Abstract
This paper focuses on the role of trade composition in the transmission of external price disturbances. It is shown that the effects of an increase in the price of imports on domestic prices and the trade balance crucially depend on the cross price elasticity of demand in the case of final goods and the elasticity of substitution between factors in the case of intermediate goods. In the case of an input such as oil, where the elasticity of substitution between imported and domestic factors of production is less than unity, an increase in its price will give rise to a balance-of-trade deficit but will have ambiguous effects on domestic prices.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
