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


  • Gatsios, Konstantine


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.

Suggested Citation

  • Gatsios, Konstantine, 2000. "Terms of Trade Shocks and Domestic Prices under Tariffs and Quotas: A Note," CEPR Discussion Papers 2593, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2593

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    References listed on IDEAS

    1. Michael S. Michael, 1992. "International Factor Mobility, Non-traded Goods, Tariffs, and the Terms of Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 25(2), pages 493-499, May.
    2. Martin, John P. & Neary, J. Peter, 1980. "Variable labour supply and the pure theory of international trade : An empirical note," Journal of International Economics, Elsevier, vol. 10(4), pages 549-559, November.
    3. Anam, Mahmudul, 1989. "Terms of trade shocks and domestic prices under tariffs and quotas : A note," European Economic Review, Elsevier, vol. 33(6), pages 1279-1282, July.
    4. Neary, J Peter, 1978. "Capital Subsidies and Employment in an Open Economy," Oxford Economic Papers, Oxford University Press, vol. 30(3), pages 334-356, November.
    5. Takayama,Akira, 1985. "Mathematical Economics," Cambridge Books, Cambridge University Press, number 9780521314985, March.
    6. Martin, John P, 1976. "Variable Factor Supplies and the Heckscher-Ohlin-Samuelson Model," Economic Journal, Royal Economic Society, vol. 86(344), pages 820-831, December.
    7. Dasgupta, Partha & Stiglitz, Joseph E, 1977. "Tariffs vs . Quotas as Revenue Raising Devices under Uncertainty," American Economic Review, American Economic Association, vol. 67(5), pages 975-981, December.
    8. Mayer, Wolfgang, 1991. "Endogenous labor supply in international trade theory : Two alternative models," Journal of International Economics, Elsevier, vol. 30(1-2), pages 105-120, February.
    9. Krueger, Anne O., 1984. "Trade policies in developing countries," Handbook of International Economics,in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 11, pages 519-569 Elsevier.
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    More about this item


    Import Restrictions; Terms of Trade; Variable Labour Supply;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations


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