Shortages of Critical Goods in a Global Economy

Fernando Leibovici and Ana Maria Santacreu

No 2637, Working Papers from Federal Reserve Bank of Dallas

Abstract: This paper studies shortages of critical goods in an open economy with credit market frictions and the role of trade and industrial policy in mitigating them. We develop a dynamic model with essential and non-essential goods, heterogeneous households and concentrated firm ownership. When global demand for essential goods rises, leverage-dependent borrowing premia lead firms to underinvest, and trade amplifies domestic shortages as producers shift supply toward exports. Calibrated to the U.S. during COVID-19, we show that export taxes, import subsidies and production subsidies can mitigate shortages and raise welfare. The effectiveness of financial support depends on its design and funding.

Keywords: shortages; critical goods; trade policy; industrial policy (search for similar items in EconPapers)
JEL-codes: F10 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2026-10-30
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddwp:104008

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DOI: 10.24149/wp2637

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