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Economic Crises and Trade Policy Competition

Published online by Cambridge University Press:  30 June 2016

Abstract

How do crises affect trade policy? This article reconciles starkly diverging accounts in the literature by showing that economic adversity generates endogenous incentives not only for protection, but also for liberalization. It first formally develops the mechanisms by which two features of shocks – intensity and duration – influence the resources and political strategies of distressed firms. The central insight is that policy adjustments to resuscitate afflicted industries typically generate ‘knock-on’ effects on the profitability and political maneuverings of other firms in the economy. The study incorporates these countervailing pressures in its analysis of trade policy competition. In the wake of crises, protection initially increases when affected firms lobby for assistance, but then decreases as industries run low on resources to expend on lobbying and as firms in other industries mobilize to counter-lobby. The theoretical predictions are tested using sub-national and cross-national data, and real-world illustrations are presented to highlight the mechanisms driving the results.

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Articles
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© Cambridge University Press 2016 

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Footnotes

*

Department of Political Science, University of North Carolina at Chapel Hill (email: [email protected]); Department of Political Science, Columbia University (email: [email protected]); Department of Political Science, Columbia University (email: [email protected]). Helpful comments from Peter Aronow, Alex Debs, Thad Dunning, Robert Gulotty, Lucy Martin, Thania Sanchez, Kenneth Scheve, and the participants of the 2012 International Political Economy Conference (IPES) conference and seminars at University of California, Berkeley, Duke University and Yale University are greatly appreciated. Authors are listed in alphabetical order and contributed equally. Data replication sets are available at http://dataverse.harvard.edu/dataverse/BJPolS and online appendices are available at http://dx.doi.org/doi:10.1017/S0007123416000132.

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