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A Trade Policy Perspective On Import Quotas And The Substitution Effect

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  • Cadogan, Godfrey

Abstract

This paper focuses on the necessary conditions required in order to exploit the substitution effect which arises when there is a shift in demand induced by import quotas under imperfect competition. The protective policy succeeds if the substitution effect shifts in favor of goods produced by the domestic industry and this shift offsets foreign firms quota rents and the decrease in consumer welfare. While extant literature tends to focus on welfare loss associated with import quotas, in this paper social welfare analytics are produced and a trade policy decision rule for net welfare gain is obtained.

Suggested Citation

  • Cadogan, Godfrey, 2010. "A Trade Policy Perspective On Import Quotas And The Substitution Effect," MPRA Paper 25862, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:25862
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    File URL: https://mpra.ub.uni-muenchen.de/25862/1/MPRA_paper_25862.pdf
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    References listed on IDEAS

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    3. Horst Raff & Joachim Wagner, 2010. "Intra‐industry Adjustment to Import Competition: Theory and Application to the German Clothing Industry," The World Economy, Wiley Blackwell, vol. 33(8), pages 1006-1022, August.
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    6. Epple, Dennis, 1987. "Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions for Differentiated Products," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 59-80, February.
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    More about this item

    Keywords

    Import quota; social welfare; substitution effect; trade policy decision rule.;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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