DP9119 Protectionism during the crisis: Tit-for-tat or chicken games?

Author(s): Mauro Boffa, Marcelo Olarreaga
Publication Date: September 2012
Keyword(s): Chicken-games, Financial crisis, Trade Retaliation
JEL(s): F13
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9119

During the recent financial crisis many countries resorted to protectionist measures to try to boost demand for domestically-produced goods. In this paper we explore the extent to which the adoption of protectionist measures led to retaliation by other countries undermining the increase in demand. We found no evidence of retaliation. On the contrary, there is strong evidence of chicken-games being played. Indeed, the probability of a protectionist measure being imposed on a trading partner's export bundle is significantly smaller when the partner imposes a protectionist measure on home exports.