Publication

This policy brief analyzes the consequences of protectionism in the new trade model of Melitz 2003 and its dynamic version in Ghironi and Melitz 2005. The latter is especially well suited for the analysis of the current financial crisis since it allows for deviations from the long-run equilibrium – in other words it allows for recessions. The main conclusion is that protectionism hurts all countries, including the country imposing the protectionist measures, even if the other countries do NOT react with protectionism by themselves. Thus, the new trade theory yields a powerful argument against any kinds of protectionism.