Would Protectionism Defuse Global Imbalances and Spur Economic Activity? A Scenario Analysis

59 Pages Posted: 6 Dec 2006

See all articles by Hamid Faruqee

Hamid Faruqee

International Monetary Fund (IMF) - Research Department

Douglas Laxton

International Monetary Fund (IMF) - Research Department

Dirk Muir

Bank of Canada

Paolo A. Pesenti

Federal Reserve Bank of New York; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: December 2006

Abstract

In the evolving analysis of global imbalances, the possibility that countries will resort to increased protectionism is often mentioned but rarely analyzed. This paper attempts to fill that gap, examining the macroeconomic implications of a shift to protectionist policies through the lens of a dynamic general equilibrium model of the world economy that encompasses four regional blocs. Simulation exercises are carried out to assess the consequences of imposing uniform and discriminatory tariffs on trading partners as well as the consequences 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.

Keywords: current account deficit, multicountry dynamic general equilibrium models, trade policy

JEL Classification: E66, F32, F47

Suggested Citation

Faruqee, Hamid and Laxton, Douglas and Muir, Dirk and Pesenti, Paolo A., Would Protectionism Defuse Global Imbalances and Spur Economic Activity? A Scenario Analysis (December 2006). FRB of New York Staff Report No. 268. Available at SSRN: https://ssrn.com/abstract=949604 or http://dx.doi.org/10.2139/ssrn.949604

Hamid Faruqee

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Douglas Laxton

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Dirk Muir

Bank of Canada ( email )

234 Wellington Street
Ontario, Ontario K1A 0G9
Canada

Paolo A. Pesenti (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-5493 (Phone)
212-720-6831 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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