Protective Trade Policies 'Reduce' Employment: A Dynamic Optimization Approach

22 Pages Posted: 2 May 2006

See all articles by Yoshiyasu Ono

Yoshiyasu Ono

Osaka University - Institute of Social and Economic Research (ISER)

Date Written: April 2006

Abstract

Using a competitive two-country two-commodity monetary model with optimizing agents in which persistent unemployment arises, this paper examines the effects of trade restrictions on consumption and employment in the two countries. When facing unemployment, a country tends to impose an import restriction so that domestic firms will increase production and raise employment. However, this policy improves the current account and hence its currency appreciates, causing its products to lose international competitiveness. Therefore, employment and consumption eventually decrease in the country while in the foreign country its currency depreciates and hence employment and consumption increase.

Keywords: persistent unemployment, trade restrictions, exchange-rate adjustment, dynamically optimizing agents

JEL Classification: F13, F41, F42

Suggested Citation

Ono, Yoshiyasu, Protective Trade Policies 'Reduce' Employment: A Dynamic Optimization Approach (April 2006). ISER Discussion Paper No. 659. Available at SSRN: https://ssrn.com/abstract=900041 or http://dx.doi.org/10.2139/ssrn.900041

Yoshiyasu Ono (Contact Author)

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

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