Determinants of Trade Policy Responses to the 2008 Financial Crisis

49 Pages Posted: 20 Apr 2016

See all articles by Kishore Gawande

Kishore Gawande

University of Texas at Austin

Bernard Hoekman

Robert Schuman Centre for Advanced Studies; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS); Centre for Economic Policy Research (CEPR)

Yue Cui

affiliation not provided to SSRN

Date Written: October 1, 2011

Abstract

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.

Keywords: Free Trade, Trade Policy, Economic Theory & Research, International Trade and Trade Rules, Debt Markets

Suggested Citation

Gawande, Kishore and Hoekman, Bernard and Cui, Yue, Determinants of Trade Policy Responses to the 2008 Financial Crisis (October 1, 2011). World Bank Policy Research Working Paper No. 5862, Available at SSRN: https://ssrn.com/abstract=1952491

Kishore Gawande (Contact Author)

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

Bernard Hoekman

Robert Schuman Centre for Advanced Studies ( email )

Fiesole, Tuscany
Italy

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Yue Cui

affiliation not provided to SSRN ( email )

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