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A Dynamic Model with Import Quota Constraints


  • Basak, Suleyman
  • Pavlova, Anna


This Paper develops a continuous-time two-sector model to study the economic effects of an import quota during the period of time over which it is imposed. One of the sectors is protected by a quota, which in our set-up manifests itself as an integral constraint on the flow of imports of the protected commodity. In sharp contrast to the existing literature, our small open economy exhibits distinctly different economic behaviour depending on whether the country is importing the protected good, exporting it or refraining from trade in it. The domestic price of the protected good exceeds the world price in import and no-trade regions, even when the quota is underutilized – in contrast, existing work predicts no economic effects of a quota unless it is binding. Within a general equilibrium world economy consisting of one quota-constrained and one unconstrained country, under logarithmic preferences, the constrained country becomes wealthier at the expense of the unconstrained. Moreover, the stock price of the protected industry increases in the quota-constrained and decreases in the unconstrained country.

Suggested Citation

  • Basak, Suleyman & Pavlova, Anna, 2002. "A Dynamic Model with Import Quota Constraints," CEPR Discussion Papers 3414, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3414

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    References listed on IDEAS

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    More about this item


    asset pricing; integral constraints; international economics and finance; quota;

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F30 - International Economics - - International Finance - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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