Self-Harming Trade Policy? Protectionism and Production Networks
Using monthly data on temporary trade barriers (TTBs), we estimate the dynamic employment effects of protectionism through vertical production linkages. First, exploiting procedural details of TTBs and high-frequency data, we identify movements in protectionism exogenous to economic fundamentals. We then use input-output tables to construct measures of protectionism affecting downstream producers. Finally, we estimate panel local projections using the identified trade-policy shocks. Protectionism has small and insignificant beneficial effects in protected industries. In contrast, the effects in downstream industries are negative, sizable, and significant. The employment decline follows an increase in intermediate-inputs and final goods prices.
First Draft: March 2019. ∗For very helpful comments, we thank our discussants Carlo Altomonte and Dennis Novy, as well as George Alessandria, Pol Antràs, Andrew Bernard, Emily Blanchard, Paola Conconi, Gabriel Felbermayr, Jonathan Eaton, Nuno Limão, Walter Steingress, and audiences at the Bank of Canada, the 2019 CEPR International Macroeconomics and Finance Programme Meeting, the University of Rochester Trade and Macroeconomics Workshop, the 2019 Sardinia Empirical Trade Conference. We are grateful to Neil Maru for excellent research assistance. All remaining errors are ours. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.