Protectionism and real wage rigidity: A discussion of the macroeconomic literature

The paper discusses the macroeconomic literature on the relationship between real wage rigidity and the case for protectionism. First, it gives an account of the analytical arguments that lie behind the protectionist position of the Cambridge Economic Policy Group (CEPG). Then, it provides a critical appraisal of the model of the CEPG; the discussion is focused on its supply side, on the role it assigns to financial markets as well as on the issue of retaliation. Finally, the paper considers and evaluates the subsequent work by Eichengreen, which incorporates aggregate supply and wealth effects into the CEPG analysis.