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Discussion Paper Details

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Title: Terms of Trade Shocks and Domestic Prices under Tariffs and Quotas: A Note

Author(s): Konstantine Gatsios

Publication Date: October 2000

Keyword(s): Import Restrictions, Terms of Trade and Variable Labour Supply

Programme Area(s): International Trade and Regional Economics

Abstract: The paper develops a two-good, small country, general equilibrium trade model with endogenous labour supply, where trade is restricted by a tariff or an import quota. Within this framework, it is shown that, contrary to Anam (1989), under an import quota domestic and world prices may vary in the same direction. This is due to the possible positive employment effects of terms of trade shocks. In such a case, compared to fixed labour supply, variable labour supply is likely to make the domestic prices less sensitive to foreign price volatility.

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Bibliographic Reference

Gatsios, K. 2000. 'Terms of Trade Shocks and Domestic Prices under Tariffs and Quotas: A Note'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2593