Authors: P.B. Dixon, J.A. Giesecke, M.T. Rimmer and A. Rose
We investigate the economic consequences of a twelve-month closure of U.S. borders in the form of cessation of trade, tourism and immigration flows. The federal government might contemplate such action in the face of an extreme terrorism or public health threat. Using a computable general equilibrium model, we find that border closure would cause substantial economic loss. However this damage is significantly reduced when critical imports (such as energy) are either exempted from the policy, or made available through use of domestic stockpiles (such as the Strategic Petroleum Reserve). Economic damage is reduced further if workers accept lower real wages for the duration of the security crisis. We argue that if border closure were ever to be contemplated as a response to a security or public health threat, it would be prudent to keep its scope to a minimum, to make its duration as short as possible, to allow market responses to run their course, and to enact countervailing policies that can help minimize the economic losses.
JEL classification: F52, C68.
Please cite the later published version in:
'The economic costs to the U.S. of closing its borders: a computable general equilibrium analysis', Defence and Peace Economics, Vol. 22(1), February 2011, pp. 85-97.
Keywords: border closure, strategic reserves, bottleneck imports, dynamic CGE.
Working Paper Number G-184 can be downloaded in PDF format.
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