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Trade and Economic Effects of Responses to the Economic Crisis

image of Trade and Economic Effects of Responses to the Economic Crisis

The dramatic collapse in world trade in 2009 is, this report shows, mainly due to: the drop in demand for highly traded products; the drying up of trade finance; and the vertically integrated nature of global supply chains. Contrary to expectations, protectionist measures were relatively muted and did not play a significant part. In fact, because of their sheer size, stimulus measures may have had more impact on trade than direct trade policy measures Nevertheless, dollar for dollar, direct trade restricting measures have the most strongly negative impacts on growth and employment: a one dollar increase in tariff revenues results in a USD 2.16 drop in world exports and a USD 0.73 drop in world income. 

The analyses presented here suggest that exit strategies from measures to deal with the crisis will be most effective in boosting growth and jobs if they first roll back measures that discriminate between domestic and foreign firms and those that target specific sectors. General demand stimulus measures and active labour market policies are preferable under current conditions. 

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Policy Responses to the Economic Crisis

This chapter reviews policy measures that have been taken in OECD countries and other major economies in response to the crisis. The chapter is constructed around two axes. First, it provides an overview of policy responses directly affecting trade. Second, it reviews all behind-the-border developments observed after September 2008 that have had an indirect effect on world trade. Our analysis reveals that both measures facilitating and restricting trade have been introduced, but no strong pattern emerges concerning the profile of countries choosing one direction over the other. The frequency of measures has nevertheless been higher in sectors such as agro-industries, metal, chemical industries, and products originating from Asia. The amount of imports directly targeted by all new trade measures is relatively small, yet government intervention behind the borders has been extensive; so a priori, that is where the impact on trade could be the greatest. Lastly, a brief discussion of the trade impact of government procurement policies and interventions to support the financial sector has also been included in this chapter.

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