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Trade restrictions with imported intermediate inputs : When does the trade balance improve?

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  • Lopez, Ramon E.
  • Rodrik, Dani

Abstract

The author's model demonstrates that when imports are predominantly intermediate inputs - as they are in most developing countries - import restrictions can not always be relied upon to improve the trade balance. Such restrictions act as a supply shock to the economy. Unless nontraded goods are intensive users of imported intermediaries, the general equilibrium consequence of import restrictions is a large enough reduction in export supplies to swamp the direct effect of the restrictions. The result is a deterioration of the trade balance.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 34 (1990)
Issue (Month): 1-2 (November)
Pages: 329-338

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Handle: RePEc:eee:deveco:v:34:y:1990:i:1-2:p:329-338

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  1. Svensson, Lars E O & Razin, Assaf, 1983. "The Terms of Trade and the Current Account: The Harberger-Laursen-Metzler Effect," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 97-125, February.
  2. Obstfeld, Maurice, 1982. "Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect?," The Quarterly Journal of Economics, MIT Press, vol. 97(2), pages 251-70, May.
  3. Razin, Assaf & Svensson, Lars E. O., 1983. "Trade taxes and the current account," Economics Letters, Elsevier, vol. 13(1), pages 55-57.
  4. Charles Engel & Kenneth Kletzer, 1986. "Tariffs, Saving and the Current Account," NBER Working Papers 1869, National Bureau of Economic Research, Inc.
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Cited by:
  1. Jiandong Ju & Kala Krishna, 2005. "Firm behaviour and market access in a Free Trade Area with rules of origin," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 290-308, February.
  2. Ju, J. & Krishna, K., 1996. "market Access and Welfare Effects of Free Trade Areas without Rules of origin," Papers 2-96-1, Pennsylvania State - Department of Economics.
  3. Jiandong Ju & Kala Krishna, 1997. "Market Access and Welfare Effects of Piecemeal Policy Reform," NBER Working Papers 6294, National Bureau of Economic Research, Inc.
  4. Sajal Lahiri & Anjum Nasim, 2005. "Commercial Policy Reform in Pakistan: Opening up the Economy under Revenue Constraints," International Tax and Public Finance, Springer, vol. 12(6), pages 723-739, November.
  5. Lahiri, Sajal & Nasim, Anjum & Ghani, Jawaid, 2000. "Optimal second-best tariffs on an intermediate input with particular reference to Pakistan," Journal of Development Economics, Elsevier, vol. 61(2), pages 393-416, April.
  6. Lensink, Robert, 1995. "Foreign exchange constraints and developing countries," Economic Modelling, Elsevier, vol. 12(2), pages 179-191, April.

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