I also provide some hints as to why protectionism is no longer counter-cyclic.
And from the article:
One of the most striking features of Figure 3 is at its extreme right; the “Great Recession” of 2009 was a collapse of global growth without any corresponding uptick in trade disputes.  This is a striking observation; the most serious recession in generations does not seem to have resulted in more protectionism, despite an unprecedented collapse in international trade.  The behavior of protectionism around the Great Recession is worthy of further investigation.
The author considers five reasons why protectionism is expected to be counter-cyclical, including to maintain tax revenues and balance exchange rate and import pressures, and lays out the data to suggest that protectionism might have been counter-cyclical before WWII, but hasn't been since.  He concludes:
... Perhaps, just perhaps, the switch in the cyclicality of protectionism – if there has indeed been one – is a triumph of modern economics.  After all, there is considerable and strong consensus among economists that protectionism is generally bad for welfare.  And there is no doubt that economists are aware and actively involved in combating counter‐cyclic protectionism; this was especially visible during the Great Recession, which saw the successful launch of Global Trade Alert in June 2009.  If – and it’s a big if – the efforts of the economic profession are part of the reason that protectionism is no longer counter‐cyclic, then the profession deserves a collective pat on the back.  But in that case the profession should also consider setting its sights higher.  If economists have helped reduce the cyclicality of protectionism, then perhaps they should focus on simply reducing protectionism."

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