Hostname: page-component-cd9895bd7-gvvz8 Total loading time: 0 Render date: 2024-12-23T06:47:56.308Z Has data issue: false hasContentIssue false
  • English
  • Français

BUY NATIONAL AND THE BUSINESS CYCLE

Published online by Cambridge University Press:  29 June 2015

Mario Larch  and
Wolfgang Lechthaler
Mario Larch*
Affiliation:
University of Bayreuth, ifo Institute, CESifo and GEP
Wolfgang Lechthaler
Affiliation:
Kiel Institute for the World Economy
*
Address correspondence to: Mario Larch, University of Bayreuth, ifo Institute, CESifo, and GEP, Universitaetsstrasse 30, 95447 Bayreuth, Germany; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

By concentrating a stimulus on the domestic economy, Buy National clauses are argued to lead to higher fiscal multipliers. We show that this argument falls short. Although it is true that domestic demand for domestic goods is increased, at the same time foreign demand for domestic goods is reduced by adverse changes in the real exchange rate. The two effects are of similar magnitude, so that Buy National clauses do not lead to a stronger stimulus to GDP. Apart from that, restricting the stimulus to domestic products makes the stimulus more expensive, because cheap foreign products are ignored. Consequently, real public consumption is lowered by Buy National clauses.

Keywords

Business Cycle PolicyProtectionismBuy National Clauses
Type
Articles
Information
Macroeconomic Dynamics , Volume 20 , Issue 5 , July 2016 , pp. 1196 - 1218
Copyright
Copyright © Cambridge University Press 2015 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Auerbach, A. and Gorodnichenko, Y. (2012) Measuring the output responses to fiscal policy. American Economic Journal: Economic Policy 4 (2), 1–27.Google Scholar
Bartelsman, E. and Doms, M. (2000) Understanding productivity: Lessons from longitudinal microdata. Journal of Economic Literature 38 (3), 569–594.CrossRefGoogle Scholar
Bernard, A., Eaton, J., Jensen, J., and Kortum, S. (2003) Plants and productivity in international trade. American Economic Review 93 (4), 1268–1290.CrossRefGoogle Scholar
Bernard, A. and Jensen, J. (1995) Exporters, jobs, and wages in U.S. manufacturing: 1976–1987. Brookings Papers on Economic Activity: Microeconomics, 67–112.Google Scholar
Bernard, A. and Jensen, J. (1999) Exceptional exporter performance: Cause, effect, or both? Journal of International Economics 47 (1), 1–25.CrossRefGoogle Scholar
Bernard, A. and Jensen, J. (2004) Why some firms export. Review of Economics and Statistics 86 (2), 561–569.CrossRefGoogle Scholar
Bernard, A., Jensen, J., Redding, S., and Schott, P. (2007) Firms in international trade. Journal of Economic Perspectives 21 (3), 105–130.CrossRefGoogle Scholar
Bernard, A., Jensen, J., Redding, S., and Schott, P. (2009) The margins of US trade. American Economic Review Papers and Proceedings 99 (2), 487–493.CrossRefGoogle Scholar
Chaney, T. (2008) Distorted gravity: The intensive and extensive margins of international trade. American Economic Review 98 (4), 1707–1721.CrossRefGoogle Scholar
Christiano, L., Eichenbaum, M., and Rebelo, S. (2011) When is the government spending multiplier large? Journal of Political Economy 119 (1), 78–121.CrossRefGoogle Scholar
Clerides, S., Lach, S., and Tybout, J. (1998) Is learning by exporting important? Micro-dynamic evidence from Colombia, Mexico, and Morocco. Quarterly Journal of Economics 113 (3), 903–947.CrossRefGoogle Scholar
Coenen, G., Erceg, C., Freedman, C., Furceri, D., Kumhof, M., Lalonde, R., Laxton, D., Linde, J., Mourougane, A., Muir, D., Mursula, S., de Resende, C., Roberts, J., Roeger, W., Snudden, S., Trabandt, M., and in't Veld, J. (2012) Effects of fiscal stimulus in structural models. American Economic Journal: Macroeconomics 4 (1), 22–68.Google Scholar
Cogan, J., Cwik, T., Taylor, J. B., and Wieland, V. (2010) New Keynesian versus Old Keynesian government spending multipliers. Journal of Economic Dynamics and Control 34 (3), 281–295.CrossRefGoogle Scholar
Davis, S. and Haltiwanger, J. (1992) Gross job creation, gross job destruction, and employment reallocation. Quarterly Journal of Economics 107 (3), 819–863.CrossRefGoogle Scholar
Devereux, M., Head, A., and Lapham, B. (1996) Aggregate fluctuations with increasing returns to specialization and scale. Journal of Economic Dynamics and Control 20 (4), 627–656.CrossRefGoogle Scholar
Dunne, T., Roberts, M., and Samuelson, L. (1989) The growth and failure of U.S. manufacturing plants. Quarterly Journal of Economics 104 (4), 671–698.CrossRefGoogle Scholar
European Commission (2011) Final Report—Cross-Border Procurement above EU Thresholds. Available at http://ec.europa.eu/internal_market/publicprocurement/docs/modernising_rules/cross-border-procurement_en.pdf.Google Scholar
Evenett, S. (2010) Tensions Contained . . . For Now: The 8th GTA Report. London: CEPR.Google Scholar
Fahri, E., Gopinath, G., and Itskhoki, O. (2014) Fiscal devaluations. Review of Economic Studies 81 (2), 725–760.Google Scholar
Gali, J. (2008) Monetary Policy, Inflation, and the Business Cycle. Princeton, NJ: Princeton University Press.Google Scholar
Galí, J., López-Salido, J. D., and Vallés, J. (2007) Understanding the effects of government spending on consumption. Journal of the European Economic Association 5 (1), 227–270.CrossRefGoogle Scholar
Ghironi, F. (2006) Macroeconomic interdependence under incomplete markets. Journal of International Economics 70 (2), 428–450.CrossRefGoogle Scholar
Ghironi, F. and Melitz, M. (2005) International trade and macroeconomic dynamics with heterogeneous firms. Quarterly Journal of Economics 120 (3), 865–915.Google Scholar
Ghironi, F. and Melitz, M. (2007) Trade flow dynamics with heterogeneous firms. American Economic Review Papers and Proceedings 97 (2), 356–361.CrossRefGoogle Scholar
Helpman, E., Melitz, M., and Rubinstein, Y. (2008) Trading partners and trading volumes. Quarterly Journal of Economics 123 (2), 441–487.CrossRefGoogle Scholar
Larch, M. and Lechthaler, W. (2011) Why “Buy American” is a bad idea but politicians still like it. Canadian Journal of Economics 44 (3), 838–858.CrossRefGoogle Scholar
Larch, M. and Lechthaler, W. (2013) Buy national or buy international? The optimal design of government spending in an open economy. International Review of Economics and Finance 26, 87–108.CrossRefGoogle Scholar
Lewis, V. (2009) Business cycle evidence on firm entry. Macroeconomic Dynamics 13 (5), 605–624.CrossRefGoogle Scholar
Linnemann, L. and Schabert, A. (2012) Optimal government spending with labor market frictions. Journal of Economic Dynamics and Control 36 (5), 795–811.CrossRefGoogle Scholar
Melitz, M. (2003) The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica 71 (6), 1695–1725.CrossRefGoogle Scholar
Melitz, M. and Redding, S. (2014) Heterogeneous firms and trade. In Gopinath, G., Helpman, E., and Rogoff, K. (eds.), Handbook of International Economics, Vol. 4, Chap. 1. Oxford, UK: Elsevier.Google Scholar
Monacelli, T. and Perotti, R. (2010) Fiscal policy, the real exchange rate and traded goods. Economic Journal 120 (544), 437–461.CrossRefGoogle Scholar
Obstfeld, M. and Rogoff, K. (2001) The six major puzzles in international macroeconomics: Is there a common cause? In Bernanke, B.S. and Rogoff, K.S. (eds.), NBER Macroeconomics Annual 2000, pp. 339–412. Cambridge, MA: MIT Press.Google Scholar
Roberts, M. and Tybout, J. (1997) The decision to export in Colombia: An empirical model of entry with sunk costs. American Economic Review 87 (4), 545–564.Google Scholar
Trabandt, M. and Uhlig, H. (2011) The Laffer curve revisited. Journal of Monetary Economics 58 (4), 305–327.CrossRefGoogle Scholar
Uhlig, H. (2010) Some fiscal calculus. American Economic Review 100 (2), 30–34.CrossRefGoogle Scholar