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w]), the marginal rate of transformation between importables and exportables is given by [p.
protection in this economy steady so that the price of importables (i)
In an aggregative model of international trade, the price and volume of imports are determined by the relations of supply and demand for importables at home and abroad, while the price and volume of exports are determined by the relations of supply and demand for exportables abroad and at home.
i], in turn, may be interpreted as excess demand for importables and supply of exportables, respectively, in the domestic country.
At the same time the initial reforms for exportables took place, importables lost their tariff and nontariff protection.
Let us then consider the scenario emerging after just 12 months from now when the highest rate of tariff will be brought down to 35%, meaning all types of finished good will be importable at the maximum rate of 35%, or less.
1 "The limits within which the [relative price or exchange ratio between importables and exportables] is confined, are the ratio between their costs of production in the one country, and the ratio between their costs of production in the other" ([1844] 1968, p.
ij] represents how the output of importables of good i responds to changes in the domestic price of good j.
Factor intensities for exportables and importables are given in Table 3 with industry details given in the Appendix.
If capital inflow is utilised in the importables then RER will not be affected.
The imposition of the tariff raises the real wage of the factor used intensively in the production of importables, and lowers the real wage of the other factor, both relatively and absolutely.
Such policies include: (i) not-fully-credible trade liberalizations and price stabilization programs, which are likely to induce a consumption boom and increase international indebtedness in the short run, or (ii) tariff cuts under downward price rigidity, which induce (temporarily) excessively high prices of domestic goods and, hence, a current account deficit on the expectations that the relative price of importables with respect to domestic goods will increase over time.