1]) on the exportable imposed by the CIA constraint is higher than that on the importables
price ratio of importables
to exportables (i/x) falls: a terms of trade gain to the developing country.
Closing the model would require specifying a number of market clearing conditions, including the saving and investment equations for the world economy; and the world market clearing conditions for each importable
and exportable good.
Within the agricultural sector, direct policies tended to tax exportables, protect importables
, and partially compensate for indirect discrimination through input subsidies.
Domestic and world price vectors of the importable
goods are represented by p[prime] = ([p[prime].
are more capital intensive than exportables and the margin has widened over the period.
If countries follow import substitution policies, prices of importables
would be higher resulting in higher wages and higher prices of nontradeables also.
As real income increases, however, the production of importables
also increases and it could increase faster than consumption so as to reduce the volume of imports (Magee ).
Notice that a tightening of the quota (a decrease in Q) reduces the consumption of the importables
Terms of trade can be represented by the relationship of the external relative price of exportables to importables
Net capital inflows, which are spent on importables
would have no effect on the real exchange rate directly.
Brecher and Bhagwati |3~ demonstrated that when foreign capital is completely sluggish, it would be possible that a tariff reduces the national welfare, if importables
are labor intensive, and nationals are capital abundant.