Kiel Working Papers, Kiel Institute for World Economics
No 1570:
Why "Buy American'' is a Bad Idea but Politicians Still Like it
Mario Larch and Wolfgang Lechthaler
Abstract: When the world economy was recently hit by a severe
recession, governments all over the world reacted by initiating stimulus
packages. Some countries (among them, most notably, China and the US) tried
to put special emphasis on their home industries by including ``Buy local''
clauses into the stimulus package. By analyzing the dynamics of transitory
changes of trade barriers as a short-run response to an economic downturn,
we show that beggar-thy-neighbor policy does not work. We then come up with
two rationales that help to understand why countries nevertheless consider
protectionism to be a good response to a recession: (i) the relationship
between vulnerability and the degree of openness to trading partner
countries, and (ii) the lobbying of domestic, non-exporting firms
Keywords: Protectionism; trade liberalization; short term shocks; (follow links to similar papers)
JEL-Codes: F11,; F12,; F16; (follow links to similar papers)
46 pages, November 2009
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