A Dynamic Model with Import Quota Constraints
41 Pages Posted: 5 Mar 2002 Last revised: 27 Dec 2021
There are 2 versions of this paper
A Dynamic Model with Import Quota Constraints
Date Written: January 15, 2010
Abstract
A collapse in international trade following the 2007-08 crisis has underscored many dangers of globalization and renewed interest in trade protectionism, one form of which is import quotas. The analysis of import quotas is predominantly based on a static model, which is unable to capture the fact that a quota is imposed over a period of time. This article develops a continuous-time model that incorporates a more realistic dynamic quota constraint into the workhorse model and argues many traditional results to no longer be valid. In particular, a country may choose to refrain from trade in a quota-protected commodity even when its world price is below the domestic price and the quota is not fully exhausted. Distinct economic behavior prevails 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, the workhorse quota model predicts no economic effects of a quota unless it is binding. Additional factors underlying the quota-protected economy, the quota utilization rate to date and the time remaining till the quota horizon, are identified. Various extensions of the baseline analysis support the robustness of our main conclusions.
Keywords: Quota, International Economics and Finance, Asset Pricing, Integral Constraints
JEL Classification: D51, F13, F30, F40, G12
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Monetary Policy Surprises and Interest Rates: Evidence from the Fed Funds Futures Market
-
Monetary Policy Surprises and Interest Rates: Evidence from the Fed Funds Futures Markets
-
What Explains the Stock Market's Reaction to Federal Reserve Policy?
-
What Explains the Stock Market's Reaction to Federal Reserve Policy?
-
The Effect of Changes in the Federal Funds Rate Target on Market Interest Rates in the 1970s
By Timothy Cook and Thomas K. Hahn
-
The Impact of Monetary Policy on Asset Prices
By Brian P. Sack and Roberto Rigobon
-
The Impact of Monetary Policy on Asset Prices
By Brian P. Sack and Roberto Rigobon
-
Real-Time Price Discovery in Stock, Bond and Foreign Exchange Markets
By Torben G. Andersen, Clara Vega, ...
-
Real-Time Price Discovery in Stock, Bond and Foreign Exchange Markets
By Torben G. Andersen, Clara Vega, ...
-
Real-Time Price Discovery in Global Stock, Bond and Foreign Exchange Markets
By Torben G. Andersen, Clara Vega, ...