The Macroeconomics of De-Globalisation

This is a preview from the National Institute Economic Review, August 2020, no 253.

The Covid-19 pandemic has revived protectionist measures. The most proximate trigger for this switch is a desire to prioritise national security interests and public health concerns over the long- standing economic rationale for free trade, which is to maximise productivity (Ricardo, 1817) and tap new markets. The macroeconomic consequences of protectionism will depend on the specific form that it takes but, if history serves as a guide, a more restrictive global trading environment is likely to reduce cross-border capital flows, bear down on productivity and economic growth, raise the neutral global interest rate, R*, and exert upward pressure on wage and price inflation. Low-and middle-income countries that have benefitted from globalisation are particularly vulnerable in this environment, as are workers that are exposed to global trade in developed economies.

The analysis in this Box has been prepared by Iana Liadze and Amit Kara.