Would Protectionism Defuse Global Imbalances and Spur Economic Activity? A Scenario Analysis
In the evolving debate and analysis of global imbalances, a commonly overlooked issue pertains to rising protectionism. This paper attempts to fill that gap, examining the macroeconomic implications of trade policy changes through the lens of a dynamic general equilibrium model of the world economy encompassing four regional blocs. Simulation exercises are carried out to consider the imposition of uniform and discriminatory tariffs on trading partners as well as the case of tariff retaliation. We also discuss a scenario in which a 'globalization backlash' lowers the degree of competition in import-competing sectors, and compare the implications of higher markups in the product and labor markets.
We thank Matt Canzoneri, Mick Devereux, Dale Henderson, Christina Knowles, Gian Maria Milesi-Ferretti, Stephen Tokarick and Dietrich Vollrath, as well as two anonymous referees, for helpful comments and suggestions. We also thank Susanna Mursula and Chris Tonetti for invaluable assistance. The views expressed in this paper are those of the authors and should not be attributed to the International Monetary Fund, its Executive Board or its management, the Bank of Canada, the Federal Reserve Bank of New York, the Federal Reserve System, or any other institution with which the authors are affiliated. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Faruqee, Hamid & Laxton, Douglas & Muir, Dirk & Pesenti, Paolo, 2008. "Would protectionism defuse global imbalances and spur economic activity? A scenario analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 32(8), pages 2651-2689, August. citation courtesy of