Macroeconomic Consequences of Tariffs

This paper estimates impulse response functions from local projections using a panel of annual data that spans 151 countries over 1963-2014

From:
Foreign, Commonwealth & Development Office
Published
15 January 2019
Document Type:
Working Paper
Theme:
Economic Growth
Authors:
Furceri, D, Hannan, S.A., Ostry, J.D., Rose, A.K.

Abstract

This paper studies the macroeconomic consequences of tariffs. We estimate impulse response functions from local projections using a panel of annual data that spans 151 countries over 1963-2014. We find that tariff increases lead, in the medium term, to economically and statistically significant declines in domestic output and productivity. Tariff increases also result in more unemployment, higher inequality, and real exchange rate appreciation, but only small effects on the trade balance. The effects on output and productivity tend to be magnified when tariffs rise during expansions, for advanced economies, and when tariffs go up, not down. Our results are robust to a large number of perturbations to our methodology, and we complement our analysis with industry-level data.

This work is part of the ‘Macroeconomics in Low-income countries’ programme

Citation

Davide Furceri, Swarnali Ahmed Hannan, Jonathan David Ostry and Andrew K. Rose (2019) Macroeconomic Consequences of Tariffs. IMF Working Paper No. 19/9

Macroeconomic Consequences of Tariffs

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Published 15 January 2019
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