THE ECONOMIC COSTS TO THE U.S. OF CLOSING ITS BORDERS: A COMPUTABLE GENERAL EQUILIBRIUM ANALYSIS

Abstract

We use a CGE model to simulate the effects of a one‐year US border closure. Relative to previously used input–output modeling, CGE modeling offers a flexible framework for capturing bottleneck and labor‐market effects. Our analysis suggests that the costs of a prolonged closure could be much greater than indicated by input–output studies. We find that cutting all imports by 95% in an environment of sticky real wages would reduce GDP by 48%. However, if bottleneck imports (mainly oil) were exempt and workers accepted real wage cuts then the GDP reduction would be only 11%.