Unringing the Bell? The Asymmetric Effects of Trade Policy
Early Career Research Award
The proposed paper will explore the potentially nonlinear employment, wage, and output responses to changes in tariff rates, and how such responses depend upon the magnitude and direction of the change. While the extant literature has analyzed the consequences of trade liberalization for labor market outcomes, little attention has been given to the effects of subsequent reversals in tariff policy. We will collect and digitize annual U.S. tariff rates at the tariff-line level between 1909 and 1937, a period of substantial volatility in U.S. trade policy, featuring both periods of liberalization and increased protectionism. Using recently developed dynamic panel threshold models, we will explore whether the effects of reduced trade barriers on wages, employment, and other labor market outcomes are similar in magnitude to those of subsequent increases in those barriers. This issue is of increasing importance given recent increases in protectionist sentiment, most notably in Europe and the U.S.