The Virtues of Flecibility: Import Dependence and External Shocks
This paper considers how the structure of an open economy determines its flexibility in responding to external shocks. Inter- and intrasectoral reallocation of both expenditures and factors of production are shown to mitigate the consequences of a severe terms-of-trade shock. We demonstrate that the degree of flexibility reulting from these reallocative effects depends partly on intrasectoral differences in import dependence. The paper introduces sectoral heterogeneity by allowing the relative shares of labour and imported inputs used in production to differ across monopolistically competitive industries. Flexibility is shown to be reduced by:(i) low technological diversity, which constrains sectoral heterogeneity and hence the scope of factor reallocation, and (ii) high market power, which curbs expenditure subsitution across different consumption goods in the wake of a shock. The empirical implications of the model are demonstrated using sectoral data from Mexico.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||2000|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (902) 494-2026
Fax: (902) 494-6917
Web page: http://www.economics.dal.ca
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:dal:wparch:2000-6. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.