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The Modus Operandi of Protection

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  • H. W. ARNDT

Abstract

The theory of (tariff and exchange‐rate) protection usually assumes that imports and domestic substitutes sell at the same price and that exceptions to the ‘law of one price’ are due to imperfect substitutability. This article discusses the implications for the modus operandi of protection of the divergence between the prices of imports and of their domestic substitutes. It argues that the extent of this divergence will depend on imperfect price flexibility as well as imperfect substitutability. Whereas under ‘flex‐price’ conditions, protection in the first instance merely redistributes income and changes market shares, output and employment only with a lag, protection under ‘fix‐price’ conditions immediately affects market shares and (subject to inventory changes) output and employment.

Suggested Citation

  • H. W. Arndt, 1979. "The Modus Operandi of Protection," The Economic Record, The Economic Society of Australia, vol. 55(2), pages 149-155, June.
    • Handle: RePEc:bla:ecorec:v:55:y:1979:i:2:p:149-155
    DOI: 10.1111/j.1475-4932.1979.tb02214.x
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    References listed on IDEAS

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    1. Richardson, J. David, 1978. "Some empirical evidence on commodity arbitrage and the law of one price," Journal of International Economics, Elsevier, vol. 8(2), pages 341-351, May.
    2. Kravis, Irving B. & Lipsey, Robert E., 1978. "Price behavior in the light of balance of payments theories," Journal of International Economics, Elsevier, vol. 8(2), pages 193-246, May.
    3. W. M. Corden, 1978. "Expansion of the World Economy and the Duties of Surplus Countries," The World Economy, Wiley Blackwell, vol. 1(2), pages 121-134, January.
    4. Corden, W. M., 1971. "The substitution problem in the theory of effective protection," Journal of International Economics, Elsevier, vol. 1(1), pages 37-57, February.
    5. Norman, Neville R, 1975. "On the Relationship between Prices of Home-Produced and Foreign Commodities," Oxford Economic Papers, Oxford University Press, vol. 27(3), pages 426-439, November.
    6. Isard, Peter, 1977. "How Far Can We Push the "Law of One Price"?," American Economic Review, American Economic Association, vol. 67(5), pages 942-948, December.
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    Cited by:

    1. Ross Garnaut, 1991. "Exchange Rate Regimes in the Asian‐Pacific Region," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 5(1), pages 5-26, March.
    2. Jacqueline Dwyer & Christopher Kent, 1993. "A Re-examination of the Determinants of Australia’s Imports," RBA Research Discussion Papers rdp9312, Reserve Bank of Australia.

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