Transfer effect of import and export prices changes into the prices of home market: Methodical aspects

M. G. Prokopyev ()

Economics of Contemporary Russia, issue 3

Abstract: Methodical aspects of import and export prices changes on the prices of the home market in conditions as imperfect substitution, and the imperfect transformation are considered. The key parameters determining the degree of impact on home price changes in external prices: price elasticity of domestic manufacturer in case of change of import price and price elasticity of domestic manufacturer in case of the export price changes proved. The factors determining values of these parameters are considered. The one-sector model of partial equilibrium which from the demand side includes Armington approach, respectively the supply side is presented by CET-function (constant elasticity of transformation) is the basis for the research. Model under certain assumptions and prerequisites, allows us to estimate the effect of the «perturbations» exogenous parameters of model (import tariffs, subsidies and export duties, as well exchange rate) to the equilibrium (base) values of the internal prices. Special attention is paid to the extent to which imported and domestic goods of one commodity group substitute each other in the domestic market, as well as the degree of transformation of domestic products between domestic and foreign markets. In this connection, were considered the relationships between elasticity of the producer price when the import price and the substitution elasticity of Armington are changed, as well as the elasticity of the producer's price when the export price and the elasticity of the transformation are changed. Regardless rather strong prerequisites and limitations, this model can be a useful tool for analyzing the impact of tariff and customs policy on the markets of single commodity groups and sectors of the economy, allows estimating the percentage changes in the volume of sales of domestic products on the domestic market in result changes in import and export prices.

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