Devaluation versus Import Restriction as an Instrument for Improving Foreign Trade Balance

Abstract

FOR ANY COUNTRY or trading area except a very small one, a devaluation can generally be expected to bring a decline in the foreign price of its exports. If, instead of devaluing, a country should achieve the same improvement in its foreign trade balance by a restriction of imports, whether through a tariff or by quantitative restrictions, the foreign price of its exports would not fall significantly.' Consequently, the value of exports and imports that must be sacrificed in order to achieve a given improvement in the foreign balance through devaluation exceeds, for such a country or trading area, the value of the imports that must be sacrificed in order to achieve an equal improvement of the foreign balance through import restriction or a tariff. If, then, the welfare value of a dollar's worth 2 of imports is equal to the welfare value of a dollar's worth of exports, it costs the country less to use import restriction rather than devaluation as an instrument for improving the foreign balance, subject to the qualifications mentioned below.