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Hi! I'm a swedish economics student and loyal reader of your papers, books and blog. If you have time, I've got a question regarding trade liberalization that I personally have not yet seen studied in the litterature. I actually first came to think about this when I read Christina D. Romers summary of existing empirical research on the effects of fiscal policy. In one of the footnotes in her paper I found the following comment: IMF (2010) points out that there is another problem with using what actually happened to the deficit as the measure of fiscal austerity. Policymakers may tend to stop fiscal consolidations that are followed by output declines, but continue those followed by output increases. So the only consolidations that show up in the budget data are the ones followed by growth. This biases the estimates toward finding that consolidations lead to output expansions. Could the same bias exist in the studies of trade liberalization? If you just exchange the words ''deficit'' and ''fiscal austerity'' with ''growth'' and ''trade liberalization'' the abovementioned would turn into Policymakers may tend to stop trade liberalizations that are followed by output declines, but continue those followed by output increases. So the only liberalizations that show up in the data are the ones followed by growth. This biases the estimates toward finding that trade liberalizations lead to output expansions. Could this be true about trade liberalization, just as it apparently can be true of fiscal consolidation? Hope it's ok to ask (I've also sent you an e-mail). It would be very interesting to hear some short comment from you on this. Best wishes, August TW, Sweden
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Feb 1, 2012