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Real Exchange Rates and Trade Protectionism

Published online by Cambridge University Press:  20 January 2017

Thomas Oatley*
Affiliation:
University of North Carolina

Abstract

Real exchange rate movements are robustly related to the rise and fall of trade protectionism. I demonstrate this by presenting a theoretical model that incorporates the real exchange rate into a standard factor proportions model of trade policy preferences. The model demonstrates why some firms' trade policy preferences, and thus total demands for protectionism, change in response to real exchange rate movements. I evaluate the model with data on antidumping investigations in six industrialized countries between the late 1970s and 2004. The exercise suggests that the real exchange rate hypothesis offers a more compelling explanation for protectionist waves than the business cycle hypothesis.

Type
Research Article
Copyright
Copyright © V.K. Aggarwal 2010 and published under exclusive license to Cambridge University Press 

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