Cilt/Volume: 18 Sayı/Issue: 1 Mart/March 2020 ss./pp.

1-19
D. H. Yılmaz Doi: http://dx.doi.org/10.11611/yead.606693

FROM PROTECTIONISM TO TRADE WARS: THEIR EFFECTS OBSERVED THROUGH

FINANCIAL MARKETS

Asst. Prof. Derya HEKİM YILMAZ (Ph.D.) 

ABSTRACT

Even the outcomes of free trade are well known and accepted widely in economic literature,
protectionism has never totally lost its ground. Today, the protectionist trade policies of the US are
transformed into a trade war. The costs accrued by the outcomes of a trade war would be extensive.
These costs have been materialized via 2018 tariff hikes to a certain extent but the remaining impacts–
in case of an escalated trade war- could be excessive. The trade war would also lead to certain
consequences via financial markets. The present study aimed to analyze how protectionism evolved into
a trade war and its ample effects that would be observed through financial markets. The study
demonstrated that global uncertainty would scale up as a result of trade conflicts between nations. The
rising global uncertainty would have remarkable consequences for both developed and developing
countries via financial markets.

Key Words: Protectionism, Trade War, Tariffs, Uncertainty, Financial Markets.

JEL Codes: F02, F10, F13.

KORUMACILIKTAN TİCARET SAVAŞLARINA: FİNANSAL PİYASALAR ÜZERİNDEN

ETKİLER

ÖZET

Serbest ticaretin üstünlüğü ekonomi yazınında ne kadar kabul edilmiş olsa da korumacılık hiç bir
zaman tam olarak ortadan kaybolmamıştır. Bugün ise ABD’nin uyguladığı korumacı ticaret politikası
ticaret savaşlarına evrilmiştir. Ticaret savaşlarının maliyeti oldukça fazladır. 2018 boyunca uygulanan
tariflerin maliyetleri zaten ortaya çıkmıştır ancak ticaret savaşının derinleşmesi ile birlikte çok daha
fazla maliyetin ortaya çıkacağı beklenmektedir. Ticaret savaşının bu maliyetlerinin yanında finansal
piyasalar üzerinden maliyetleri de olacaktır. Bu çalışma korumacı ticaret politikasının ticaret
savaşlarına nasıl evrildiğini açıkladıktan sonra ticaret savaşının finansal piyasalar üzerinden ne gibi
maliyetler yüklediğini analiz etmektedir. Çalışmada ulaşılan sonuçlara göre ticari gerilimler arttıkça

Bursa Uludağ University, Faculty of Economics and Administrative Sciences, Department of Economics, Bursa/Turkey e-
mail: deryay@uludag.edu.tr
Makale Geçmişi/Article History
Başvuru Tarihi / Date of Application : 19 Ağustos / August 2019 1
Düzeltme Tarihi / Revision Date : 30 Kasım / November 2019
Kabul Tarihi / Acceptance Date : 10 Şubat / February 2020 Araştırma Makalesi/Research Article
 Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research
Cilt/Volume: 18 Sayı/Issue: 1 Mart/March 2020 ss./pp. 1-19
D. H. Yılmaz Doi: http://dx.doi.org/10.11611/yead.606693

belirsizlik artmaktadır. Artan belirsizlik ise finansal piyasalar üzerinden hem gelişmiş hem de
gelişmekte olan ülkelere ilave maliyetler yüklemektedir.

Anahtar Kelimeler: Korumacılık, Ticaret Savaşı, Tarifeler, Belirsizlik, Finansal Piyasalar.

JEL Kodları: F02, F10, F13.

1. INTRODUCTION

Free trade has improved global wealth and welfare via efficient production rested upon
international specialization. This argument is widely accepted since it was first propounded by Adam
Smith in 18th century and became one of the main themes in the liberal economic order. However, the
protectionist ideas, that were rooted in Mercantilism, have never faded away. In certain periods,
protectionist trade measures were reintroduced by politicians- especially after economic crisis. Policy
makers seek to protect their national industries from foreign competition to make them recover quickly
from crisis.

Since 1980s, worldwide trade has expanded further with rising globalization due to advances in
telecommunication and transportation technologies. The global wealth and welfare have also expanded.
However unfortunately, the gains of free trade have not been distributed fairly. Thus citizens – especially
the ones in the lower-end of the income distribution- have reacted both to globalization and free trade.
The election of the D. J. Trump as the president in the last quarter of 2016, with his mostly nationalistic
ideas in foreign policy and trade, was a consequence of this reaction.1

Protectionist ideas have increased after the Global Financial Crisis as expected, however with
inauguration of the new US president, these protectionist measures were transformed into a trade war
especially between the US and China. After early 2018, Trump government have imposed tariffs on
several industries and specifically on Chinese products. He utilized the bilateral trade deficit with China
as an argument to impose these tariffs. In fact, the trade deficit is the outcome of US’s own
macroeconomic policies rather than unfair trade practices. US economy depends on consumption. The
saving rates in the US are extremely low when compared to those of its trade partners. Thus, the gap
between saving and investment is filled by foreign saving. That eventually led to a trade deficit.

The most frightening fact, is the probability that a trade war could spill over to other nations and
industries similar to the trade war that was experienced after the Great Depression. The trade and
economic growth were hampered enormously with the tariff hikes in that period. Today, the world is
more interconnected when compared to that area. Through Global Value Chains (GVC), parts of
production are outsourced to various countries. Furthermore, financial connections are more complex
today. Thus, the cost of trade war would probably be devastating than ever.

1The election of nationalist governments in European countries and the Brexit decision in UK referendum are also among the
consequences of the same reaction.

Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research 2

 Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research
Cilt/Volume: 18 Sayı/Issue: 1 Mart/March 2020 ss./pp. 1-19
D. H. Yılmaz Doi: http://dx.doi.org/10.11611/yead.606693

The cost of trade war was analyzed in certain papers (Amiti, et.al.,2018; Furceri et. al., 2018,
Fajgelbaum, et.al.,2019, WEO,2019, etc.). These studies usually took into account the direct effects.
The present study aimed to shed a light on the indirect effects that would be observed through financial
markets. These effects are more important when compared to the direct effects since they could be
greater than expected and probably would last longer. With this aim, the economics of protectionism
was initially analyzed. Then protectionism was discussed in a historical context and how it changed after
the Global Financial Crisis was explored. Historical analysis was followed by the investigation of how
protectionism evolved into a trade war. Next, the evidence on financial repercussions of trade tensions
were addressed. Finally, the last section was devoted to concluding remarks.

2. ECONOMICS OF PROTECTIONISM

Free trade expands the production possibility frontier. According to this view, independent of
your trade partner’s actions, free trade is the best choice. However, Johnson (1953) famously
demonstrated that a country could decrease import prices and increase welfare by imposing tariffs. This
type of tariff is called “optimal tariff” (Rodrik, 2018: 80). The optimal tariff is usually propounded as a
suggestive argument for protectionism.

Certain other –economical or political- arguments could also be proposed to favor protectionism.
One popular argument is related to domestic employment. Rising imports due to free trade leads to
employment of foreign labor instead of the domestic one. This argument is mainly supported by populist
politicians. However, with free trade, resources would flow to the most productive industries due to their
comparative advantages. In this transformation, employment could tail off. However, it is the task of the
government to impose fiscal policy in order to direct the unemployed workforce to other industries
(Yılmaz and Divani, 2018:14, Zandi et al., 2019:14). According to Baldwin (2018), in the 21 st century,
governments should protect the employees rather than the jobs. In this vein, fiscal policy should be
devoted to retrain and reorient the unemployed to other industries in the economy.

Another argument is related to the national security. Countries have to protect the industries that
are vital for the wellbeing of nations- such as war industry. This argument could only be suggested for
certain industries and should not be the reason for rising protectionism (Zandi et al., 2019).

There are other arguments that favor protectionism such as the infant industry argument. The
industries should be sheltered from fierce foreign competition when they are newly established. They
could not compete with foreign rivals before they get matured. This argument is widely supported by
developing countries since their industries are younger when compared to developed nations.

On the other hand, there are numerous counter-arguments that could be advocated against
protectionism. The main one is the proposition that protectionism leads to inefficient allocation of
resources. Which in turn would lead to a lesser growth and welfare in the long-run. Lack of international

Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research 3

 Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research
Cilt/Volume: 18 Sayı/Issue: 1 Mart/March 2020 ss./pp. 1-19
D. H. Yılmaz Doi: http://dx.doi.org/10.11611/yead.606693

specialization would increase production costs. Furthermore, as international competition would

decrease, mark-ups and market power would rise. Eventually, the prices would also rise.

As a result of protectionism, certain industries would increase their profits at the expense of the
general public. Thus according to Adam Smith, protectionism is the result of rent-seeking producers’
successful lobbying activities (ECIPE, 2010: 8). In spite of these caveats of protectionism and the virtue
of free trade is well known and accepted since the 18th century, protectionism had never been fully
abandoned. Especially, after the economic crises, protectionist measures play their role in rescue
programs.

3. PROTECTIONISM IN A HISTORICAL CONTEXT

Protectionism is rooted in mercantilist philosophy. According to mercantilism, the wealth of a

nation is the sum of the nations’ precious metals such as gold and silver. The aim of the government is
to increase its precious metal holdings and this could only be achieved through trade surplus. In this
vein, governments should try to restrain imports with tariffs and promote exports 2. Furthermore,
according to the mercantilist idea, the amount of global wealth is constant. If a country has a trade
surplus, other country ought to give a deficit which also means that a trade is a zero-sum game. The
mercantilism was popular in the 17th century. With the industrial revolution and the liberal economic
ideas of Adam Smith, protectionism lost serious ground.3

In the 18th and 19th centuries, rising liberal ideology led to the acceptance of the odds of the free
trade. Globalization had risen and free trade flows were evident. However, during Great Depression-
after World War I- Smooth- Hawley tariffs were passed by the US Congress in 1930 in order to protect
farmers against foreign competition. This was resulted a 40-48 percent tariff increase in nearly 900
products.4 These tariffs were not welcomed by other nations, thus they retaliated in return. The global
trade was reduced tremendously- nearly 65 percent (Williams, 2019:704). According to Eichengreen
and Irwin (2010), these tariffs made the crisis last longer. Furthermore, according to historians, these
tariffs – and the conflict between the nations due to these tariffs- paved the way for the World War II.

After the WWII, nations due to the lesson they learned during the interwar years, were eager to
take collaborative steps. They began multilateral trade negotiations and the General Agreement on
Tariffs and Trade (GATT) was signed in 1947. 5 The aim of GATT was to ensure free trade among the

2 Studies that analyze the 1874-1913 (before the World War I) found that the tariff rates and economic growth rates were
positively correlated (Bainoch, 1972; O’Rouke,2000) which meant that levying a tariff could increase economic wellbeing.
According to Eichengreen (2019), this contrasting result could not be generalized, this is only related to the market distortions
of the economies.
3 With industrial revolution, the mass production became pravelent. The problem in that period was to find a market for these
products. Thus, countries had to open their borders to these goods. The countries, where the industrial revolution led to a mass
production, were the opponents of free trade.
4 See Galbraith (2009) for details of Great Depression.
5 The other colloborative step in that period was Bretton-Woods agreement. With Bretton Woods agreement, countries formed
new world monetary order. IMF and World Bank (International Bank of Reconstruction and Development, IBRD) were also
the products of Bretton Woods – collobarative steps.

Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research 4

 Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research
Cilt/Volume: 18 Sayı/Issue: 1 Mart/March 2020 ss./pp. 1-19
D. H. Yılmaz Doi: http://dx.doi.org/10.11611/yead.606693

nations and to improve trade and growth as a result. Under the umbrella of GATT, nations negotiated
and reduced their trade barriers.

GATT was a successful platform in reducing tariffs. However, countries did not fully abandon
protectionist ideas. After the oil crisis in the 1970s, US firms –especially in the automotive industries-
lost their competitiveness due to price hikes. The US government was not able to increase tariffs to
protect the industry since GATT does not allow the tariff increases. In this vein, US government
persuaded the Japanese government to restrain automotive industry’s exports. This was called
Voluntarily Export Restraint (VER) and without rising tariffs, this helped to protect the US automotive
industry (Krishna, 1989).6 This development opened a new era on trade relations: countries did not
increase bilateral tariffs but found another measures to restrict trade. In the 1980s, new measures were
introduced to the toolkit: safety and health standards, national procurement, etc. Anti-dumping and
counter-veiling duties were also started to be used as protectionist measures. These measures are called
new protectionist measures.

In 1994, GATT was converted into the World Trade Organization (WTO) - an institution with a
secretariat. Under WTO, countries negotiated tariffs in organized rounds and they were able to reduce
them. They also had a chance to apply to the Dispute Settlement Body to overcome trade conflicts with
their trade partners.7 WTO helps to reduce trade barriers and with the help of technological advances in
telecommunication and transportation, trade and economic growth spurred globally (see Figure.1).

Figure.1 Trade Growth (%) and Economic Growth (%, 1981-2017)

30.00

20.00

10.00

0.00
1987
1988
1989
1990
1981
1982
1983
1984
1985
1986

1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017

-10.00

-20.00
Trade Growth GDP Growth
-30.00
Source: UNCTAD and own calculations.

As seen in the Figure.1, when the trade growth increased economic growth followed suit. In case
of a trade relapse -as in 2009- the economic growth had also shrunk. It is also evident in the figure that
trade growth is positive generally. This indicates that the multilateral trade system has been able to
increase trade globally. Between 1980 and 2007, trade increased seven fold. The average tariff rates

6 The reason for Japanese voluntarily acceptance of the restraint was the gains obtained with the rising prices. The US
government had threatened the Japanese government with increasing tariff rates. If the US government had increased tariffs,
tariff revenue would be transferred to the US government, however when Japan exporters rose their prices their selves the
revenue generated would go to the Japanese exporters (Krishna, 1989).
7 GATT also had a dispute settlement mechanism but the dispute settlement body –under WTO- is an amended version of the
former.

Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research 5

 Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research
Cilt/Volume: 18 Sayı/Issue: 1 Mart/March 2020 ss./pp. 1-19
D. H. Yılmaz Doi: http://dx.doi.org/10.11611/yead.606693

applied had also decreased form 30 percent to under 10 percent. The global tariff rates around the world
reduced but the trade barriers were not. Nations had to use other measures to protect their industries
more frequently, especially after crises.

3.1. After the Global Financial Crisis: The Rise of Protectionism

In August 2007, the crisis began in the sub-prime mortgage market in the US and it evolved into
a full-fledged global financial crisis with the fall of Lehman Brothers. The confidence disappeared and
counterparty risk emerged. The trade and financial flows came to a halt. In 2009, the volume of trade
sunk tremendously. Governments were engaged in financial rescue operations and initiated fiscal
stimulus programs. They switched from liberal to interventionist policies. Thus, they introduced
protectionist measures, to provide a cure only in their national industries.

In October 2008, A Recovery and Reinvestment Act was introduced in the US. The act led to a
stimulus however it was conditional on buying US goods- Buy American. Similar fiscal stimulus
programs conditioning on buying domestic goods had also been used in Indonesia, Australia and China
(UNCTAD, 2010:6). However, these programs were not against the WTO regulations.8 In the US, EU,
Japan and China, governments bailed out certain institutions and stipulated generous guarantees. These
are all deemed protectionist measures that were applied to domestic firms and provide incentives for the
domestic firms against foreign competitors.

8 Obama’s approach to these protectionist measures was more balanced. For example, he initiated the Buy American regulation
in Recovery and Reinvestment Act in 2009, however initiated the Buy American parallel to the regulations of WTO on
government procurement. He levied an anti-dumping tax on Chinese goods but he also started the negotiations for Trans-Pacific
Partnership Agreement six weeks later (ECIPE, 2010:15).

Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research 6

 Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research
Cilt/Volume: 18 Sayı/Issue: 1 Mart/March 2020 ss./pp. 1-19
D. H. Yılmaz Doi: http://dx.doi.org/10.11611/yead.606693

Figure.2 Protectionist Measures Implemented after The Global Financial Crisis (2008-2018,
World Total)

Panel a. Total Number of Protectionist Panel b. Breakdown of the Protectionist

Measures Measures

1800

1600
1600
1521 16%
1400 1460
1404 1424 4% 34%
1356
1326
1200 11%
1234 1219 1211

1000 13%
22%

800

600
Contingent trade-protective measures

Subsidies (excl. export subsidies)

400
Tariff measures
200 Export-related measures (incl. export subsidies)

Trade-related investment measures

0
2009 201020112012 20132014 2015 201620172018 Others

Source: Global Trade Alert

It is evident in the Panel a. Figure.2 that, countries pursued various protectionist measures after
the financial crisis. Anti-dumping or counter-veiling tax is considered in contingent trade-protective
measures and it is the frequently used as a protectionist measure. The state aids that were provided after
the financial crisis were in the subsidies (excl. export subsidies), thus subsidies are the second frequently
used protective measure as expected (Figure.2 Panel b.). The countries that mostly implemented these
protective measures included the US, Germany and India. After Trump took the office, the protective
measures increased in the US.

Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research 7

 Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research
Cilt/Volume: 18 Sayı/Issue: 1 Mart/March 2020 ss./pp. 1-19
D. H. Yılmaz Doi: http://dx.doi.org/10.11611/yead.606693

4. A NEW ERA IN TRADE: TRADE WARS

Trump built his campaign on “Make America Great Again” slogan. He promised American
electorates, to keep the jobs in the country through his ideas favoring protectionist trade policy. He won
the election in 2016, and took the office on January 2017. He kept his word and began to implement
protectionist trade policy measures.9

First, he announced that the US would leave the Trans Pacific Partnership agreement10 and he
started an investigation on trade relationships under NAFTA.11 He asserted more serious policy
measures in 2018. On January, the US initiated tariffs on solar panels and washing machines. This move
affected a small section of the imports. Then, a more striking move came on March 2018. The US
government announced tariffs on aluminum and steel12. Certain countries were exempted from these
tariffs for a certain period of time however the exemptions terminated on June 2018.13 Next, the US
imposed tariffs directly on Chinese products on July 2018 claiming that China had unfair trade practices
in technology transfers, intellectual property rights and innovation. US imposed tariffs on the products
that amounted $34 billion on July and $16 billion on September 2018. Furthermore, on September 2018,
Trump announced a tariff increase on Chinese products that amounted $200 billion again due to the
same reason.14 China also retaliated after every US move. China increased the tariffs on $121 billion
worth of trade in total (Amiti et. al.,2019: 26).

In sum, the US tariffs that were imposed on Chinese products have risen on average from 3 percent
to 12 percent. China’s average tariff rates on US products have also risen from 10 percent to 18 percent
(Bown, 2019:2). According to Devarajan et.al (2018), these trade disputes affected the global trade by
2.5 percent.

There are certain arguments that could justify these tariff increases by the proponents of these
policies. First, Trump attempted to decrease the record high US trade deficit. The US trade deficit
variations are presented in Figure.3. The bilateral trade deficit with China was $375 billion in 2017. In
order to lower the trade deficit, Trump attempted to decrease bilateral deficit with China. He blamed
Chinese government on unfair trade practices and tried to correct these practices by imposing tariffs.

9 US has utilized protectionist measures in certain industries. Between 2001 and 2017, US investigated 130 dumping and 69
subsidy cases and implemented 103 anti-dumping and 55 counter veiling duties. The average anti-dumping duty was 151.5
percent and counter veiling duty was 72.4 percent. The mostly investigated industries were steel, aluminum and plastics (Bown,
2019:9).
10 The remaining 11 countries that signed Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP)
agreement.
11 Trump attempted to renegotiate NAFTA. He firstly levied a duty on steel and aluminum. Then enacted an exemption to
NAFTA members. Mexico wanted to renew the deal. US and Mexico agreed on a new agreement restricting certain auto
imports from Mexico and adding certain articles that deterred US firm investments in Mexico. Then the same agreement was
approved by Canada. The new agreement between US, Mexico and Canada was called The US-Mexico-Canada (USMCA)
Agreement (Ertürk and Yilmaz, 2018:25).
12 10 percent on aluminum and 25 percent on steel.
13 These countries were Mexico, Canada and EU countries. The total aluminum and steel exports of these countries amounted
to $22 billion (Amiti et. al., 2019:26). Turkey also exports these products to US and was affected by these tariffs. The steel
exports are 6 percent of the total exports and the steel exports to the USwas 1.5 percent of the total exports (Babacan, 2018).
14 For the timeline for tariff increases see https://piie.com/system/files/documents/trump-trade-war-timeline.pdf.

Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research 8

 Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research
Cilt/Volume: 18 Sayı/Issue: 1 Mart/March 2020 ss./pp. 1-19
D. H. Yılmaz Doi: http://dx.doi.org/10.11611/yead.606693

However, trade deficits are the consequences of macroeconomic imbalances as simply explained in
macro economy textbooks. Trade deficit reflects the imbalance between savings and investments. In
2017, the gross savings/GDP ratio in the US was 19 percent, while it was 47 percent in China.
Investment/GDP ratio was 21 percent in the US and 44 percent in China. WEO (2019) revealed that
trying to decrease the trade deficit by repressing the bilateral one is nonsense without correcting
macroeconomic imbalances. This would only divert trade to other countries.15 According to Sachs
(2019), the record deficit in 2018 was the product of 2017 tax reductions. Tax reductions decreased the
savings and led to additional deficit in trade balance.16

Figure.3 The US Trade Balance (Million $, 1960-2018)

100.000
0.000
1974
1976

1998
2000
1960
1962
1964
1966
1968
1970
1972

1978
1980
1982
1984
1986
1988
1990
1992
1994
1996

2002
2004
2006
2008
2010
2012
2014
2016
2018
-100.000
-200.000
-300.000
-400.000 1994 NAFTA
-500.000
-600.000
-700.000 2001 China's WTO
accession
-800.000
-900.000

Source: Fred Data, St. Louis FED

Second, as seen in the Figure.3, with the accession of China to the WTO, the increase in the US
trade deficit accelerated. Before the WTO accession, the imports of US from China was 10 percent of
total imports. In 2014, share of China in total imports reached 20 percent. However, the share of US in
Chinese imports decreased from 10 percent to 8.5 percent during the same period (Bown, 2019: 5). It
was clear that, China’s trade with the US have expanded over years. However, rather than WTO
accession, the triggering factor was switching to normal trade relations with China. On October 2000,
the US government initiated a Permanent Normal Trade Relationship (PNTR) with China. Before
PNTR, the tariff rates were also low similar to those implemented on other countries, however, these
rates had to be ratified by Congress every year. Tariff rates could be increased from 4 percent to 37
percent if the ratification process failed (Crowley, 2019:13). Thus, PNTR faded away the uncertainty of
rising tariffs. The firms in both countries easily engaged in bilateral trade activities. According to
Handley and Limao (2017), the one third of the trade increase between 2000 and 2005 was due to the
disappearance of this uncertainty. On the one hand, Chinese firms increased their production due to low-

15 Some of the restricted trade was diverted to the India and Turkey under the Generalized System of Preferences (GSP). This
system was created to increase the trade between the US and developing countries. However, in order to prevent diversion to
these countries, first Turkey and then India were removed from the system as these countries were sufficiently developed.
16 According to Sachs (2019), this period resembled Reagan Administration’s supply-side economics. Reagan reduced tax rates
and according to the author this was the main cause of the trade deficits during 1980s.

Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research 9

 Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research
Cilt/Volume: 18 Sayı/Issue: 1 Mart/March 2020 ss./pp. 1-19
D. H. Yılmaz Doi: http://dx.doi.org/10.11611/yead.606693

wage labor and on the other hand, US firms engaged in labor saving technologies17 in order to compete
with Chinese firms (Crowley, 2019:15).18

Third, the tariff rates implemented by China were 40 percent on average in 1990s, in 2003 these
were decreased to 10 percent. In 2017 the average was about 8 percent. However, it was still above the
average US tariff rates. This was also propounded as an argument favoring protectionist policies by the
US government. Bagwell and Steiger (2013) named this problem as a “latecomer’s problem”. Since
China entered WTO later than other nations, the initial tariff rates of China were higher. Since the WTO
process requires gradual decline, China’s tariff rates were higher when compared to those implemented
on other trade partners’.

Not only the US has trade disputes with China. Other countries also experienced conflicts with
China especially about subsidies and state- owned enterprises.19 The EU and Japan wanted to renegotiate
WTO regulations on subsidies and problematic state-owned enterprises (Rubini, 2019:89). According
to Wu (2016), the Chinese economic model creates problems when entering the world trade system. But
WTO’s multilateral trade system could not handle these problems (Matoo and Staiger, 2019:33). In this
vein, the US government proposed the inability of WTO to overcome Chinese subsidies as a reason for
fierce protectionist policy.

Whatever the reason, the trade war and these tariff hikes hit the US economy the most. According
to Amiti et. al. (2019), the tariffs imposed during 2018 cost to the US $1.4 billion per month and $165
billion annually.20 They also added that, the effects would be larger when the effects on global value
chains and financial markets are considered. Fajgelbaum et. al. (2019), estimated the cost by calculating
the elasticities. They found that the net effect of tariff increases was $7.8 billion, 0.04 percent of the
annual income of the US.

The real concern about these tariff hikes and retaliations, was the possible contamination of these
tariffs to the other industries and countries and similar to the one that started with the Smooth- Hawley
tariffs. According to the WEO (2019), since the world is more integrated today when compared to the
1930s, the effect of trade war would be more devastating. Ossa (2015) predicted that the worldwide
trade revenue is a quarter of global GDP. If the countries were engaged in a trade war, much of these
revenues would disappear.

17 The employment is decreased 17 percent in manufacturing sector between 2000 and 2003 (Crowley, 2019:14).
18 US and UK have a comparative advantage on services sector, while China, South Korea have a comparative advantage on
manufacturing sector in 1994. They have specialized on these sectors. In services sector US has a trade surplus with respect to
China (WEO, 2019).
19 China has an over capacity in steel production and US government insisted on that the US firms have come up with unfair
practices in China. Furthermore, as the US companies have to be engaged with state-owned enterprises according to Chinese
foreign investment laws, US blamed China on stealing technology (Yalçın et. al., 2018:63).
20 Trump has been aiming to keep the jobs in the country while raising tariffs. 35 000 jobs vanished in aluminum and steel
industry in ten years. This means that a single job saved is cost $195 000. For instance, the regular employee earns $52 000 in
a year (Amiti, et. al., 2019:14).

Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research 10

 Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research
Cilt/Volume: 18 Sayı/Issue: 1 Mart/March 2020 ss./pp. 1-19
D. H. Yılmaz Doi: http://dx.doi.org/10.11611/yead.606693

The cost of an intense trade war was analyzed using simulations in several papers (Rutherford et.
al., 2018, Devarajan, et. al., 2018, Ossa, 2019, Berthou et. al., 2018, Freund et. al., 2018, Zandi
et.al.,2018). All studies reached a similar conclusion: a trade war would be very costly for all nations.
But the most effected nations would be the US and China. Within national boundaries, Fajgelbaum and
Khandewal (2016) argued that rising protectionism would hurt mostly the ones on the lower-end of
income distribution- in the US: the opponents of Trump!21

5. THE EFFECTS THROUGH FINANCIAL MARKETS

As discussed in the previous section, the effects of protectionist policies –including tariff
increases and trade war- could be substantial. Furthermore, most previous studies did not consider the
effects of trade wars that could be observed in financial markets. When the financial repercussions are
taken into account, the cost is multiplied.

Globalization leads to a decline in inflation all over the world. Trade has a pivotal role in the fall
of prices. As nations compete in international markets, the competition becomes more intense. The labor
costs should be reduced in order to gain competitiveness. Countries either suppressed the wages or
improved their productivity through innovation (Carstens, 2018:4). Nevertheless, protectionism would
reverse the achievements of globalization and free trade. Inflation would rise as well as the market
power. For instance, the price of steel rose after the implementation of the tariffs. Since it is an important
input in manufacturing and construction industries, the prices in these industries would also increase
(Carstens, 2018:5). In these circumstances, inflation would be evident initially in the US which in turn
would be exported to the other countries. Handley and Limao (2019) predicted a 2 percentage point
increase in inflation.

Jordan (2018) illustrated these tariff increases as a supply-side shock, similar to the oil crisis.
Supply- side shock curtails the production while rising prices. This makes it difficult to pursue monetary
policy. An expansionary monetary policy would cure production but deteriorate inflation. A
contractionary monetary policy would restrain the inflation but the production would fall. In the US
case, this would be more problematic. An increase in policy rate would appreciate the dollar and boost
the trade deficit as a result. If the FED would cut back the policy rate, the dollar would be depreciated.
This would increase the competitiveness of the US firms but inflation would rise. The US firms would
gain competitive advantage as a consequence of a weak dollar, but this would be followed by the US’s
trade partners. This could turn to be a currency war with rising inflation all over the world. The reduction
in stock prices would end up with poor demand via wealth effect.

High import prices due to tariff hikes means high input prices and high production costs in certain
industries. This would lead to a decline in profits in these industries (see Dizoli and Van Roye, 2018;

21Autor et.al. (2017) also found that the political polarization increases in the regions where the import competitive industries
are located.

Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research 11

 Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research
Cilt/Volume: 18 Sayı/Issue: 1 Mart/March 2020 ss./pp. 1-19
D. H. Yılmaz Doi: http://dx.doi.org/10.11611/yead.606693

Zandi et.al., 2018). Certain multinational companies such as General Electric and General Motors
announced a fall in their expected profits (Huang et. al., 2019:70). Furthermore; as a result of a rise in
worldwide inflation, cost of borrowing would increase. This would eventually lead to a drop in stock
prices (Dizoli and Van Roye, 2018:4).

The above-cited arguments were the direct effects of rising protectionism- or namely the trade
war. Furthermore, the most striking indirect effect is the rising global uncertainty. In Figure.4, the world
trade uncertainty index is presented. This figure demonstrates an uncertainty in trade since 1996. It is
evident in the figure that the uncertainty in trade has never reached the values experienced in 2018
before. Uncertainty began rising in early 2017. However, the first peak was observed in the third quarter
of 2018- when trade tensions skyrocketed between US and China. When the US and China came
together to talk about trade, the uncertainty index declined (December 2018), then rose again with the
failure of the negotiations to reach a deal. Thus, a rise in global uncertainty would affect all financial
markets by altering the risk factor in decision-making processes of economic agents.

Figure. 4 World Trade Uncertainty Index (1996-2019)

5.000
4.000
3.000
2.000
1.000
0.000
2015q3
2016q2
2017q1
2017q4
2018q3
2019q2
1996q1
1996q4
1997q3
1998q2
1999q1
1999q4
2000q3
2001q2
2002q1
2002q4
2003q3
2004q2
2005q1
2005q4
2006q3
2007q2
2008q1
2008q4
2009q3
2010q2
2011q1
2011q4
2012q3
2013q2
2014q1
2014q4

Source: www.policyuncertainty.com

Increasing uncertainty would affect the economies through different channels. First, portfolios
would shift to safe heaven currencies such as dollar, euro, yen, etc. This would also mean a capital
outflow from emerging markets (Dizoli and van Roye, 2018). Developed countries’ currencies would
be appreciated against the developing countries’ currencies. This would in turn lower the developing
countries’ import demands, which would also mean lower export demands for advanced countries’
products. Thus the global trade would slow down as a result. On the other hand, depreciation of
developing countries’ currencies would increase foreign-currency denominated debt burden. These
countries would be considered risky and their bond spreads would probably mount up (Carstens,
2018:7). This would lead to a credit crunch in these countries; and investment, production and
employment would decline in this vein. Furthermore, a fall in income would lead to a fall in export
demands for advanced countries’ products. Finally, global demand and income would deplete.

It could also be observed in Figure.4 that, after September 2018 trade related uncertainty also
mounted up. This proved that even the trade war is between the US and China, the global uncertainty

Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research 12

 Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research
Cilt/Volume: 18 Sayı/Issue: 1 Mart/March 2020 ss./pp. 1-19
D. H. Yılmaz Doi: http://dx.doi.org/10.11611/yead.606693

rises and the developing countries are deemed risky. This also demonstrated that if trade tensions scale
up in the future, developing countries’ risks would also escalate. This would in turn lead to a capital
outflow from these countries. In Figure.5, CDS spreads of some developing countries bonds -Turkey,
Argentina and Brazil- are presented. The spreads increased to a degree on March 2018- due to a tariff
rise on aluminum and steel. But the striking escalation was experienced after the trade tensions rose
between the US and China after September 2018.

Figure.5 CDS Spreads of Developing Countries Bonds (5 years)

1400
CDS Turkey CDS Argentina CDS Brazil
1200

1000

800

600

400

200

Source: Bloomberg

Second, as global uncertainty rises, firms would delay their investment decisions. The production
of capital goods would decrease as a result. This would also lead to a decline in production and
employment (Zandi et.al. ,2018: 6). The expectation of a decline in production as well as profits
dwindled the stock markets. As seen in the Figure.6, both Chinese and US stocks decline with trade loss
expectations. It is important to note that not only Shanghai Composite Index declined with the escalating
trade war between the US and China but also Standard & Poor’s 500 Index declines after September
2018. This shows that the trade war would have consequences both for the US and China and this
argument was well understood by the financial markets.

Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research 13

 Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research
Cilt/Volume: 18 Sayı/Issue: 1 Mart/March 2020 ss./pp. 1-19
D. H. Yılmaz Doi: http://dx.doi.org/10.11611/yead.606693

Figure.6 Stock Markets Indexes (Standard & Poor’s 500 Index and Shanghai Composite Index)

3600
3400
3200
3000
2800
2600
2400
2200

SP500 SHCOMP

Source: Fred Data, Federal Reserve Bank of St. Louis and Bloomberg

Third, rising global uncertainty would also have effects on global value chains. The rising global
uncertainty would change production destinations. Global value chains would probably get shorten
(Blanchard, 2019:59). This means that foreign direct investments would drop. According to Zandi et.
al. (2018), this would take time since the existing investments require time to be transferred to other
locations or entirely to countries of origin. This would also mean a rise in production costs through
global value chains. These firms seek locations where a particular part of production would be possible
at a lower cost.22 Reversing this process with rising uncertainty would mean rising production costs,
increasing global prices, cut back in investments and reducing employment. Furthermore, global value
chains also necessitate complex financial products such as derivatives (Carstens, 2018:5). This creates
a complicated financial nexus. If global uncertainty would rise further, the financial tensions would
probably lead to a credit crunch all over the world as a result.

6. CONCLUDING REMARKS

Free trade coupled with globalization downsize the production costs and decrease the worldwide
inflation. Economic welfare is enhanced as a result. However, free trade and globalization could not
lead to a prosperity in a fair income distribution. This creates opponents of globalization- and free trade.
This protesting attitudes are associated with protectionism in the post-financial crisis era and evolved
into a trade war.

Free trade (and investment) with globalization also changed the economic structures. A product
is manufactured on several countries via global value chains. Furthermore, newly industrialized
countries such as China and India were integrated at a higher level in the trade system. Multilateral trade

22 See Baldwin (2016) for the details of global value chains.

Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research 14

 Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research
Cilt/Volume: 18 Sayı/Issue: 1 Mart/March 2020 ss./pp. 1-19
D. H. Yılmaz Doi: http://dx.doi.org/10.11611/yead.606693

system failed to deal with new problems. The arguments favoring tariff hikes are intentionally grounded
on these deficiencies.

Tariff hikes –or trade wars- have important costs, some of these were materialized as a product
of 2018’s tariffs. However, the expected costs – even if the trade war would escalate- are enormous.
Trade wars have important consequences for financial markets demonstrated in the present study. First,
as production costs increase with tariff hikes, inflation would also increase globally and implying
monetary policy would be problematic. Certain countries would prefer inflation and a depreciated
currency, while others would prefer lower inflation and an appreciated currency. Since depreciated
currency would lead to a competitive advantage for the country, the others could also intervene in the
foreign currency market to depreciate their currencies. In this case, currency war would accompany to
the trade war. This would reduce global GDP further.

Second, global uncertainty would also rise with trade tensions. Global uncertainty would impair
financial markets. As analyzed in the present study, developing countries are considered risky and funds
would probably fly to safe heavens. This would depreciate developing country currencies. If these
countries have huge foreign currency denominated debt, this would make them riskier in the eyes of
foreign investors- thus more capital would fly to safe heavens. Depreciation of the currencies would
increase the burden of foreign currency denominated debt. Furthermore, with the ingrained uncertainty
in financial markets, finding funds would be more difficult. This process could end with a debt crisis in
a worse-case scenario.

Third, national stock markets would slack as a result of losses in industries that heavily effected
from tariff upsurges. This would also diminish aggregate demand through the wealth effect. These
effects would also be observed in developed countries. Furthermore, with the poor foreign demand of
developing countries, the income and employment in the developed ones would further decrease.

Bearing in mind these costs, it is better to avoid trade war and try to promote free trade. However, trade
tensions seem to have reasons beyond economic one. These include politic reasons such as the struggle
of the US to maintain hegemonic power by weakening trade partners. Thus, developing countries- like
Turkey- should be ready for unfavorable trade consequences of the political decisions. We should be
aware of the financial repercussions of these trade wars. In order to abate the unfavorable consequences
of the credit crunch, developing countries should implement the required measures to cushion foreign
currency denominated debt.

Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research 15

 Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research
Cilt/Volume: 18 Sayı/Issue: 1 Mart/March 2020 ss./pp. 1-19
D. H. Yılmaz Doi: http://dx.doi.org/10.11611/yead.606693

REFERENCES

Acemoglu, D. and Zilibotti, F. (1997) “Was Prometheus Unbound by Chance? Risk, Diversification,
and Growth”, Journal of Political Economy, 105(4): 709-751.

Aghion, P., Howitt, P. and Mayer-Foulkes, D. (2005) “The Effect of Financial Development on
Convergence: Theory and Evidence”, The Quarterly Journal of Economics, 120(1): 173-222.

Ahmad, N. and Wyckoff, A. (2003) “Carbon Dioxide Emissions Embodied in International Trade of
Goods”,OECD Science, Technology and Industry Working Papers, No. 2003/15, OECD
Publishing.

Arellano, M. and Bond, S. (1991) “Some Tests of Specification for Panel Data: Monte Carlo
Evidence and an Application to Employment Equations”, The Review of Economic
Studies, 58(2): 277-297.

Arellano, M. and Bover, O. (1995) “Another look at the Instrumental Variable Estimation of Error-
Components Models”, Journal of Econometrics, 68(1): 29-51.

Bencivenga, V. R. and Smith, B. D. (1998) “ Economic Development and Financial Depth in a Model
with Costly Financial Intermediation”, Research in Economics, 52(4): 363-386.

Bimonte, S. (2001) “Model of Growth and Environmental Quality. A New Evidence of the
Environmental Kuznets Curve”, A New Evidence of the Environmental Kuznets Curve,
University of Siena Economics Working Paper (321)

Blackburn, K. and Varvarigos, D. (2005) “ Growth, Uncertainty and Finance”, Centre for Growth and
Business Cycle Research Discussion Papers, 48: 1-24.

Blundell, R. and Bond, S. (1998) “Initial Conditions and Moment Restrictions in Dynamic Panel Data
Models”, Journal of Econometrics, 87(1): 115-143.

Bond, S. R., Hoeffler, A. and Temple, J. R. (2001) “GMM Estimation of Empirical Growth Models”,
CEPR Discussion Papers/Centre for Economic Policy Research Discussion Papers.

Boyd, J. and Smith, B. (1996) “The Coevolution of the Real and Financial Sectors in the Growth
Process”, The World Bank Economic Review, 10(2): 371-396.

Capelle-Blancard, G. and Laguna, M. A. (2010) “How Does the Stock Market Respond to Chemical
Disasters?”, Journal of Environmental Economics and Management, 59(2): 192-205.

Chang, S. (2015) “Effects of Financial Developments and Income on Energy Consumption”,

International Review of Economics and Finance, 35: 28-44.

Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research 16

 Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research
Cilt/Volume: 18 Sayı/Issue: 1 Mart/March 2020 ss./pp. 1-19
D. H. Yılmaz Doi: http://dx.doi.org/10.11611/yead.606693

Charfeddine, L. and Khediri, K. B. (2016) “Financial Development and Environmental Quality in UAE:
Cointegration with Structural Break” ,Renewable and Sustainable Energy Reviews, 55: 1322-
1335.

Čihák, M., Demirgüč-Kunt, A., Feyen, E. and Levine, R. (2013) “Financial Development in 205
Economies, 1960 to 2010”, National Bureau of Economic Research, (No. w18946).

Cole, M. A. (2004) “Trade, the Pollution Haven Hypothesis and the Environmental Kuznets Curve:
Examining the Linkages”, Ecological Economics, 48(1):71-81.

Copeland, B. R. and Taylor, M. S. (2004) “Trade, Growth, and the Environment”, Journal of Economic
Literature, 42(1): 7-71.

Dasgupta, S., Laplante, B. and Mamingi, N. (2001) “Pollution and Capital Markets in Developing
Countries”, Journal of Environmental Economics and management, 42(3): 310-335.

Frankel, J. A. and Rose, A. K. (2005) “Is Trade Good or Bad for the Environment? Sorting out the
Causality”, Review of Economics and Statistics, 87(1): 85-91.

Frankel, J., and Rose, A. (2002) “An Estimate of the Effect of Common Currencies on Trade and
Income”, The Quarterly Journal of Economics, 117(2): 437-466.

Greenwood, J. and Jovanovic, B. (1990), “Financial Development, Growth, and the Distribution of
Income”, Journal of Political Economy, 98(5, Part 1): 1076-1107.

Greenwood, J., Sanchez, J. M. and Wang, C. (2010) “Financing Development: The role of Information
Costs”, American Economic Review, 100(4): 1875-91.

Grether, J. M. and Mathys, N. A. (2010) “Measuring the Pollution Terms of Trade with Technique
Effects”, Development, 5.

Grossman, G. M. and Krueger, A. B. (1993) “Environmental Impacts of a North American Free Trade
Agreement”, Garber P.(eds.), The US-Mexico Free Trade Agreement, MIT Press, Cambridge,
MA, 1655177.

Grossman, G. M. and Krueger, A. B. (1995) “Economic growth and the Environment”, The Quarterly
Journal of Economics, 110(2): 353-377.

Harrison, A. E. and McMillan, M. S. (2003) “Does Direct Foreign Investment Affect Domestic Credit
Constraints?”, Journal of international Economics, 61(1): 73-100.

Hurlin, C. and Mignon, V. (2007) “Second Generation Panel Unit Root Tests”,

Imbs, J. (2004) “ Trade, Finance, Specialization, and Synchronization” , Review of Economics and
Statistics, 86(3): 723-734.

Imbs, J. (2007) “Growth and Volatility”, Journal of Monetary Economics, 54(7): 1848-1862.

Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research 17

 Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research
Cilt/Volume: 18 Sayı/Issue: 1 Mart/March 2020 ss./pp. 1-19
D. H. Yılmaz Doi: http://dx.doi.org/10.11611/yead.606693

Jalil, A. and Feridun, M. (2011) “The impact of Growth, Energy and Financial Development on the
Environment in China: a Cointegration Analysis”, Energy Economics, 33(2): 284-291.

Knapp, T. and Mookerjee, R. (1996) “Population Growth and Global CO 2 Emissions: A Secular
Perspective”, Energy Policy, 24(1): 31-37.

Kumbaroğlu, G., Madlener, R. and Demirel, M. (2008) “A Real Options Evaluation Model for the
Diffusion Prospects of New Renewable Power Generation Technologies”, Energy
Economics, 30(4): 1882-1908.

Lanoie, P., Laplante, B. and Roy, M. (1998) “Can Capital Markets Create Incentives for Pollution
Control?”, Ecological Economics, 26(1): 31-41.

Larrain, B. (2010) “Stock Market Development and Cross-Country Differences in Relative Prices”, The
Review of Economics and Statistics, 92(4): 784-797.

Levine, R. (1999) “Financial Development and Economic Growth: Views and Agenda”, The World
Bank.

Li, Y. and Hewitt, C. N. (2008) “The Effect of Trade Between China and the UK on National and Global
Carbon Dioxide Emissions”, Energy Policy, 36(6): 1907-1914.

Maddala, G. S. and Wu, S. (1999) “A Comparative Study of Unit Root Tests with Panel Data and a New
Simple Test”, Oxford Bulletin of Economics and Statistics, 61(S1): 631-652.

Millimet, D. L. and Roy, J. (2011) “Three New Empirical Tests of the Pollution Haven Hypothesis
When Environmental Regulation is Endogenous”, IZA Discussion Paper, No.5911.

Painuly, J. P. (2001) “ Barriers to Renewable Energy Penetration; a Framework for

Analysis”, Renewable Energy, 24(1): 73-89.

Sadorsky, P. (2010) “The impact of Financial Development on Energy Consumption in Emerging

Economies”, Energy Policy, 38(5): 2528-2535.

Sadorsky, P. (2011) “Financial Development and Energy Consumption in Central and Eastern European
Frontier Economies”. Energy Policy, 39(2): 999-1006.

Salahuddin, M., Gow, J. and Ozturk, I. (2015) “Is the Long-Run Relationship Between Economic
Growth, Eectricity Consumption, Carbon Dioxide Emissions and Fiinancial Development in Gulf
Cooperation Council Countries robust?”, Renewable and Sustainable Energy Reviews, 51: 317-
326.

Selden, T. M. and Song, D. (1994) “Environmental Quality and Development: Is There a Kuznets
Cuurve for Air Pollution Emissions?”, Journal of Environmental Economics and
Management, 27(2): 147-162.

Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research 18

 Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research
Cilt/Volume: 18 Sayı/Issue: 1 Mart/March 2020 ss./pp. 1-19
D. H. Yılmaz Doi: http://dx.doi.org/10.11611/yead.606693

Shahbaz , M., Solarin, S. A., Mahmood, H. and Arouri, M. (2013) “ Does Financial Development
Reduce CO2 Emissions in Malaysian Economy? A Time Series Analysis”, Economic
Modelling, 35: 145-152.

Shahbaz, M., Shahzad, S. J. H., Ahmad, N. And Alam, S. (2016) “Financial Development and
Environmental Quality: The Way Forward”, Energy Policy, 98: 353-364.

Sieminski, A. (2013) “International Energy Outlook 2013”, US Energy Information Administration

(EIA) Report Number: DOE/EIA-0484.

Sun, C., Zhang, F. and Xu, M. (2017) “Investigation of Pollution Haven Hypothesis for China: an ARDL
Approach with Breakpoint Unit Root Tests”, Journal of Cleaner Production, 161: 153-164.

Tamazian, A. and Rao, B. B. (2010) “Do Economic, Financial and Institutional Developments Matter
for Environmental Degradation? Evidence from Transitional Economies”, Energy
Economics, 32(1): 137-145.

Tamazian, A., Chousa, J. P. and Vadlamannati, K. C. (2009) “ Does Higher Economic and Financial
Development Lead to Environmental Degradation: Evidence from BRIC Countries”, Energy
Policy, 37(1): 246-253.

Tang, J. (2015) “Testing the Pollution Haven Effect: Does the Type of FDI Matter?”, Environmental
and Resource Economics, 60(4): 549-578.

Wagner, U. J., & Timmins, C. D. (2009) “Agglomeration Effects in Foreign Direct Investment and the
Pollution Haven Hypothesis”, Environmental and Resource Economics, 43(2): 231-256.

World Bank. International Economics Dept. Development Data Group. (2018). World Development
Indicators. World bank.

Yuxiang, K. and Chen, Z. (2011) “Financial Development and Environmental Performance: Evidence
from China”, Environment and Development Economics, 16(1): 93-111.

Zhang, Y. J. (2011) “The Impact of Financial Development on Carbon Emissions: An Empirical

Analysis in China”, Energy Policy, 39(4): 2197-2203..

Yönetim ve Ekonomi Araştırmaları Dergisi / Journal of Management and Economics Research 19