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Adjustment Costs and Rational Expectations: An Application to a Tobacco Export Model

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  • George P. Zanias

Abstract

The effect of adjustment costs on international trade has been captured in an ad hoc fashion in past analysis, whereas a certainty environment is many times assumed. In this article adjustment costs are explicitly considered in the modeling procedure of tobacco exports from Greece, and rational expectations are introduced. The results are consistent with considerable price competition, and a large difference between immediate and long-run responses, due to adjustment costs, that explain in part the evolution of tobacco exports from Greece and suggest that higher elasticities might be found in international trade if adjustment costs are properly treated.

Suggested Citation

  • George P. Zanias, 1987. "Adjustment Costs and Rational Expectations: An Application to a Tobacco Export Model," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 69(1), pages 22-29.
    • Handle: RePEc:oup:ajagec:v:69:y:1987:i:1:p:22-29.
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    File URL: http://hdl.handle.net/10.2307/1241302
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    Cited by:

    1. Daniel Pick & Carlos Arnade & Utpal Vasavada, 1995. "Technology gaps and trade in agriculture," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 131(3), pages 509-525, September.
    2. Fotopoulos, Christos V., 1995. "A partial adjustment model with rational expectations applied to the goat sector in Greece," Agricultural Economics, Blackwell, vol. 12(2), pages 163-170, August.
    3. Emilio Galdeano-Gómez, 2007. "Composite price expectations: An empirical analysis for the Spanish horticultural sector," Agribusiness, John Wiley & Sons, Ltd., vol. 23(1), pages 57-83.

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