SHORT‐RUN TRADE SURPLUS CREATION IN A TWO‐SECTOR SETTING

Takakazu Honryo and Makoto Yano

The Japanese Economic Review, 2006, vol. 57, issue 4, 476-482

Abstract: This study investigates the effect of the suppression of competition in the domestic non‐tradable sector on a country's trade balance in a small open economy. Using a two‐sector model, this study demonstrates that the effect on the trade balance of such a suppression depends on the sector on which the policy is imposed. This result sharply contrasts with Yano's result in a one‐sector model demonstrating that such a policy unambiguously creates a trade surplus in the short run.

Date: 2006
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