Determinants of Trade Policy Responses to the 2008 Financial Crisis
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....
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20111031093440 http://hdl.handle.net/10986/3628 |
| Summary: | 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. |
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