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

61 Pages Posted: 20 Mar 2007

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 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.

Keywords: Current account deficit, multi-country DGE models, net asset positions, 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). CEPR Discussion Paper No. 5993. Available at SSRN: https://ssrn.com/abstract=975258

Hamid Faruqee (Contact Author)

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

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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