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Protection and Exchange Rates in a Small Open Economy

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  • John S. Chipman

Abstract

In a small‐open‐economy model with two tradables and one nontradable, if a price index of these three goods is stabilized and the exchange rate is flexible, conditions are obtained in the cases of two and of three or more factors for an export subsidy or an import tariff to result in currency appreciation. In the case of three or more factors, conditions are obtained under which either an export‐subsidy or an import‐tariff policy (or a combination) can take the place of a flexible exchange rate in accommodating the necessary resource allocation to an exogenous capital outflow, generalizing Keynes’s 1931 proposition.

Suggested Citation

  • John S. Chipman, 2007. "Protection and Exchange Rates in a Small Open Economy," Review of Development Economics, Wiley Blackwell, vol. 11(2), pages 205-216, May.
    • Handle: RePEc:bla:rdevec:v:11:y:2007:i:2:p:205-216
    DOI: 10.1111/j.1467-9361.2007.00399.x
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    Cited by:

    1. Staiger, Robert W. & Sykes, Alan O., 2010. "‘Currency manipulation’ and world trade," World Trade Review, Cambridge University Press, vol. 9(4), pages 583-627, October.
    2. Jing Fang, 2018. "Country Size and Strategic Trade Policy: A Model of a Dominant Country Facing a Competitive Fringe," Annals of Economics and Finance, Society for AEF, vol. 19(1), pages 279-300, May.

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