Working Paper: CEPR ID: DP2593
Authors: Konstantine Gatsios
Abstract: 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.
Keywords: import restrictions; terms of trade; variable labour supply
JEL Codes: F10; F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| terms of trade shocks (F14) | domestic prices (P22) |
| variable labor supply (J20) | domestic prices (P22) |
| terms of trade shocks (F14) | employment effects (J65) |
| employment effects (J65) | domestic prices (P22) |
| import quota (Y60) | domestic prices (P22) |
| import quota (Y60) | world prices (P22) |