Determinants of the demand for imports of Venezuela

In this study we use disaggregated annual data to estimate real income and relative price elasticities of demand for imports of Venezuela. After comparing our estimates with those of previous studies, we conclude that (1) Venezuela has made progress in developing domestic substitutes for imports, and (2) the degree of ‘openness’ in Venezuela increased after 1961. We also find evidence that during the period 1974–1979, the increase in the market value of Venezuela's oil reserves led to an increase in all categories of imports.     

Local Manufacturing Hurt by Depreciations in a Theoretical Model Reflecting the Australian Experience

The model is motivated by data showing that the Australian production of local manufactures is hurt by depreciations and invigorated by appreciations. The paper briefly presents such evidence and then proceeds to a theoretical analysis. The model aims to capture short‐to‐medium run exchange rate effects in an economy with goods and services aggregated into four commodities: (i) imports; (ii) local manufactures; (iii) services; and (iv) rural goods (agricultural, pastoral, forestry, fishing and mining products). With the exception of rural goods, each commodity comprises consumer goods as well as inputs into the other sectors. Rural goods enter consumption only indirectly after processing by the manufacturing sector. Exports are exclusively rural goods. The model has a Keynesian flavour in that the production of local manufactures and services is not constrained by the availability of resources and of labour. Variable inputs per unit of output are assumed to be constant. There are also fixed inputs. Variable inputs are imports in the case of the import sector; rural goods and imports in the case of the local manufacturing sector; and labour in the case of the services sector. The prices of imports, local manufactures and services are set by constant mark‐up factors on variable costs. This assumption is based on a picture of imperfect competition with constant elasticity of demand at the firm level. The extreme capital intensity of rural goods production is taken into account by modelling total production of rural goods as an exogenous parameter. The price of rural goods is determined in the export market. It falls with increasing exports. The economy is not assumed to be small in its export market. The domestic consumption demand schedule is modelled as predetermined in the sense that in the time span under consideration the relationship between quantities consumed and nominal prices is not affected by the exchange rate. The nominal wage rate is assumed to be predetermined in the same sense. No specific functional form is imposed on the consumption demand schedule: the analysis is based on general assumptions, mainly non‐inferiority and gross substitutability. In view of gross substitutability, there is a competitive relationship between imports and local manufactures. Adepreciation raises the price of imports and ceteris paribus such an increase raises the consumption of manufactures. However, the analysis shows that this enhancing influence of a depreciation on manufacturing is weaker than other causal channels that work in the opposite direction. An increase in the price of imports (and exportables) raises variable costs and thereby the price of local manufactures. This leads to a decrease in the output of local manufactures. In the course of the analysis, it is first shown that a uniquely determined equilibrium exists for every exchange rate above a lower bound. Then the effects of a change in the exchange rate are investigated. In most cases the results are unambiguous. In particular this is true for the output and the price of local manufactures. Other conclusions are that a depreciation increases exports and the amount of services provided. In some cases unequivocal results can be obtained only with the help of further assumptions. This concerns the domestic price of rural goods, the balance of trade in domestic prices and import penetration.     

THE MORISHIMA ELASTICITY OF SUBSTITUTION FOR THE VARIABLE PROFIT FUNCTION AND THE DEMAND FOR IMPORTS IN THE UNITED STATES*

In this article, I derive expressions for the Morishima elasticities of substitution (MES) for the variable profit function and estimate these elasticities to shed some light on the substitutability between imports, capital services, and labor services. The results reveal that capital services and imports are Morishima substitutes, irrespective of whether the price of capital services or imports changes, and imports and labor services are also Morishima substitutes, irrespective of whether the price of imports or the wage rate changes. Thus, an increase in the price of U.S. imports (through tariffs or duties) will result in substitution (in the Morishima sense) into labor and capital services.     

A concentration index for differentiated products: the case of religious competition

In the past, scholars have used a Herfindahl–Hirschman Index using denominational market shares to measure the competitiveness of religious markets. However, this approach ignores both the imperfect substitutability between denominations and the degree of competition within denominations. These two shortcomings make the current index a suspect measure of religious competition; it often falsely identifies which market micro-economists would generally consider the more competitive one. We develop a new religious competition index that incorporates intra-denominational competition and creates a ‘substitutability parameter’ to better specify the appropriate degree of inter-denominational competition. While the model developed in this article applies specifically to religious markets, our index of competition could be expanded to other economic markets where such a substitutability parameter is meaningful.     

Shipping the good fish out? An empirical study on the EU seafood imports under the EU’s Generalized System of Preferences

The impact of the EU (European Union) Generalized System of Preference (GSP) on the relative EU’s demand for seafood quality was evaluated in the study. We first explored the theoretical Alchian–Allen result of change in ad valorem tariffs in an n–good world, and then tested this result in the empirical study. The theoretical analysis suggests that whether a reduced ad valorem tariff in an n–good case raises the relative demand for high-value goods depends not only on the substitutability between high-value and low-value goods but also on the substitutability between these similar goods with their weak substitutes. In the empirical sections, we first estimated the elasticities of the substitutions and then used these elasticities to evaluate the quality composition of the EU’s seafood imports from the beneficiary countries. The empirical results in general confirm the occurrence of ‘shipping the good fish out’ due to the reduced tariff rates under the EU’s GSP arrangements.     

EXCHANGE RATE PROBLEMS IN NATIONAL ACCOUNTING OF DEVELOPING COUNTRIES*

Developing countries which typically have import surpluses and inflationary pressures because of insufficient savings are prone to use indirect taxes on imports (Tm) and subsidization of exports (Sx) in order to prevent deterioration of the balance of trade. If these substitutes for devaluation are included in the net indirect tax component of product at current market prices (Ym) the import surplus is likely to be understated, and Ym upward biased. This distortion will be avoided if imports and exports are measured at effective exchange rates (ER), that is, at official rates (OR) plus Tm and Sx respectively, and if (Tm - Sx) is deducted from the net indirect tax component of Ym. Only in this manner become imports and exports consistent with the other uses and resources at market prices and can be articulated with them. At base-year prices the volume index of product at OR diverges from that of ER to the degree that the composition of imports and exports in regard to tax and subsidy rates computed ad valorem significantly changes. Such a case is similar to that of the price indexes of imports and exports moving in diverging proportions: the trade balance at base-year prices will differ from that at current prices. The resulting discrepancies in national accounts have led to proposals of deflating, for example, exports by the price index of imports. Suchlike approaches are incompatible with the principle of national accounting that prices are supposed already to measure substitution values. Deflating exports by import prices means reintroducing substitution values, as does, for example, deflation of incomes by a consumer price index. Correspondingly, since the trade balance at ER conceptually expresses the value of imports at domestic market prices as compared to the corresponding domestic market value of exports, and if at ER the trade balance diverges from that at OR, the former balance has an important meaning (as has the trade balance at base-year prices as compared to that at current prices) and the resulting discrepancy between the two measures should not be removed merely for the sake of accounting smoothness. In contrast to the market price approach, the measurement of product at base-year factor cost is indifferent to the measurement of the trade balance at ER and at OR. It is, therefore, proposed in countries in which part of import taxation and export subsidization substitutes for devaluation, to record imports and exports in the national accounts at effective exchange rates, and to correct the net indirect tax component of product correspondingly. Imports and exports at official exchange rates should be shown within the balance of payments, and the latter separately as a memorandum item.     

Welfare‐Worsening Aid Flows To Small Countries: The Role of Nontraded Goods

This paper presents the circumstances under which foreign aid can immiserize a small, tariff‐distorted economy, highlighting the role played by the nontraded sector in generating this outcome. An inflow of aid, provided in the form of an increase in the capital stock, can reduce real income of a small, tariff‐distorted economy if: (i) the inflow results in an increase in the price of the nontraded good and the nontraded good and imports are sufficiently strong complements in demand; or (ii) if the inflow leads to a reduction in the price of the nontraded good and the nontraded good and imports are substitutes in demand, provided the degree of substitutability is not too large.     

European Integration and Production in the French Economy

Effects of greater European integration on the French economy are explored with an aggregate cost function. Input direct price elasticities are inelastic, but greatest (absolute value) for capital and lowest for imports. Cross-price elasticities suggest inputs are substitutes and are higher for domestic inputs than domestic input and imports pairs. As trade restrictions fall, effects on domestic input demand may increase as substitution elasticities rise. Inverse output supply price elasticities indicate domestic input prices are relatively important factors affecting consumption goods prices and import prices more important for investment goods. Thus, import price decreases may stimulate investment and growth. (JEL F14 , O10 , O12 )     

谈中国石油进口定价权缺失及对策建议

随着中国经济的迅速发展,石油进口量不断攀升,而中国在国际石油市场上微乎其微的价格话语权与自身石油大买家的地位极不相称。石油进口不可避免地面临着国际石油市场价格动荡局面下的价格风险以及相对进口价格较高的被动局面。什么原因导致了中国石油进口价格的困境,如何解决这一问题成为中国石油进口面临的一个重要课题。针对国内石油市场现状,从石油进口成本出发,分析了中国石油进口定价权缺失的原因,并探讨了相应对策。     

The LeChatelier principle: the long and the short of it

Summary. Using ordinary calculus techniques, we investigate the conditions under which LeChatelier effects are signable for finite changes in parameter values. We show, for example, that the short run demand for a factor is always less responsive to price changes than the long run demand, provided that the factor of production and the fixed factor do not switch from being substitutes to being complements (or vice versa) over the relevant range of the price change. The absence of a sign change in the complementarity/substitutability relation holds under conditions that are considerably more general than supermodularity of the production function.     

Input-output anatomy of import elasticities

The elasticity of imports with respect to final demand, calculated from the 1964 and 1970 input-output tables for Austria, is equal to 1.35. Input-output analysis makes it possible to show how the value of the import elasticity is related to following structural changes: i) Changes in the shares of final demand components (i.e. of consumption, capital formation and exports) on total final demand; ii) changes in the pattern of final demand components; iii) changes in the technology matrix; iv) substitution of domestic output by imports in the final demand; and v) substitution of the domestic output by imports in the intermediate demand.     

Skilled labor, unskilled labor, and economic growth

We study a growth model in which workers with different skill levels are imperfect substitutes. We show that economies with high substitutability between skilled and unskilled workers have high levels of capital, output, and a high proportion of skilled workers.     

Foreign exchange controls in a black market economy

An investigation of the impact of foreign exchange controls in a black market economy is undertaken within the context of a choice-theoretic cash-in-advance general equilibrium model. While such controls may improve a ‘distortion-free’ economy's trade balance and balance of payments they are found to increase the domestic price of imports and lower the country's welfare. The ramifications of black market for economic welfare turn out to be ambiguous, depending crucially on the government's reaction to the leakage of foreign exchange into the economy via illegal activity.     

Calculating the welfare costs of import restrictions in the imperfect substitutes model

This paper supplies equations for partial-equilibrium calculations of the welfare effects of tariffs and quotas when the imported good and the competing domestic good are imperfect substitutes in demand. The equations take into account the response of the price of the domestic substitute. Although other studies have acknowledged this response, they have failed to account for it in their welfare calculations. To demonstrate the importance of this response, it is shown how it affects the calculations for the welfare costs of tariffs and quotas on US imports of footwear. It is shown that ignoring the response of domestic prices leads to significant overstatement of the welfare costs of tariffs and significant understatement of the welfare costs of quotas for the industry.     

Extreme dependence in price transmission analysis

We propose a generalized procedure that combines conventional price transmission analysis with copula-based dynamic tail dependence, to examine price relationships under extreme conditions. This approach is used to examine Ukrainian wheat markets where export restrictions combined with price surges, 2006–2008 and 2010–2012, have contributed to a turbulent market. The results indicate that domestic prices were effectively insulated from world price shocks, but that a ‘rocket and feathers’ price relation held between domestic flour and wheat prices. These asymmetric price co-movements changed with the degree of restrictiveness of the export prohibitions.     

A Partial Equilibrium Analysis of Trade with Decreasing Transport Costs

Decreasing transport costs are incorporated in the standard partial equilibrium analysis of trade by allowing the divergence—introduced by transport costs—between export and import price to decrease with the volume of trade. When the excess demand (supply) curve is steeper than the long run average cost curve for imports (exports), we observe that an import (export) tariff raises (lowers) the domestic price by an amount exceeding the tariff. Further, when the excess demand (Supply) curve is less steep than the long run average cost curve for imports (exports), the possibility exists that an import (export) tariff may lower (raise) the domestic price. These results lead to the important conclusion that tariffs cannot be used as measures of nominal protection across industries. [F10]     

Technological Upgrading under Tariffs and Equivalent Quotas*

This paper compares the effect of tariffs and that of equivalent quotas on the domestic firm’s production technology choice when it competes with a foreign firm in the domestic market. It is shown that under Bertrand price competition, the ranking of technology under tariff protection and quota protection is ambiguous, as it depends on the relative strength of the strategic vs output effects. The equivalent quota regime can generate a higher‐technology (implying a lower production cost) choice than the tariff regime if the strategic effect dominates the output effect. In contrast, the technology level is necessarily higher under the tariff regime than under the equivalent quota regime when the firms engage in Cournot quantity competition.     

Semicollusion vs. Full Collusion: The Role of Demand Uncertainty and Product Substitutability

We examine the profitability of two different cartel organizational forms: full collusion, under which firms collude on both price and quality, and semicollusion, under which firms collude on price only. We show that, in the presence of demand uncertainty that cannot be contracted upon in the cartel agreement, firms may be better off limiting their collusive agreement to price only. However, a positive relationship between demand uncertainty and the relative profitability of semicollusion exists only for low levels of demand substitutability. The converse is true for high levels of demand substitutability. Therefore, if demand substitutability is sufficiently high, no level of demand uncertainty will make semicollusion the optimal organizational form. In contrast, semicollusion is guaranteed to be optimal for a sufficiently low level of demand substitutability. The market structure described is motivated by and closely parallels that of shipping cartels. Received September 29, 2000; revised version received December 10, 2001 Published online: November 11, 2002     

PERFORMANCE CONTINGENT PROTECTION*

In this paper we ask how to construct a tariff or quota schedule which depends on the behavior of a domestic monopsonistic monopolist in order to achieve the best tradeoff between two objectives of a government. We consider various political and economic tradeoffs which could face the policy maker: aggregate welfare versus industry profits, output and imports; and trade barrier revenue versus industry profits and domestic price. In all cases considered, performance contingent protection which takes the form either of a tariff which depends on domestic output or a quota which depends on the price charged is generally superior to a fixed tariff or quota and is sufficient to achieve optimality.     

‘Thirlwall's Law’ and balance of payments constrained growth: more on the debate

The various criticisms that have levelled against Thirlwall's Law by McGregor and Swales are examined. It is shown that their arguments are untenable. The relationship between the necolassical law of one price and Thirlwall's Law is clarified. Thirlwall's Law is not overwhelmingly rejected by the evidence as McGregor and Swales assert. Their suppression of the influence of the price term on the estimates used in the test proposed by McCombie is inappropriate. Their regression analyis is also mid-specified and a preferable specification provides no support for their conclusions. They repeatedly argue that Thirlwall's modele cannot account for changes in market shares and the that the estimated income elasticities of demand for exports and imports cannot capture the effects of non-price competition. This was shown to be erroneous by McCombie and the reasons advanced are further elaborated. McGregor and Swales provide another interpretation of the relationship between Thirlwll's Law and the Harrod foreign trade multiplier, But their criticism of McCombie is unwarranted. The methodology of McGregor and Swales seems to be one of ‘naive falsificationism’.